Peng Wensheng: Four Cold Thoughts on Developing Digital Economy

In the past decade, China's digital economy has developed rapidly. The research of China Information and Communication Research Institute shows that the added value of digital economy has increased from 9.5 trillion yuan of 20 1 1 to 35.8 trillion yuan of 20 19, and its proportion in GDP has increased from 20.3% to 36.2%.

In 2020, COVID-19 epidemic struck, and social isolation highlighted the importance of non-contact technology. Online office, video conference, online teaching and online payment are booming, and the digital economy has played a positive role in hedging the downside risks of the economy.

Recently, Peng Wensheng, a member of the China Financial Forty Forum (CF40), head of the research department of CICC and chief economist, led the completion of the project "Digital Economy in the Next Decade", and conducted an all-round research on the digital economy from the macro-economy, industry and investment dimensions.

This topic believes that at present, digital operation has become an important means for these enterprises to maintain their operations. In order to expand their living space, many enterprises have obviously accelerated the digital strategic layout. A survey of 2,569 enterprises around the world found that this epidemic has advanced the global digitalization process by at least 5-7 years.

"However, such a profound digital revolution is obviously not just a Pareto improvement, and people's views on problems and risks are still very different." Peng Wensheng thinks.

The following contents are extracted from the above research results. The original topic was posted on the official WeChat account "golden eye".

Data is the core factor of production in the era of digital economy. The collection, processing and use of data have obvious economies of scale and network. Low marginal cost or even zero means that the threshold for innovation and entrepreneurship is low, but first-movers can realize and solidify their monopoly position by virtue of their self-enhanced big data advantages.

The author believes that it is not so clear which digital economy enterprises are "good" monopolies and which are "bad" monopolies in reality-giant technology enterprises are "good" monopolies in the initial stage, which are closely related to innovation, but they may hinder competition when they reach a certain scale.

For example, Amazon, Google, Facebook and other technology giants in the early stage of development, non-competitive zero marginal cost brought about the rapid expansion of their scale and the improvement of overall social welfare. The monopoly at this stage is a good monopoly. However, once the first-Mover advantage is formed, these successful people often use intellectual property rights, first-Mover advantage and network effect to build their own competitive barriers in order to seek monopoly rent.

The author believes that judging whether there is a "monopoly" in the digital economy still needs to be viewed from a dynamic perspective.

According to Schumpeter's innovation theory, there is a natural connection between monopoly and innovation. Without monopoly excess returns, there would be no such great innovation motivation. Technology companies are likely to fail in innovation, so they need risk premium compensation to attract innovation. Excess income comes from both monopoly rent and risk compensation required by the overall market.

From the historical experience, the monopoly of giant technology companies seems to conform to the above dynamic characteristics. For example, in the 1990s, Yahoo's search engine dominated, occupying almost all the search markets. However, after Google launched its search engine, Yahoo's search business was quickly replaced by Google search with better performance. If the regulatory authorities strongly supervise Yahoo's search business from the beginning and limit its profit, Google may have no incentive to launch a better search engine.

Microsoft's IE browser has also been accused of monopoly, but now its position has also given way to Chrome. Similar examples are not uncommon in China. Although e-commerce platforms JD.COM and Ali have established high industry barriers, they can't stop the rapid rise of Pinduoduo. Similarly, iQiyi and Youku can't stop Tik Tok from becoming a world-class popular application.

Therefore, how to judge the "monopoly" phenomenon in the digital economy is still a controversial topic. Peng Wensheng believes that "on the one hand, we should encourage competition and prevent malicious monopoly, on the other hand, we should also look at the returns and benefits in digital innovation from a dynamic perspective, and we should not accidentally hurt innovation for anti-monopoly."

So can we supervise the monopolistic behavior of technology enterprises?

The academic circles put forward a possibility, that is, starting with the most important production factor of digital economy-data, to reduce the exclusiveness of data use. Regulators can make interoperability mandatory requirements for different technology companies according to the data they collect.

