Haves and have-mores in the digital economy

The digital age has profoundly changed day-to-day living and business practices alike. But, with digitization affecting the economy at all levels, some businesses could be left feeling like they missed the digitization boat.

A report by the McKinsey Global Institute, Digital America:  A Tale of the Haves and Have-mores, argues that businesses have barely scratched the surface of the digital era and that the US economy is only tapping into 18 percent of its digital potential. The report says that by expanding on areas like online talent platforms, data analytics and the Internet of Things, digitization could add up to $2.2 trillion to America’s annual GDP by 2025. However, the report also highlights that the gap between the “haves” and “have-mores” is widening as companies with advanced digital abilities are reaping disproportionate benefits.

The good news is that lagging businesses still have time to turn things around. The report outlines that companies need to identify their digital assets and use digital tools to reinvent every process. Policymakers need to create new training pathways for future jobs and skills, and governments should expand participation and digitize their own services.

The study does warn that digitization can pose challenges that could affect jobs, wages, inequality and security at the same time that the digital transformation of industries can make positive contributions to society and beyond.

How happy is the world in 2016?

The World Happiness Report recently released its 2016 Update. First published in 2012 by the United Nations Sustainable Development Solutions Network, the report ranks the national happiness of more than 150 countries. For summaries of previous editions, check out the TINAN articles on the 2012, 2013, and 2015 reports.

The 2016 Update examined population surveys that asked respondents to rate their lives from 0-10 based on levels of GDP, life expectancy, generosity, social support, freedom, and corruption. Unlike previous reports, however, the Update also looked at the measures and consequences of inequality. The authors argue that inequality of well-being provides a better measure of the distribution of people's welfare than measures like income or wealth.

Of the 156 countries identified, Canada ranks sixth (down one spot from 2015), following Denmark, Switzerland, Iceland, Norway, and Finland. Canada ranked well in terms of citizenship, entrepreneurship, and openness for business categories. The United States comes in at number 13 overall. On the other end of the spectrum, Syria and Brunei rank as the least happy.

By adding to the body of research, the World Happiness Report not only supports the UN Sustainable Development Goals but also provides a basis for increased attention to happiness at the level of national policy. Bhutan, Ecuador, the UAE and Venezuela have taken note of the potential for happiness and well-being policy development, each appointing a minister of happiness to their governments.

Are Canada's workers facing a capital crisis?

For the first time since the 2008 economic crisis and recession, capital investment by Canadian businesses has declined according to a new C.D. Howe Institute report, A Crisis of Capital: Canadian Workers Need More Tools, Buildings and Equipment.

According to the report, Canada is slipping behind other developed nations after several years of improvements in business investment per worker, dropping from $14,300 of new non-residential business investment per worker in 2014 to $13,200 in 2015. The amount of new capital investment by businesses is seen as a key indicator of future prosperity for both businesses and workers, where increased fixed investment typically means more productive and better paid employees.

Regionally, Western Canada saw the lowest per-worker investment in Canada for 2015. After a year of flat investment growth in Alberta and Saskatchewan in 2014, the recent plunge in commodity prices, particularly for oil, is expected to cut per-worker investment in these provinces by more than 10 percent in 2015. Interestingly, the same cannot be said for Newfoundland and Labrador, where total capital investment is expected to be higher in 2015 than it was in 2014.

The authors of the report emphasize that investments per worker naturally rise and fall with economic cycles and trends that favour some industry sectors more than others. What is troubling to the authors, however, is the break from the historical trend of Canada closing the gap on investment per worker compared to the United States. In 2012, Canadian workers saw 78 cents of new investment for every dollar garnered by US workers. In 2015, however, Canadian workers were likely to receive only 69 cents of new investment for every dollar enjoyed by US workers. This widening gap will have an impact on productivity and innovation, two areas where Canada needs to be more competitive.

Water scarcity could dry up economic opportunities

Life is dependent on water – and so is the economy. The agricultural sector needs it to grow produce. The energy sector needs it for cooling. Manufacturing needs it for processing. Every single industry needs water.

The World Bank recently released a new report, High and Dry: Climate Change, Water, and the Economy, which warns that climate change is causing water scarcity issues that could shrink economies around the world. According to the report, some regions could see a 6% drop in their GDP by 2050 because of water-related issues.

Although the report states economies in western Europe and North America will likely be spared, it cautions that water scarcity issues could still adversely impact the economies of water-rich nations if the world continues to operate without adequate water policy and management.

Canada, for example, has roughly 7% of the world’s renewable freshwater and its measurable contribution to the national economy can range anywhere from $7.5 to $23 billion per year. Droughts during 2001-2002 amounted to a total GDP loss of $5.8 billion. A similar story can be seen in California, where droughts cost the agricultural sector $2.2 billion in 2014.

The report offers three solutions to help nations create climate resilient economies and become more water secure. The most controversial solution is to optimize the use of water through better planning and incentives, such as water permits and pricing. The second is to expand the water supply through the use of dams or water recycling. And lastly, countries need to reduce the impact of extreme weather events by "water proofing" economies through better urban planning, risk management, and citizen engagement.