Anna Maria Rada Leenders' Blog

The Digital Economy in Russia. Part 1

August 16, 2018
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As society shifts toward increased digitization, from earning a living through digital platforms to the digitization of all aspects of the economy, the binary logic of industrial economy versus digital economy is replaced with a continuum of digitization of entire economies. Digitization is a way of increasing productivity and profitability as it results in an exchange of material productivity for digitally empowered productivity and therefore increases implicit value per unit. The greatest challenges for Russia are the integration of this fourth industrial revolution into its economy by stimulating small and medium enterprises and the transformation of former monopoly enterprises into more competitive flexible structures with an international market presence. The economic policies and orientations can contribute to the realizing Russia’s position as a global leader in digital solutions and to an increase in revenue from the digitization of the national economy. This is precisely the aim of the most recent introduction of legislation in Russia. Its successful implementation should have three objectives: promoting national economic empowerment, linking regions through digital infrastructure, and setting the trends of the global digital environment.

It can be argued that the Perestroika process and its associated economic program had the objective of peacefully transitioning into the global postindustrial society and opening its borders to the world. Because communism could no longer be considered contestant for the dominant mode of organization of the global political economy, it became necessary to standardize the Russian economy for global integration? Would Russia be able to satisfy the demand for personal computers in Indonesia, for instance? It is only through creative innovation, business acumen, and a proactive international drive that this can be achieved.

Russian corporations and entrepreneurs could and would in the long term become competition for existing transnational corporations (TNCs) such as Apple and Microsoft. The global digital market has high. Faced with the might of such global giants whose revenues are greater than the GDPs of many countries and whose lobbying is so influential that the TNCs determine the success of national elections campaigns, current Russian digital leaders such as Yandex and MTS must find a strategy to establish a place in the global market. How can Mars and Russian made phones become a global mobile phone brand? How can Russia become as a supplier of high tech consumer and business goods? The aim of developing Russia’s digital economy is economic diversification.

The Russian state has the predominant approach of securitizing the digital infrastructure and does not focus on the profit- and revenue-generating services and products that private digital actors see as necessary for the perpetuity and longevity of private corporations. The Russian state also considers national standards and the compatibility and complementarity of these standards with the partners and states with which the Russian state is associated. Private sector actors have the objectives of setting the trends of and becoming the sites of choice in the international arena. As with all post-liberalization and post-privatization activity in Russia, the economic challenge is how to guide, steer, and incubate the development of industry and presence internationally in the digital sphere.

How the digital economy is empower the Russian economy as a whole? The digital economy is interwoven with practically every aspect of life. The spectrum of digital tools is fluid from the professional to the private. Upgrading industrial production, productivity in labor, and new forms of economic activity and roles. In addition competitiveness, digital is an improvement of quality of life in general that boosts economic productivity indirectly.

The attention of the Russian government in general is predominantly geared towards the more issues of governance. Innovations in the communications and digital spheres are developed through government research centers in Akademgorodok and used in state services. The Russian government focuses on e-governance.


The prospects and the challenges of the digital economy

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A dictionary definition of digital is:

“(of signals or data) expressed as series of the digits 0 and 1, typically represented by values of a physical quantity such as voltage or magnetic polarization

relating to, using, or storing data or information in the form of digital signals

involving or relating to the use of computer technology: the digital revolution

from Latin digitalis, from digitus ‘finger, toe’”

This is often contrasted with analog:

“relating to or using signals or information represented by a continuously variable physical quantity such as spatial position or voltage similar in structure”

Digital is distinct from cyber, the term that governments use to describe national security matters in the digital realm:

“relating to or characteristic of the culture of computers, information technology, and virtual reality

relating to electronic communication networks and virtual reality

cybernetics is related to electronic communication networks and virtual reality cyberspace and cyber age

Quantum

“A discrete quantity of energy proportional in magnitude

to the frequency of the radiation it represents

An analogous discrete amount of any physical quantity, such as momentum or electric charge1

Telecommunications refers to communication at distance usually by cable, but increased via wireless means.

