Does National Digital Transformation Improve Social Welfare?

Stephen Hawking once said “With the Internet, we have the ability to collaborate and share knowledge on a global scale, opening up new opportunities for learning and discovery. It has been a boon to society and the human race.”

But how much of a boon has digital transformation truly been for society? Can we find quantitative evidence for an overall positive contribution?

Digital transformation refers to the integration of digital technologies into all areas of a business or organization, resulting in fundamental changes to how it operates and delivers value to customers.

At a national level it is commonly asserted that digital transformation can bring significant improvements to social welfare by increasing efficiency, accessibility, and transparency in the delivery of public services. As well as by creating new opportunities for economic growth and social inclusion.

One of the key ways that national digital transformation can improve social welfare is by increasing the efficiency of government operations. By leveraging digital technologies such as cloud computing, big data analytics and automation, governments can streamline processes, reduce errors, and make better use of resources.

This can lead to cost savings for taxpayers and a more responsive and effective public sector. For example, the adoption of electronic health records and telemedicine can improve the efficiency and quality of healthcare delivery, while the use of digital platforms for tax collection and benefit payments can reduce administrative costs and improve access for citizens.

Additionally, national digital transformation can also create new opportunities for economic growth and social inclusion.

By investing in digital infrastructure and promoting the development of digital skills, governments can help to create a more favourable environment for innovation and entrepreneurship, as well as provide new pathways for people to enter the labour market or advance their careers. For example, the growth of the gig economy and online platforms has created new opportunities for people to work flexibly or on a part-time basis, while the rise of e-commerce has enabled many small businesses and entrepreneurs to reach a global market for the first time.

Wealth, health and education then. Three dimensions that national digital transformation is touted to boost social welfare and therefore be a boon for the human race. While there are many studies that look at specific case examples that try to measure the positive contributions that digital transformation can make to businesses, telemedicine and smart education, few have tried to look at society as a whole. Largely because it is challenging to comparatively measure different countries on the basis of their social development.

Fortunately, the United Nations publishes their Human Development Index (HDI) on an annual basis across 191 nations. The UN HDI is a statistical tool that measures and compares the social and economic development of countries. It was first introduced by the United Nations Development Programme (UNDP) in 1990 as a way to assess the overall well-being of a country’s population, beyond just economic growth.

The HDI is calculated across three components:

Education: measured by the average number of years of schooling for adults and expected years of schooling for children.

Standard of living: measured by Gross National Income (GNI) per capita adjusted for purchasing power parity (PPP).

The HDI ranges from 0 to 1, with a higher score indicating higher human development. Countries are then categorized into four levels of human development: very high, high, medium, and low.

While deceptively simple, it is widely believed to be a credible measure of overall social development.

The GSMA (a trade body that represents the interests of mobile network operators worldwide) held the Mobile World Congress in Barcelona earlier this month (and Huawei had a big presence there). GSMA’s Connectivity Index is a tool developed by the GSMA that is designed to measure the level and quality of mobile Internet connectivity and ecosystem in different countries around the world.

Figure 1 – GSMA Mobile Connectivity Index and UN HDI Index scores for 2020

The index considers a range of factors that contribute to mobile connectivity, such as the availability and affordability of mobile broadband services, the quality of network infrastructure, and the levels of digital literacy and smartphone adoption in a given area. The aim of the GSMA Connectivity Index is to provide a benchmark for governments, policymakers and businesses to assess their progress in expanding mobile Internet connectivity and to identify areas where further investment or policy intervention may be needed to improve access and usage.

Figure 1 provides a scatter-plot for the world’s largest 80 economies for 2020 for both the UN HDI and the GSMA’s Mobile Connectivity Index. The correlation coefficient between the data sets is high at 0.95. Correlation does not automatically suggest causation however, especially when measured in-year. More socially developed countries are likely to be richer and thus be able to afford and support superior mobile connectivity for their citizens.

Better to test the relationship over time, to see if improvements in mobile connectivity generally match improvements in HDI scores (and across different types of economies). Figure 2 takes the 55 largest world economies (for which data were available), representing over 90% of global GDP. They are a mix of both advanced and emerging markets. We plot the change in scores for each country across the period 2014-2020.

Figure 2 – GSMA Mobile Connectivity Index and UN HDI changes in scores (%) 2014-2020

The correlation coefficient between the two data sets falls to 0.72. It is clear from the plots that some countries do not closely follow the implied trend (Bangladesh’s HDI improvement is way beyond that implied by its Mobile Connectivity Index score change, although high). And of course, many other factors (such as political stability, institutional strength, overall commitment to good governance etc.) will be more important than digital transformation in terms of improving overall social welfare.

But there does seem to be an upward, linear drift to the score changes, hinting that greater digital transformation over the period 2014-2020 may indeed contribute to improved social welfare. As a rule of thumb, a 10% increase in GSMA Mobile connectivity Index score for any given country implies a 1.3% improvement in their UN Human Development score. More research is required.

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Full disclosure – I used Open AI’s Chat GPT to help me write this blog piece, the first time I have done so. It certainly increased my productivity, potentially freeing me-up to do other welfare-improving activities away from the world of work! If used wisely, further enhanced intelligent digital services like Generative AI could certainly be a boon for the human race.

Disclaimer: Any views and/or opinions expressed in this post by individual authors or contributors are their personal views and/or opinions and do not necessarily reflect the views and/or opinions of Huawei Technologies.