Excerpts from Industry Canada’s Background Paper “Canada’s Digital Economy: Moving Forward,” prepared for Industry Canada by Don MacLean
Canada and the Digital Economy
It is important to recognize that the digital economy game has changed significantly in the last year and a half.
- Technology has continued to evolve rapidly, particularly in the areas of Web 2.0 services, user generated content, and mobile Internet access.
- 'Green ICT' has emerged as a major business challenge and opportunity.
- Under the leadership of the Organization for Economic Cooperation and Development (OECD), a comprehensive international plan for transitioning to the digital economy has been established.
- There is a new realization of the changing nature of ICT-enabled innovation and its role in competitiveness and economic growth.
- The global financial crisis and economic downturn have prompted other countries to raise the economic stakes in the digital economy of the future.
Over the past half century, the adoption and application of ICTs have transformed the global economy by creating new sources of wealth and employment, increasing productivity, enabling innovation, enhancing competition, and changing the structure and location of economic activity. ICTs have become a pervasive, general purpose technology that is an enabler across the entire economy. As part of this process new industries have been born, old sectors have declined, skill requirements have changed, and economic power has been redistributed among demographic groups, regions and countries.
The smart devices, high speed networks, services, and applications that make up ICTs have together created a massive online economy typified by companies such as eBay, which is a primary or secondary source of income for more than 1 million people worldwide; Google, which is transforming online business models and the overall structure of the digital economy; and Facebook, which has more than 200 million active users, including more than 7 million in Canada.
The worldwide economic downturn triggered by the global financial crisis that erupted in the second half of 2008 has added to the urgency of moving the digital economy agenda forward – in the short term with 'shovel ready' projects – and in the longer term with initiatives to create 'smart' energy, transportation and building infrastructures, and to use ICTs to improve productivity, competitiveness and environmental sustainability throughout the economy.
(Chair's summary of the findings and conclusions reached at the 57th Session of the OECD Information, Communications and Computer Policy Committee, "Fostering a Networked Recovery")
The ICT sector is one of Canada's technological strengths, performs 40% of Canada's private R&D, employs more than half a million Canadians, and generates 5% of GDP.
(See OECD Information Technology Outlook 2008, chapters 1 & 2, for information on the performance of Canada's ICT sector and business uptake of ICTs relative to other countries.)
ICT enables innovation in the products, services and processes of all industries and economic sectors; the organization, location and nature of work; the structure and operation of markets for goods, services and intangibles; the management of energy, transportation, and building infrastructures; the conduct of scientific inquiry, research and development; and in the general process of commercializing innovation.
Taken together, the many different forms of innovation enabled by ICTs are profoundly transforming the global economy in ways that only a few other general purpose technologies, such as steam power and electricity, have done throughout history – but with a combination of speed, complexity, and global reach not previously seen.
Recent research suggests that to manage this complexity so as to fully benefit from the potential of the digital economy, countries, companies, governments and public institutions need to develop strategies that address the different dimensions of ICT-enabled innovation. Technology, skills, financing, business R&D, and an environment that encourages innovation and rewards entrepreneurship, should all be part of the mix.
ICT adoption and use is the foundation of business innovation in the digital economy. Compared to other advanced economies, Canadian businesses – particularly SMEs – have been slow to adopt ICTs and use them to innovate.
For the past decade, the public Internet and broadband access networks based on cable and digital subscriber line (DSL) technologies have been the main infrastructure underlying the digital economy for SMEs, households and individual consumers. In the decade ahead, there will be major changes in the digital infrastructure.
- Fibre optic technologies, which have long been used in core networks in conjunction with local access technologies such as cable and DSL, are now increasingly deployed as close as possible to homes and SME business locations in order to overcome the limitations of traditional telephone networks and improve the performance of cable systems.
- New wireless technologies, such as third generation cellular and Wi-Max, which can provide high-speed access to mobile users are also beginning to be deployed, and even faster technologies such as LTE are being developed to provide higher transmission speeds and greater capacity.
- The telecommunications industry is developing Next Generation Networks (NGN), which combine the interactive, multi-media capabilities of the Internet with the quality of service and security of traditional telecommunication networks. NGNs are currently deployed in many countries, although the scale and pace of deployment varies.
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Initiatives, such as the US GENI and the EU Future Internet projects, are underway to re-design the Internet with the aim of improving its utility, quality of service and security, while maintaining traditional principles of Internet architecture. (See Global Environment for Network Innovations and The Future Internet for Future Europe)
These new technologies and network architectures will give a significant boost to the digital economy. Deploying them and ensuring that they are accessible and affordable to businesses and residents in all communities will require major investments. These investments will be a major cost of transition to the digital economy. However, as in the case of all investments in infrastructure, the direct and indirect benefits of these investments are likely to far exceed their cost, if they are properly managed.
The online marketplace for goods and services is one of the central features of the digital economy. It is based on a combination of the public Internet, which is accessible to consumers and SMEs, and the private networks or 'intranets' of companies that supply the online marketplace, either directly or through global value chains; the banks, credit organizations and other financial organizations involved in online transactions; and public institutions that participate in the digital economy by offering online services.
- Safety and security – Although providers of Internet services are subject to generally applicable laws and regulations concerning criminal activities, competition and consumer protection, gaps in existing laws and the borderless nature of the Internet have made it difficult for Internet service providers and national governments to successfully address issues such as child pornography, spam, online fraud, identity theft, malware, and distributed denial of service attacks.
- Network stability and reliability – Governments have come to recognize that in the digital economy, the Internet is a Critical National Infrastructure on which economic activity, public services, social well-being and national security increasingly depend. However, the Internet was not designed to play this role and has vulnerabilities in terms of security and quality of service. Cybersecurity is now a major item on the international communications policy agenda.
- Access and competition – In the past couple of years, there has been ongoing debate in Canada and other advanced economies about the relationships between, on the one hand, vertically integrated Internet service providers (i.e. ISPs that own facilities, provide wholesale and retail Internet access, and may also offer Internet content, applications and services), and, on the other hand, their 'upstream' competitors in content, application and service market segments; their wholesale customers; and their 'downstream' retail subscribers.
- Role of regulation – Much of traditional telecommunications and broadcasting regulation spills over to the Internet, not only because of issues such as traffic management and investment, but also because of the evolution of new media. This is raising fundamental questions about the role of regulation. For example, should we move traditional broadcasting regulation towards the more open Internet model? Or should we try to apply more traditional broadcasting regulatory approaches to the Internet? And how should we adapt our intellectual property legislation to the Internet?
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