Dr Fazal Ali

Pro­duc­tiv­i­ty is a linch­pin of eco­nom­ic growth and ex­plains some as­pects of cross-coun­try dif­fer­ences in in­come per capi­ta. In re­cent years, the pro­duc­tiv­i­ty gap be­tween fron­tier firms and the rest has widened sig­nif­i­cant­ly. This rais­es chal­lenges for the in­clu­siv­i­ty of growth. Un­scram­bling the dy­nam­ics of tech­nol­o­gy dif­fu­sion to­geth­er with the changes brought about by dig­i­tal trans­for­ma­tion amid an ex­plo­sion of ma­chine learn­ing, au­toma­tion, ad­di­tive man­u­fac­tur­ing, ar­ti­fi­cial in­tel­li­gence, and the in­ter­net of things, is key to un­der­stand­ing slow­ing ag­gre­gate pro­duc­tiv­i­ty growth.

On the one hand, knowl­edge dif­fu­sion is re­lat­ed to the spread of ideas and knowl­edge that may lead to in­ven­tion, im­i­ta­tion, mim­ic­ry, new ap­pli­ca­tions, and in­no­va­tion. Tech­nol­o­gy dif­fu­sion on the oth­er hand oc­curs at cas­cad­ing lev­els of ac­cre­tion, and across dif­fer­ent as­sem­blages of users, in­clud­ing in­di­vid­u­als, house­holds (con­sumers), or busi­ness­es (pro­duc­ers). Busi­ness­es op­er­ate in dif­fer­ent sec­tors of the econ­o­my, while con­sumers and pro­duc­ers may be lo­cat­ed in dif­fer­ent cities, provinces, or over­seas ter­ri­to­ries.

In a Sep­tem­ber 2022 McK­in­sey re­port, the economies of France, Ger­many, Italy, Spain, and the Unit­ed King­dom are de­scribed as the “Big 5”. In the same re­port en­ti­tled, “Dig­i­tal Chal­lengers on the next fron­tier in Cen­tral and East­ern Eu­rope”, Bel­gium, Den­mark, Es­to­nia, Fin­land, Ire­land, Lux­em­bourg, the Nether­lands, Nor­way, and Swe­den are de­scribed as “Dig­i­tal Fron­trun­ners”. Bul­gar­ia, Croa­t­ia, Czech Re­pub­lic, Hun­gary, Latvia, Lithua­nia, Poland, Ro­ma­nia, Slo­va­kia, and Slove­nia form a clus­ter de­scribed as “Dig­i­tal Chal­lengers”. The case of Ro­ma­nia is of heuris­tic util­i­ty.  

By 2030, ac­cel­er­at­ed dig­i­tal growth is es­ti­mat­ed to bring Ro­ma­nia’s dig­i­tal econ­o­my to about €52 bil­lion. Ro­ma­nia’s top ex­ec­u­tives have placed build­ing new busi­ness­es as one of their top three pri­or­i­ties. The vi­sion is for new prod­uct de­vel­op­ment, ser­vices, and in­no­v­a­tive busi­ness mod­els that could de­liv­er about 50 per cent of their com­pa­nies’ rev­enues in five years. Cre­at­ing the eco­nom­ic shift de­mands a se­ries of de­ci­sive ac­tions. The first step was to un­der­stand fu­ture val­ue pools and some of the as­so­ci­at­ed nascent tech­nolo­gies. The task here was to un­der­stand how these two trends com­bine to cre­ate “hot spots”. The next steps in­clud­ed grit, ringfenc­ing in­vest­ments and re­sources, set­ting achiev­able tar­gets, pub­licly sup­port­ing, and com­mit­ting to in­vest­ing in growth.

