Defining digital trade should occur within an independent digital market.

Defining Digital Trade

There is no set definition of “digital trade“. Depending on the organization, digital trade is used interchangeably with “e-commerce.” To give you an idea of the variance in definitions, consider the following:

“The production, distribution, marketing, sale, or delivery of goods or services by electronic means.” — World Trade Organization

“Purchases and sales conducted over computer networks. E-commerce can involve physical goods as well as intangible (digital) products and services that can be delivered digitally. ” — United Nations Conference on Trade and Development

“The delivery of products and services over either fixed-line or wireless digital networks. It excludes commerce in most physical products, such as goods ordered online and physical goods that have a digital counterpart, such as books and software, and music and films sold on CDs or DVDs.” — United States International Trade Commission

“The direct exchange of digital goods, and digitally enabled exchanges of services or labour. The exchange of personal communications is included in the definition.” — McKinsey Global Institute

What strikes me about most of the definitions is that “digital” refers to an alternative method of delivery of goods and services versus the actual construction of the market itself. The value from digitization is likely lower costs to producers and distributors and to consumers likely benefits are lower costs of product acquisition, assuming the costs of shipping and handling resulting from online shopping don’t exceed the costs of shopping in person.

Where’s the Surprise?

But beyond this, where is the “surprise” from using a communications medium like the internet to engage in e-commerce? In my opinion, the real value, the surprise, should be beyond the actual goods and services exchanged.

The pursuit of time saving, one of the benefits of online trade, is nothing new. Today I saw two women walk into Starbucks and grab coffee ordered via an app. The value for them was getting in and out of the coffee shop with the coffee versus sitting down in a Starbucks at 7:45 am with a group of people admittedly looking a bit too scruffy.

But is this enough, the time saving to the consumer and the costs savings to the producer to treat digital trade separately from traditional trade?

The Value in Digital Trade is in the Independence of a Digital Market

As currently constructed, digital trade is more an infrastructure adjunct to traditional, physical trade. True digital trade will happen when there are pure digital players exchanging data that can only be created in cyberspace through cyberspace. A true digital market and the digital trade that occurs within should be separate from human intervention where machines are responsible for analyzing, organizing, and distributing information and knowledge over digital networks.

One example of this digital market independence is occurring in the financial markets. In an article for Forbes.com, Bernard Marr shares how artificial intelligence is being used by hedge funds to trade stocks. According to Mr. Marr, what is extraordinary is an artificially intelligent machine making trades without the assistance of a data scientist. Mr. Marr goes on further to say that:

“Artificially intelligent machines analyze inordinate amounts of data at extraordinary speeds that is impossible for humans. They learn from the information they analyze to improve their trading acumen. This information includes market prices to corporate financial reports and accounting documents to social media, news trends, and macroeconomic data. Once the information is analyzed by thousands of machines, the machines then “vote” on what action to take and the best trades to make. “

While Mr. Marr doesn’t go on to discuss AI machines on the other side of the trade, I can envision the next step where an AI machine for Trader x exchanges shares with an AI machine for Trader y making a market entirely without human assistance. This exchange of shares or information and the making of a market for information independent of human intervention is the true digital trade.

Conclusion

While the commercial internet is three decades old, I don’t think we are at a stage yet where we can say we have complete digital trade. At best, digital trade is a subset of cross border trade and robust markets for autonomous trade between pure digital players in cyberspace is around the corner with the innovation and inclusion of artificial intelligence. The definitions we have now for digital trade should be changed to reflect the creation of true digital markets.

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The State’s role in integrating artificial intelligence into America’s economy

Artificial intelligence has the capability of creating another resource that can be optimized or consumed by a nation-state.  Increases in computing power and better designed algorithms along with access to increasing amounts of data translates into an increased amount of information that can be extracted via machine learning.

Venture capitalist Nick Hanauer postulates that a nation’s prosperity is a function of the rate at which we solve problems.  If he is correct, then problem solving requires that we maximize the amount of available information to find the best answer.

If information is the jet fuel for a Fourth Industrial Revolution economy, data is the oil that has to be extracted and refined. Companies such as Amazon, Facebook, and Google are using machine learning to provide better customer and subscriber experiences with their product.  They are among the largest of the data miners.  Their efforts, along with those of other technology companies is expected to contribute to economic growth beyond a baseline (no-artificial intelligence) scenario.

For example, Accenture reports that labor will see an increase in productivity of 35% by the year 2035 due to the application of artificial intelligence.  Annual growth rates in value added to gross domestic product are approximated at 4.6% by 2035. With capital and labor (due to a cap on the capacity of cognitive ability) reaching their limits as contributors to increased economic growth, artificial intelligence, taking its place along capital, labor, and entrepreneurship as a factor of production, is expected to help the economy exceed its current limits in three ways:

  1. Automating physical tasks as a result of artificial intelligence’s ability to self-learn;
  2. Augmenting labor by giving labor the opportunity to focus on creativity, imagination, and innovation; and
  3. Diffusing innovation through the economy.

With these promises of growth comes the fear on the part of labor that artificial intelligence will eliminate the need for a substantial portion of current jobs.  Even while experts and academics tout artificial intelligence as a complement to labor; as an augmenter of labor’s cognitive skills, there is still the fear that this emerging technology will create a valueless human workforce.  This perception creates a dilemma for a government that sees democracy under the attack globally.  Is artificial intelligence going to exclude millions in the name of efficiency? If so, what use is there from participating equally in an electoral process of the economy leaves you out?

Government will have to prepare a messaging campaign if it is to maintain its legitimacy as a distributor of economic equity in the face of an increasingly digitized economy and society. The potential destructive nature of artificial intelligence is scarier than what has been presented in movies like “2001: A Space Odyssey” or “Terminator.” Immediate benefits of artificial intelligence may flow first to those who already have high tech skills or hold or have access to great amounts of capital. In other words, AI is the ultimate nail in the coffin for the capital gap. Those with access to or control of capital will only see their control over the data and information that feeds it get larger. If you can’t process data or package useful information, you are nonexistent. Just useless furniture. It won’t be some AI robot that kills you off. It will be a human with money and enhanced cognitive skills that decide we are valueless.

As Erik Brynjolfsson, Xiang Hui, and Meng Liu pointed out last month in an article for The Washington Post last month, “No economic law guarantees that productivity growth benefits everyone equally.  Unless we  thoughtfully manage the transition, some people, even a majority, are vulnerable to being left behind even as others reap billions.”

As Professor Yuri Harari notes, technology is not deterministic, however.  It is people who make decisions as to how their political economy will shift and change.  Brynjolfsson, Hui, and Liu note that voters need to urge policymakers to “invest in research that will design approaches to human learning for an era of machine learning.”

The evidence does not show that policymakers are being prodded to move on the issue of artificial intelligence. Not surprising since voters are not knowledgeable about the issue either.  Artificial intelligence is not on the top of any poll responses from voters.  As regards to Congress, the only major action has been companion bills S.2217 and HR4625 where Congress wants the Secretary of Commerce to establish a federal advisory committee on the development and implementation of artificial intelligence.  While the bills provide good working definitions of artificial intelligence and machine learning and has among its concerns economic productivity, job growth, and labor displacement, allowing a bill to sit in committee for ten months is not the kind of speedy intelligence that artificial intelligence needs to be complemented by.