The title points out that the logic behind this is that if the productivity of data has scale effect, then the process of collecting data is a reward for the pioneers, but this actually harms the interests of consumers. Because consumers can only be forced to choose the company that collects data first, and can't choose other companies that may provide better services. Once the data has certain interoperability, then the competitive disadvantage of latecomers can be avoided.

Of course, this kind of supervision needs the close cooperation of experts and scholars. On the one hand, it is necessary to prevent the initial innovation from being suppressed, and at the same time, it is necessary to prevent the abuse of consumer privacy. Therefore, this regulatory activity itself needs to be dynamic. While protecting the operating mechanism of the free market, it should also be adjusted according to the specific situation.

Historically, from Ricardo 200 years ago to Keynes 100 years ago, economists have been worried that machines will replace people. There is a proper term in economics called "technical unemployment", that is, unemployment caused by technological progress. This concern runs through history and has always been controversial.

How do we view this problem at present? The author thinks that in this once-in-a-century epidemic in COVID-19, the rapid development of digital economy has brought us an important enlightenment, that is, machines can not only empower people, but also replace people.

The empowerment of machines to people is reflected in many fields. For example, in the food and beverage take-away industry, if there is no technical support such as digital technology, smart phone and GPS positioning, the delivery efficiency of the take-away staff will be very low; For example, the non-contact economy such as distance education, telecommuting and telemedicine under this epidemic did not replace teachers, white-collar workers and doctors, but empowered them. Digital technology enables us to maintain certain economic activities under the influence of epidemic and social isolation, so it is a supplement to people. Of course, machines can also replace people, such as unmanned logistics, unmanned distribution, and the development of unmanned driving.

The author believes that the degree of digital economy and empowerment between China and the United States are not the same, which is related to the difference in endowment between China and the United States. The development of digital economy in the United States is more about machines replacing people and replacing employment through capital deepening. The development of digital economy in China is more complementary to machines and labor, which is friendly to labor.

The digital economy replaced by American labor force is now doing routine and simple repetitive work. For example, some manufacturing lines can be replaced by machines, and even some jobs that are not very simple and repetitive can be replaced by machines. China's labor-complementary digital economy now provides some unconventional services, such as take-away, deliveryman, bus driver, video anchor and so on.

However, Peng Wensheng believes that although the development of digital economy is beneficial to the labor force in China at this stage, it is difficult for China to avoid the digital economy widening the income distribution gap. Digital technology enables star enterprises and individuals to serve the big market at low cost, and the winners of a few people and enterprises can take it all for themselves.

Academic research in the United States shows that the widening income gap of workers in the past 40 years mainly reflects the differences between employment enterprises (within the same industry), not the differences between occupations. An important related problem behind this is that data property rights are not clearly defined. The free exclusive possession of big data resources by related enterprises is actually a monopoly rent for key resources.

How to define the ownership of big data property rights? Should this monopoly rent be regulated or taxed? If tax is levied, how to determine the tax base and tax rate? The bigger the digital economy, the more we can't ignore these problems.

Peng Wensheng believes that at the same time, it should be noted that the digital economy has also enriched the policy tools to deal with the polarization between the rich and the poor: digital immigrants and digital currency. The traditional way to solve the imbalance of regional development is usually labor transfer or industrial transfer. The digital economy has created a new concept, namely "digital transfer".

For example, large enterprises set up customer service centers in underdeveloped areas, and the labor force can enjoy the radiation drive of developed areas without transferring, which can be regarded as "digital immigrants"; The new digital infrastructure has spawned webcasting, cloud tourism and other ways to "transport" local customs, green mountains and green waters and other characteristic resources from underdeveloped areas to developed areas, and "digital transfer of industries" has increased the income of local people.

In digital currency, the DCEP of the People's Bank of China focuses on developing electronic payment means. However, in the long run, the development of digital currency may have a subversive impact on the existing financial system, promote inclusive finance, reduce the procyclicality of finance, and help the structure-oriented fiscal policy to play a more effective role and better balance the relationship between efficiency and fairness.

Peng Wensheng believes that this may come from three aspects: trade in services, international taxation and data sovereignty and security.

