Wednesday, July 01, 2015

Digital is useful but is it better?

The Prime Minister is to launch a ' Digital India ' project, with our billionaires in attendance. But what does the word ' Digital ' mean? At first we had analog VCRs, on which we could easily record TV programs, to be watched later, but now we have digital DVDs, which have taken away consumer freedom. Seems that the whole of India is going to be provided with broadband which will increase access to information, improve communication between the people and government and allow the poor to access social schemes. Very laudable but will it improve the economy, creating new jobs, or will it only create monopolies, such as Google and Facebook. Like the ' robber barons ' of a century ago today's tycoons control over 90% of their markets and have been dubbed ' silicon sultans '. However, anyone wanting to be on social media will want to be on Facebook while someone with something to sell will want to advertise on eBay, precisely because they offer maximum exposure. So their success draws in all the people, turning them into monopolies. What about productivity? New types of businesses are taking away traditional jobs, making people redundant. Taxi drivers all over the world are protesting about the success of Uber. Uber executives have been arrested in France, while it may be banned in India, after a rape in a taxi last year. Amazon is testing out robots in its warehouses. Robots are the new slaves. They work 24 hours a day without the need for holidays, breaks or air conditioning. In future lots of other jobs such as driving, nursing or teaching could be done by robots. What happens to all the humans who are displaced? They will need retraining, but for what? After all, a window cleaner cannnot be retrained as a rocket scientist. Flipcart and Amazon are creating huge numbers of jobs in India but mainly in the low end delivery business. But already Amazon has been permitted to test drones to deliver packages in the US. How long before that comes to India? A lot of these new businesses are yet to make profits. Amazon made a paltry profit of $41 million on sales of $17 billion. Flipcart and Snapdeal in India are making huge losses. They talk about GMV, or Gross Merchandise Value instead of EBIDTA, which is earnings before interest, taxes, depreciation and amortization, or Earnings Per Share. Uber's revenue is $10 billion but it is yet to be profitable. Local retailers buy from Flipcart and sell at market prices. How long can such a business model continue? A lot of new digital businesses are free and so do not contribute to the growth of GDP. Users have become used to free products and are willing to accept online piracy. Digital is new and useful. But is it better?

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