Information technologies refers to the study or use of systems, especially computers and telecommunications, for storing, retrieving, and sending information. The system can be of digital or quantum depending on the technologies in question.

Informational infrastructure refers to “access to internet, development of network connections, accessibility of services for the maintenance and development of data.”2

This facilitates the transition to a knowledge society and economy. Russian informational infrastructure includes:

“the development and dispersal of data for the demand of cartography and geodesy, including contribution to unified geodesy structures, federal networks of differential geodesy stations, and unified electronic cartographic foundations. [Russia] plans to invest in a national digital platform for the collection, processing, storage, and dispersal of data, long distance drilling of the earth and the securing the needs of citizens, businesses, and governments (as in the Digital Earth project ).”3

The term “digital economy” refers to all parts of computerized activities with internet components and is open to including virtual communications systems when new quantum technologies become available. Artificial intelligence and quantum computing are included in the 2017 policy or the development of the digital economy.

The digital economy is economic activity that is based on digital technologies, including electronic commerce, economic activity of the state through the use of digital technologies, and even separate non-commercial activities with applications in information technology4 e-business, and e-commerce. With regards to existing digital tools and technologies, the digital economy can be defined “narrowly as online platforms [such as Google and Facebook], and activities that owe their existence to such platforms, yet, in a broad sense, all activities that use digitized data are part of the digital economy: in modern economies, the entire economy”. Suppliers of Information and Communications Technology (ICT) goods and services and “platform-enabled services include [those within] the sharing economy, whose main components are peer-to-peer short-term property rentals and peer-to-peer labor services (e.g., Uber). Collaborative finance (e.g., peer-to-peer lending) may also be included in the sharing economy. Platform-enabled services to businesses in the ‘gig economy’ include crowdsourcing platforms (e.g., Freelancer, and Upwork).”

“The United Nations’ International Standard Industrial Classification (ISIC) defines an Information and Communications Technology (ICT) sector and a Content and Media Sector.9 The international legal regime does not yet describe the digital economy and its complementary realm that is the cyber realm. Such legal and formal definitions need to be updated. The size of the digital economy varies according to the definition of what digital is, and combines the “value of ICT production and integrated digital inputs to the rest of the economy.” Due to the application of digitized data, the digital economy may encompass all aspects of the regular economy from agriculture to research and development, including those of a mere online presence. The term “digital economyrefers to economic activity based on digital technologies, all spheres of computerization, electronic commerce, online platforms and the resulting activities, the application of digitized data and IT, data analytics, artificial intelligence, autonomous machines and systems, devices connected to the internet of things, in modern economies, the entire economy.[5][7] ICTs The convergence of mobile, broadcast and ICTs in the economy and society empowers productivity indirectly.

Russia measures its performance according to specific indicators. The categories of indicators established by the State Statistical Service related to the digital sector of the economy and the categories of the Russian profile of the World Economic Forum Network Readiness Index are included in the addendum.5

Theoretically and philosophically, information and knowledge society are linked concepts. The digital economy includes more than just the information economy as it is traded and developed through digital means. It is “electrical networks of public goods”.6 “Digital” refers to information encoded in atoms, specifically that which is computerized, meaning it is in the virtual realm beyond the physical and geographic spaces. The main drivers of economic growth in the digital economy are digital hardware and software.


Economic contributions of the digital economy

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The relative size of the digital economy vis-a-vis the other economies is visible in the figure above. Informational infrastructure includes access to internet, development of network connections, access to services of the conservation and handling of data.7 The economic contribution of the digital economy includes:

* Informational Digital Physical Economic infrastructure

* revenue contributing to economic growth

* sale of data, digital services, software, or hardware

* a source of employment

* consumer products and services

* market facilitation and

* a producer (together with communications) which can transform and increase production.