The first one is easy to understand. Just as the expansion of manufacturing trade will lead to international friction, the expansion of service trade may also lead to disputes. China needs to actively participate in the reform of international trade rules to adapt to the era of digital economy.

In terms of taxation, in view of the tax evasion and avoidance behavior of the digital economy bypassing the current tax standards, the alternative scheme discussed internationally is user-based taxation, which requires international coordination to determine the taxable tax base of various countries. Under the background of great changes in the world, international coordination is becoming more and more difficult.

The greater risk of international conflicts may come from national security or data sovereignty.

Peng Wensheng, for example, said that the recent unfriendly behavior of the United States and India towards Indian platform enterprises has political reasons, but it also reflects a question: Does the ownership of big data involve sovereignty or even national security? Recently, China updated the Catalogue of Technologies Prohibited and Restricted from Export in China and added "Personalized Information Push Service Technology Based on Data Analysis", which seems to confirm the importance of big data and related technologies to national security.

The development of digital economy has brought the problems of personal data collection and privacy protection.

When people use mobile phones, personal data will be continuously uploaded to the servers of related applications. Although many people realize that private data is collected, they know nothing about what data is collected and how to use it. The "black box" of data collection and use makes people extremely passive in preventing privacy leakage.

The author thinks that due to the non-competitiveness and sometimes non-exclusiveness of data, data has the attribute of public goods to some extent, but for individuals, it means that privacy may be more vulnerable to infringement.

For example, during the epidemic period, the widespread use of health laws and regulations helps public and private institutions to participate in epidemic prevention. However, if these data cannot be safely withdrawn after the outbreak, once leaked, it may damage personal privacy.

The topic puts forward that enterprises have reached an unprecedented level in mastering user privacy information, but detailed and rich user data is a "double-edged sword". On the one hand, these data help enterprises to better match potential consumer groups, thus reducing the transaction cost between enterprises and consumers; On the other hand, once personal details are leaked, it will pose a threat to personal safety and even business operations.

There are two views on whether privacy should be protected:

One school, represented by the Chicago School, believes that in a competitive market, privacy protection will reduce social welfare and market operation efficiency, while complete information will help improve market efficiency. Chicago school believes that individuals have the motivation to conceal their negative information, and these behaviors will pass on the costs to other market participants. The obstruction of real information flow will lead to inefficient use of economic resources and production factors, thus reducing social welfare.

However, another group of people who support privacy protection believe that personal motivation is complex and the assumption of selfish behavior behind Chicago School is not accurate. If privacy is not protected, technology companies can use the collected data to infer consumers' preferences, thus implementing price discrimination. At this time, all consumers' surplus will be taken away by enterprises. In addition, enterprises can also sell consumers' data to third parties, but consumers cannot share any benefits and may even bear the risk of data abuse. Therefore, protecting personal privacy data is helpful to improve economic efficiency and social welfare.

However, no matter what the theory is, the greater the dependence of digital economy development on data, the less obstacles to information transmission, and the greater the harm caused by privacy leakage. In the era of digital economy, it is the general trend for public power to intervene in data supervision and privacy protection.

In fact, Europe and the United States have made meaningful explorations in privacy protection. For example, the Consumer Privacy Act promoted by 20 12 in the United States puts forward suggestions on consumer privacy protection, aiming at giving consumers greater control over personal information and reducing the risks brought by data leakage to others. Similarly, in 20 18, the EU implemented the General Data Protection Regulation, which applies to all personal data in the EU and restricts the way companies collect and use private data. In China, the protection of personal privacy data has also attracted the attention of the national legislature. In 2020, the National People's Congress of China proposed that a complete personal information protection law would be specially formulated to solve the problem that the corresponding laws and regulations were relatively scattered before.

With the development of digital economy, privacy protection will continue to be an important issue in public governance. Peng Wensheng believes that from the perspective of fairness, it is necessary to legislate to protect private data; From the perspective of efficiency, the key to privacy protection may lie in the degree, and even the state-dependent protection system needs to be designed.

Editor: Sese

Producer: Bu Haisen Li