It’s long been an accusation of the digital economy that it hasn’t tended to translate into the kind of productivity improvements that feed their way into GDP growth. Indeed, economist Robert Solow famously said in 1987 that the computer age was everywhere except for the productivity statistics.
The so-called Solow Paradox has continued into the web age, but opponents argue that current GDP measures don’t accurately capture the value of products and services that, while valuable, are often free to consume. It’s an argument adopted by Erik Brynjolfsson in recent research that saw around 40,000 Facebook users quizzed on the digital products they consume.
The true value
The volunteers were asked how much they would need to be paid in order to stop using various digital services. For Facebook users, for instance, they would require around $100 per month in order to stop using the platform. This, the researchers claim, provides some of the hidden value of these platforms to society, with the potential for a couple of trillion dollars to be added to the official GDP figures.
GDP has long been criticized as being a blunt measure of economic value, with a huge array of things excluded from the measure. With the typical American spending over 20 hours a week online, this is one of the more glaring omissions from the official stats.
In total the researchers attempted to accurately gauge the value of ten digital goods: Twitter (now X), Instagram, WhatsApp, Snapchat, TikTok, Google Search, Google Maps, YouTube, Facebook, and Amazon shopping.
What we rate
The study looked at how much people value different online services. They measured this by asking participants how much they’d be willing to give up using these sites for a month.
Surprisingly, people valued Google Search the most, even more than hanging out with friends face-to-face. Next in line were YouTube and Google Maps. On the flip side, Twitter and Snapchat were the least liked, and Facebook fell somewhere in between. To figure out the dollar value of these services, researchers used the data on how much money people would accept to quit using Facebook for a month.
This study, done in collaboration with Meta (the company behind Facebook, Instagram, and WhatsApp), found that just these 10 digital services bring in over $2.5 trillion every year. That’s around 6% of the total economy in the 13 countries they studied.
“The magnitude of the effect was striking,” the researchers explain. “It tells us that measuring the value of digital goods is not just a theoretical exercise: This is making a first-order difference in billions of people’s lives.”
Reducing inequality
Interestingly, the data found that countries with somewhat lower GDP levels typically got more value from these digital goods than their wealthier peers. What’s more, the same applies to lower-income people within each of these countries.
“At first we thought that was sort of surprising, but then we realized, if you don’t have much money, it makes sense to consume and get a greater benefit from free goods,” Brynjolfsson says. “That means an important implication is that digital goods tend to reduce inequality within countries and between countries.”
The study is notable because it not only covers a wider range of digital products and services, but also speaks to a much broader range of people, both in terms of raw numbers and geographies. Not content with this, however, the researchers plan to further expand their work to cover over 800 different digital goods.
Alt metrics
Ultimately, the goal is to create a new metric for measuring the contribution goods make to our wellbeing, called GDP-B. The researchers believe that this measure, rather than GDP, which only covers how much things cost, will provide a better picture of our economic activity.
The researchers believe that having a broader and more representative understanding of value could have wide-ranging implications from how legislation is formed to how R&D is funded. It could also play a crucial role in tackling things like inequality.
“If you want to further reduce income inequality, one tool is improving the nation’s digital infrastructure so more people have access to free digital goods,” they explain.
With digital goods and services only likely to become more important in our lives, we must get better at capturing the value they bring, even when the financial cost is zero. The GDP-B might be just the kind of metric that will allow us to do that.