Be­fore 2019, few gro­cery-de­liv­ery com­pa­nies ex­ist­ed in Ro­ma­nia. When the Czech on­line gro­cery re­tail­er Roh­lik an­nounced in March 2021 that it in­tend­ed to en­ter the Ro­man­ian mar­ket, eMAG launched “Fresh­ful” with in­vest­ments in cold stor­age fa­cil­i­ties and new dig­i­tal plat­forms and Fin­Tech.  eMAG’s gro­cery ser­vice set out to serve the Bucharest met­ro­pol­i­tan area with a range of frozen prod­ucts, bev­er­ages, fruits and veg­eta­bles, and dairy. Dur­ing the COVID-19 pan­dem­ic, su­per­mar­kets and food shops were dif­fi­cult to ac­cess. How­ev­er, the growth of the on­line gro­ceries seg­ment re­mains loose­ly cou­pled with the de­vel­op­ment of App and Gig econ­o­my ser­vices like Bringo and Glo­vo.

Bringo is a couri­er ser­vice. Bringo gets a de­liv­ery re­quest and dri­vers around the city sub­mit mul­ti­ple price tags for the job. The client se­lects the de­liv­ery price tag that best suits their needs. Glo­vo is a Barcelona-based quick-com­merce start-up. It is an on-de­mand couri­er ser­vice that buys, picks up, and de­liv­ers goods or­dered through its mo­bile app. Af­ter fer­vent ex­pan­sion from 2019 to 2021, many ser­vices have ex­it­ed the mar­ket or sold to com­peti­tors as the on­line food-de­liv­ery mar­ket has be­come crowd­ed. In Ro­ma­nia, while the share of on­line shop­pers sky­rock­et­ed dur­ing the pan­dem­ic, the por­tion of peo­ple aged 16 to 74 who shopped on­line in 2021 was 44 per cent, con­sid­er­ably low­er than the EU av­er­age of 74 per cent, ac­cord­ing to McK­in­sey.

In 2021, there was a move to ful­ly dig­i­tal shop­ping across in­dus­tries—ex­cept for gro­ceries, where al­most 60 per cent of con­sumers pre­ferred in-per­son shop­ping; this was the on­ly sec­tor to see dig­i­tal us­age fall com­pared to 2020. Su­per­mar­kets al­so had the high­est rate of fresh dig­i­tal users aged 35 to 44. Dig­i­tal com­merce in the Dig­i­tal Chal­lengers clus­ter grew by more than €21 bil­lion in 2019-21, ac­count­ing for more than 80 per cent of growth in the re­gion’s dig­i­tal econ­o­my in the pe­ri­od. Over­all, the trend is that Dig­i­tal Chal­lengers in Eu­rope are catch­ing up.  

Apart from app and gig econ­o­my ser­vices, the out­sourc­ing of the em­ploy­ment of non­pro­fes­sion­al and non­man­age­r­i­al em­ploy­ees to out­side con­trac­tors is a de­vel­op­ing pat­tern. David Weil, in his anec­do­tal da­ta on this trend, calls it “fis­sur­ing”. One con­se­quence of “fis­sur­ing” is that firms are much less like­ly to in­vest in train­ing em­ploy­ees who ac­tu­al­ly work for an­oth­er com­pa­ny. More­over, work­ers in “fis­sured” work­places are much less like­ly to share the prod­uct mar­ket gains than are work­ers in the “es­tab­lish­ment”.

This al­so makes these work­ers less will­ing to ex­tend their tenure at such firms. Such work­ers may not ben­e­fit from terms and con­di­tions, that ring-fences them in­to the crit­i­cal tal­ent pool of the firm or its up­skilling and tal­ent man­age­ment strat­e­gy. Fis­sur­ing is just one fea­ture of a gen­er­al pat­tern in which job qual­i­ty ap­pears to be de­clin­ing even when skills are tak­en in­to ac­count. The at­ro­phy of reg­u­lar full-time work, as em­ploy­ers con­vert work­ers in­to in­de­pen­dent con­trac­tors is an emerg­ing trend along­side em­ploy­ers that now re­ly on the “Gig” and “App” economies for part of their work­force.