The deeper implications of digitalization

IN his first State of the Nation Address (SONA), President Ferdinand R. Marcos, Jr. spoke of the need for a digital transformation in the country. He instructed the Department of Information and Communications Technology (DICT) to identify and utilize digital innovations to improve governance, specifically by deploying digital connectivity through the implementation of the National Broadband Plan and connecting the remote areas of the country through the “Broad Band ng Masa” project. In addition, he also pushed for the completion of the National Identification (ID) card system. Viewing the transformative power of digitalization, he looked forward to technological innovation in all sectors as it creates new wealth-producing opportunities that are accessible to everyone. 

Indeed, several reasons exist for embracing digitalization as a means for social transformation. For one, given this technology, face-to-face transactions in the service sector will no longer be required, hence allowing for the possibility of scale economies, and enhancing trade in services. Moreover, with digitalization, the distinctions between services and industry can be blurred if service activities are used as inputs for industry, thus lowering the costs of doing business. Given these well-known advantages, the push for digitalization is nothing more than a motherhood statement.

However, the speech ignored a key aspect of this policy, which is the potential to commodify labor and, hence, create a series of social problems. If labor is only seen as an input of production, instead of a measure of human dignity, increasing digitalization, where individuals are viewed merely as ID numbers, can bring about some sort of devaluation of the individual. As Karl Polanyi, a well-regarded labor sociologist, has indicated, labor is not a “fictitious product” that results from market transactions, and treating labor as such can result in the destruction of the worker’s essential character. With their power to set wages, employers can view labor as a mere factor of production rather than as a human quality, hence leading to conditions that are harmful to the very people who embody that labor.

Polanyi suggested two ways to solve this problem of (dis)embeddedness or commodification. The first is the hard Polanyi approach, which calls for labor market reforms. Such government-initiated changes aim to reverse the commodification effect and reinstate the competitive discipline of the labor market, a process termed as “re-commodification.” This implies the incorporation into the employment agreements of various institutional interventions—particularly firm internal conditions, social protection, and trade unionization—which reduce the market power of employers and enhance the rights of the workers.

The second is the soft Polanyi approach, which is more methodological than theoretical. This pertains to societal embeddedness in ways that will influence the behavior of workers and employers within the acceptable institutional, social, and cultural context. Importance is given to community norms and institutions, and how a lead firm’s origin and heritage can operate more responsively. For instance, in a recent study of online labor platforms, the way American computer game artists, designers and programmers are embedded within occupational communities are deemed necessary in bringing social values to a particular transaction. Such work is important in highlighting the societal dimension of embeddedness and in rectifying over-reaching firm behavior through community-driven movements.

The point is that digital technology will not be eliminating any existing market power simply through adoption. Because of information asymmetry, digitalization will only reinforce this power. To enhance social welfare, digitalization should be accompanied by laws or community norms that ensure fairness and security for all parties using such technology. Indeed, the government must first define the rights of the individuals.

In short, digital transformation is a complex subject with significant effects on society. As the country engages in this technology, economic and social structures are invariably modified. The central issues are not about technological adoption but the underlying conditions that will direct this technology towards greater social welfare. Through both government intervention and community participation, digitalization can be a force for structural transformation with equity. Considering the current recovery process, seldom are we given a chance to take on this challenge.

The SONA was comprehensive in the way that it’s been cast and written. However, it could also be fundamentally flawed because of its shallowness. The SONA should prioritize a few key goals, analyze these thoroughly, and attempt to work out an effective and more detailed plan to achieve them. For instance, we are all aware of how the digital economy, particularly the social media and the election processes, influenced the results of the just concluded presidential elections. President Marcos, Jr. could have used the SONA to highlight legally and socially the possible ways digitalization can eliminate disinformation to prevent election abuses and uncertainty from happening in the future.

Dr. Leonardo A. Lanzona, Jr. is a Professor of Economics at the Ateneo de Manila University.