Australia’s economy is now heavily digitally geared. Key sectors such as manufacturing, retail, hospitality, and banking and finance are moving rapidly to online preferences.
Recently, the coronavirus pandemic has amplified this digital shift as Australian workplaces lurched from office-based work to digitally enabled remote working. While it is not yet clear, it is anticipated the coronavirus pandemic will change the structure, space, and location of work.
Reflecting on the move from office-based to remote working, the CEO of Barclays noted the: “The notion of putting 7,000 people in a building may be a thing of the past.”
The CEO of Corteva Agriscience reflected on the increased connection that was coming from changing work practices in response to the pandemic: “I have been so much more connected to 20,000 employees in the last six weeks than I have in the last six months thanks to the technology we are using.”
The fundamentals of organisation and work are changing rapidly, and these trends show every sign of setting new workplace precedents for Australia’s economy.
Rapid digital growth and deep digital integration
Australia’s digital economy is at the core of Australia’s economic current and future.
Overall, according to the Australian Bureau of Statistics (ABS), the digital activity gross value added grew by 7.5% per annum – almost five times larger than current national Gross Domestic Product (GDP) growth.
Australians spent $34.27 billion in online retail sales in the 12 months to April 2020, nearly 10% of Australia’s total retail trade estimate that year. This figure is increasing at nearly 10% per year, and online trade usually being 4-5 times higher than standard retail.
Based on these averages, a quarter or more of retail could be online within a decade. In April 2020, the Online Shopping industry index rose to 58.5% compared with April 2019. This is a significant jump from 19.3% and 28.6% (in February and March 2020). This shift is due to consumers increasingly shifting shopping activity online as they adapt to the pandemic restrictions.
The Chief Information Officer of the Reserve Bank of Australia (RBA), Gayan Benedict, provided a unique insight into the RBA’s deep digital integration. Benedict listed the breathtaking range and complexity of the RBA’s modern digital interactions, spanning nearly every element of the bank’s core services:
“By example, our New Payments Platform, the Bank-managed Fast Settlement Service that underpins it, is integrated in real-time across the nation’s banking sector. Similarly, our new core banking platform is plumbed via cloud-based API services into our government customers to enable real-time payments into citizen’s accounts. The Bank’s policy areas have developed new data platforms that consume massive data sets from across industry to assess credit risk and maintain stability across our markets.”
Commerce without digital technology in Australia has become nearly impossible.
Why trust matters in a market economy
Trust is an integral component of market economies, but it is also something that is hard to understand or to quantify. Nobel Prize-winning economist Kenneth Arrow identified trust as an “invisible institution” that made economies work more effectively, but “it is not a commodity… if you have to buy it, you already have some doubts about what you’ve bought”.
Onora O’Neill, the pre-eminent philosopher on trust, noted that each of us and every profession and every institution need trust. “We need it because we must be able to rely on others acting as they say that they will, and because we need others to accept that we will act as we say we will”.
The trust that delivers efficiency and reduces friction between our interactions. Trust is at the core of our economic activity. In a digitally dependent economy, trust becomes more important while also becoming more fragile. Consequently, how we measure digital trust is now important.
A Digital Trust Index
The risks inherent in our increased digital dependence are constantly evolving.
In 2017, the Tufts University mapped the competitiveness of a country’s digital economy as a function of two factors: its current state of digitisation and its pace of digitisation over time.
Australia fell into a category labelled ‘Stall Out’ where countries enjoyed a high state of digital advancement while exhibiting slowing momentum. These countries were seen to be on a digital plateau where additional investment was needed to reinvent themselves through innovation.
The same study produced a trust index that contrasted how the guarantors of trust (business and government) with the users (the givers of trust) behave in the digital environment. On these ratings Australia was in a category labelled ‘Trust Deficit’. Essentially, users were relatively sophisticated in their understanding the digital environment but were seen to be ‘less patient and fickle when faced with friction online’.
While these measures provide useful insights into digital behaviour, they do not provide measures that can be used help us build better foundations for digital trust.
At Synergy, we have developed a Digital Trust Index (DTI) that draws on economic data and frames the problem in terms of risk and mitigation. Our DTI includes measures of consumer behaviour, business investment infrastructure, economic performance (for example, e-commerce), and workforce capability and capacity.
Our objective is to provide insights that will inform policy decisions for government and industry but also provide an objective measure of the state of digital trust across the economy.
The Digital Trust Index seeks to make the invisible a little more visible.
The opportunities and vulnerabilities in Australia’s digital economy
By our estimates, digital activity, considered on its own terms as GDP, currently contributes, directly and indirectly, approximately $426 billion to the Australian economy. Additionally, digital activity considered on its own terms is responsible for some 2.3 million jobs and generates some $1 trillion in gross economic output from the Australian economy.
The trends digital activity suggest these figures are only going to grow.
- Increased Volume. We anticipate that digital transaction volumes will continue to increase, possibly accelerated by changed consumer behaviour during the global pandemic.
- Increased Complexity. We expect the complexity of transactions will increase with more business and government organisations connected more deeply together. The governments introduction of consumer data right to give greater access to and control over their data is heavily dependent on trusted infrastructure and deep connections across government and businesses.
- Increased Consumer Expectations. Consumer expectations of frictionless service delivery will continue to rise with Australian’s like to continue to be impatient with disruption and barriers.
- Frictionless Regulation. We expect that regulatory activities will continue to need to run hard to catch -up with technology and consumer expectations. Regulators provide the oversight that is central to consumer trust in terms of transparency, accuracy, and accountability. However, consumer expectations of digital interaction are that regulation will also be frictionless.
- Greater Speed, Connectedness, and Interdependence. The speed of transactions will only increase, which deepen connections and interdependence in ways that less visible and require greater trust from consumers.
- Heightened Brand Risk. The reputational damage that comes from failures in service delivery but also fraud and insecure systems will increase. With increased digital activity the frequency of digital disruption is also increasing. It is not only focused on financial transactions and fraud but also (more recently and more frequently) on service delivery disruption and data privacy breaches. The damage to brand, and thereby, trust in the marketplace will be swift. This trust will be difficult and expensive to recover, and in some cases, may never be recovered.
There are many good reasons for us all – consumers, businesses, and government – to be paying closer attention to how trust works in a digital economy.
About the Authors
Synergy’s Advanced Modelling Group (AMG) specialises in Labour Market, Workforce and Demographic Modelling, Macroeconomic Modelling and Economic Impact Analysis, and Critical Infrastructure Modelling. Dr Jiao Wang and Dr Jan Drienko are experienced economists and modellers who work closely with every part of Synergy’s business to provide our government and private sector clients with insight into the economic trends that affect policy, regulation, service delivery, and people.
If you would like to know more about our work or the Digital Trust Index, contact Dr David Schmidtchen ([email protected]