Some of the more innovative leading transformations in digital economy include Industry 4.0, smart manufacturing, digital manufacturing, Internet of Manufacturing, open manufacturing.7 Corporate strategies of digitization include a host of software innovations, including “applied programs for assisting organizations in handling client base and customer relations, or public relations”, hardware transformations and infrastructure, the development of centralised integrated supply chains, and cyber security strategy. Firms in the digital economy are leading the way to new forms of organization, networked horizontal structures, new digital business models, and new digital OTT (over-the-top media services). Digitization as a fourth industrial revolution has increased pressures to innovate. Digitization tools help to overcome trade barriers through digitalization of public procurement, open government services, and cross border e-government services. The compounded aggregation of positive impacts of digitization across the layers of the economy are dimensions of growth of digital economy.

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IMP 6


Industry 4.0 is characterized by

* Robotics

* Simulation

* Horizontal and vertical system integration

* Internet of Things (IoT)

* Cybersecurity

* Cloud computing and storage

* Additive manufacturing, such as 3D Printing

* Augmented reality

* Big data and advanced analytics8

The transformation from the third to the fourth industrial revolution is illustrated in the graphic below.

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The Fourth Industrial Revolution is a “transition to new systems”, with technologies that still to be developed, on the basis of the informational infrastructure resulting from the current digital transformation and the previous microelectronic and communications revolutions. The new systems will be “characterized by the convergence of the digital, physical and biological technologies”.

The digital economy and public creations available on its platforms have particular economic principles that make it difficult to price or estimate the revenue, hence the importance of the value created and guarded through intellectual property legislation to promote revenue generation from the use of digital platforms. In economic terms, intellectual and digital goods are a priori nonrival9 and nonexcludable10. Several layers of internet exist. Some deeper layers are payable and provide unlimited access to all kinds of knowledge, information, and goods and services tradable digitally. Increasingly, a digital divide has a greater impact than the divide between the wealthy and poor. Access to information and knowledge is indispensable to thrive economically, individually, cooperatively, and nationally. “Differently from goods and services, a part of the knowledge trade is free of charge. Therefore, it is better to speak not about the world trade of knowledge, but about the international barter or exchange of knowledge, on paid and free-of-charge foundations.”11 Hence questions about value creation and pricing in the digital economy are of interest to economists and policy makers, as “digital goods are complex experience goods.”12

While data has become the most valuable product of the digital economy, international legislation considers databases, and not data itself, a product. In the meantime, cybersecurity firms gain profits from defending regular digital consumers from cybercrime. The value of cybercrime is difficult to estimate as cyber security firms may overestimate, and legitimate institutions impacted by cybercrime, such as banks, may underreport in order to maintain confidence and credibility. Having considered the fundamentals of the digital economy and a method of analyzing digital innovation, I will analyze digital innovation and its impact on economic growth in the Russian context.

Digital banking has already transformed the economy, making sales, purchases, payments, and maintenance of budgets much smoother, continuous and instantaneous.

Digital currencies and the use of new commodities to back these cryptocurrencies can have very positive impacts in reducing inflation, in creating a balance with the use of the environment by linking currencies to financial pricing formulas of carbon emission, and in creating a balance by reducing the cost of labor by accounting for gains from improved health from biotechnologies. The contributions of the digital economy to general growth can be analyzed through the increased productivity of traditional factors of production: capital, labor, and new forms of their use. For instance, digitization enables an increase in the stock of knowledge in the labor force. Digitization transforms modes of production.





[1] from the Mac digital dictionary

[2] Stolbova and Brendeleva, 2018, 204

[3] Stolbova and Brendeleva, 2018, 204

[4] Strelets in Stolova and Brendeleva, 2018, 10

[5] Indicators and Categories of digital economy from Rosstat and World Economic Forum in addendum

[6] Stolbova 2018 214

[7] Stolbova, 2018, 204

[8] Maksakova “Digitization in world economic: global, regional, and local levels” in Stolbova, 2018, 141

[9] consumption by one does not preclude consumption by another

[10] one can not exclude another from consumption of the good

[11] Bulatov, 2017,

[12] Peitz, 2014, 502


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