Britain is the Saudi Arabia of the data economy, says Matthew Lynn. It can thrive outside the European Union.
Data is, at least according to some experts, the new oil, the essential raw material that drives the global economy. It is fuelling a global technology boom and transforming whole industries, and as more and more of it is collected, that will only accelerate. But which are the leading countries in producing the stuff, the digital equivalents of Saudi Arabia? A study in the Harvard Business Review has some surprising results. The world’s leader is, perhaps inevitably, the United States, but Britain is now in second place, and some other relatively small economies are turning into world-beaters – and that has significant implications for the way the global economy will develop over the next couple of decades.
The new GDP
There are lots of ways to measure how technologically advanced an economy is, from the number of internet start-ups, to the amount of venture capital funding available, to the amount of stuff bought online. But a new addition to the list is the amount of data it generates. A study led by Bhaskar Chakravorti for the Harvard Business Review crunched the numbers for total data flows, measuring factors such as the amount of broadband consumed, number of active users, and accessibility of the internet, to generate a Gross Data Product (GDP) figure for each major country. The logic is that data is so important to so many emerging technologies that the amount of it a country generates is turning into a crucial competitive advantage.
The US, with its vast technology giants, wealth, huge population and sophisticated infrastructure, was always likely to lead the pack. But the rest of the list makes for surprising reading. Second-place Britain is followed by China, Switzerland and South Korea. Japan might be the third-largest economy in the world after the US and China, but it ranks 11th on this measure. Germany does even worse in 13th place, a measure of how poorly a country that was a global leader in the first and second industrial revolutions has done in the third. The Czech Republic is in tenth place, and Sweden and Australia also make it into the top ten.
How we can exploit our good fortune
There are two reasons why this ranking matters. First, if data is the raw material of the tech revolution, then the economies that do best will be those that produce the most of it. Britain already has a decent internet industry. London has more unicorns – tech start-ups worth more than $1bn – than any other European city, and regional centres such as Manchester and Bristol are starting to develop clusters of their own. But we need to keep pushing forward.
Second, it puts our fevered debate about Brexit into a different context. We might be leaving an industrial trade bloc, and views understandably differ on how much of an impact that will have on our economy. But we are leading a digital one, and that is not such a bad outcome. It is interesting that the remaining 27 EU countries don’t have a single member in the top-five data producers. Leaving the EU may lose us some industrial trade, yet it might win us a lot more online. It is easy to guess which of the two will grow faster, and generate more wealth, over the next couple of decades.
The priority for the UK is to drive home its advantage. We should be upgrading broadband capacity, pushing our mobile operators to install 5G networks, and perhaps most importantly of all keep easing regulations to allow digital technologies to flourish (for example, one of the best moves we could make after leaving the EU is to scrap its ridiculous GDPR regulations, which have hit small start-ups especially hard). For investors, the message is equally clear. Just as it would have made sense 100 years ago to invest in the countries that produced the most oil, so right now it makes sense to invest in the countries that generate the most data. That means the US, Britain, China, and perhaps Switzerland and the Czech Republic as well. But steer clear of relative laggards such as Germany and Japan – because economies that don’t produce enough data aren’t going to grow.