Internet boom, not economic gloom

The last few years have been a depressing time for some businesses. The majority of them have been heavily weighed down by our sluggish economy. But maybe things aren’t so bad. As summer comes, there’s talk of renewed confidence, and that our economy is in better shape than perhaps we thought.One interesting idea is that the economy is doing very well – it’s just hard to measure.

The Telegraph questions if anyone understands what’s going on in the UK economy anymore, because our national income (GDP) statistics are failing to capture very high levels of growth in the digital economy. A recent study by the Boston Consulting Group says Britain is now the biggest e-commerce market in the world in per capita terms and the second largest online advertising market. Britain may have embraced the digital revolution like no other economy.

The problem is that any attempt to measure the size of — and growth in — the digital economy must be largely a matter of guesswork, since great chunks of it do not conform to the usual rules of economic activity. According to the Boston Consulting report, the internet contributed about £100bn to the UK economy in 2009, or 7.2% of all economic activity. Such is the rate of growth, by 2015 the digital economy may account for a tenth of the total, making it bigger than construction, transport and the utilities.

Lots of traditional businesses have been badly disrupted by the internet, but it has also empowered many others. This is especially the case among small and medium-sized enterprises, where the internet is enabling big gains in productivity and transforming localised markets into global ones.

What does all this mean for business? Firstly, the economy may be far healthier than we thought. But it’s not good news for all companies. Take the traditional music industry, which used to involve, finding, recording and marketing new acts, and then cleaning up through copyrighted CD sales. Then along came digital downloads, legal or otherwise. These have destroyed the old music company stranglehold on distribution, and in so doing made previously quite pricey music either far less expensive or completely free. The pound value of music consumption has declined, and with it the music industry’s contribution to GDP, but the volume of music consumption has risen enormously. Much the same thing can be said about newspapers, or the High Street. The traditional business model has been badly undermined by the internet, but demand for news and shopping has never been higher. What’s needed, of course, are businesses that can seize (profitable) advantage of these new opportunities.

There’s lots more in the article that’s well worth reading – and I’ve grouped together some links to guide you through what economics issues you need to understand as an A2 Business student.