Introduction
Over time, the classification of countries based on their level of economic development has evolved. Initially, the term “First World” described countries with advanced economies and substantial wealth. The “Second World” comprised countries of the Eastern Bloc, which, while not reaching the economic indicators of First World countries, demonstrated industrial and developmental progress. Lastly, countries with lagging economies at various levels were categorized as “Third World” under this classification system.
Currently, countries are classified in terms of development into:
- Advanced industrial countries, or literally, developed countries.
- Developing countries, and often the poorest countries in this group are distinguished as the Least Developed Countries.
Gross Domestic Product (GDP) or Gross National Product (GNP) are the two leading economic indicators on which the world’s countries are classified in terms of their level of development. However, this classification depends on several other indicators related to:
- Domestic/Internal market size.
- The level of balance between the main economic sectors, especially the size of the industrial sector, compared to the traditional agricultural sector.
- The ratio of countries’ exports of finished goods compared to raw materials and intermediate goods.
- The level of the development of the financial sector, stock exchanges, and financial instruments.
- The level of digital transformation a country achieves and the degree of intervention of this digital transformation in its economic and governmental sectors and society as a whole.
Digital technology today represents the main driver of economic development and growth in all countries worldwide. Many economic activities are based on digital technology and are adopted in their processes to enhance efficiency and productivity. Therefore, everyone sees digital technology as the primary hope for less developed economies to overcome challenges and catch up with advanced industrial economies. However, this hope seems to have faltered over the past three decades.
It should be noted that, as experts emphasize, “Digital transformation is not technologically static, nor is it a detailed plan, a one-time event, or a one-size-fits-all strategy.” We should think of the use of digital technology and digital transformation as a dynamic process. This process interacts with the rest of the processes operating in any society. The outcome depends on the interaction of these processes, not on the role of any of them alone.
This paper aims to provide a brief overview of the relationship between digital technology and the efforts of the economies of poor and developing countries to develop and overcome the obstacles of catching up with advanced industrial economies. The paper highlights the expected role of digital technology in expanding economic and social development potentials. The paper also addresses the challenges facing digital technology transfer, a necessary process for poor and developing countries to benefit from this technology. Finally, it discusses several ways in which competitiveness conditions are adjusted to the disadvantage of poor and developing economies.
Digital Technology and Expanding Development Potentials
Since the Industrial Revolution began in the late 18th century, our world has experienced several waves of technological development. Each wave has significantly contributed to driving economic growth in countries worldwide.
What distinguishes digital technology from previous technologies is its unprecedented capacity to expand the potential for development and economic growth. This is primarily due to the diversity of industries created by this technology. For example, industries that manufacture essential electronic equipment for using digital technology have emerged.
The most important of these industries are the electronic chips industry and the computer industry in its various forms, culminating in smartphones. In later stages, industries related to essential equipment for connecting to the Internet and more have also emerged. These industries share many requirements with traditional industries. On the other hand, digital technology has created other industries that differ significantly from traditional ones, such as the software industry.
These industries rely more on human resources than on physical resources. This means they require less investment in fixed physical assets, such as equipment and facilities while relying on the availability of skilled and creative labor.
Advantages of Digital Technology for Poor and Developing Countries
Several features distinguish digital technology from other technologies. Some of these features make digital technology a candidate for contributing more to driving the economies of poor and developing countries towards growth and development.
Among digital technology’s distinctive features is its rapid spread, which is faster than any previous technology. This has led to its applications spreading very quickly in poor and developing countries, especially compared to previous technologies.
Many digital technology applications are also characterized by lower costs, which tend to decrease further over time. Consequently, a significant portion of digital technology applications has been and continues to be, easily adopted and utilized by poor and developing countries.
The second key advantage of digital technology for poor and developing countries is its integration into various economic activities. This means that, in addition to the economic activities based on digital technology itself, serving it directly, numerous applications can be incorporated into other economic sectors.
Integrating digital technology into other industrial sectors leads to several positive outcomes for these sectors, including reduced costs for specific operations and increased efficiency. For poor and developing countries, this feature of digital technology opens broader prospects for overcoming many of the chronic problems in their economies.
Poor and developing economies struggle to overcome the chronic problems in their various economic sectors due to the high costs associated with implementing the necessary adjustments. In many cases, digital technology has provided low-cost alternatives for addressing such problems, helping to free some economic sectors from the obstacles they faced. The economic sectors that have benefited adequately from the use of digital technology have achieved higher growth and development rates.
Potentials of Economic Development
Digital technology has opened up new areas of economic activity, some of which, as previously mentioned, do not require significant investments initially. A key example of such activities is the software industry, which provides a broad scope for innovation without the need for an exaggerated amount of expensive assets to operate in it.
The software industry offers opportunities for competition and market access for small entities worldwide. This has led to the success of this industry in several poor and developing countries, contributing to economic growth and increasing income levels for many of their citizens. A prominent example of this is India.
According to a 2019 study, the software industry contributed 8% to India’s GDP. At that time, this industry generated revenues of 117 billion dollars and exported approximately 135 billion dollars in the 2018-19 fiscal year. The information technology sector also created over four million jobs directly and another 12 million jobs indirectly.
Adopting digital technologies offers developing economies a unique opportunity to achieve substantial economic progress in a relatively short time. However, the early adoption of digital technologies often involves higher costs, necessitating a distinct approach. This approach focuses on specializing in an area of strategic importance across various digital technology-based industries, ensuring that the anticipated returns and benefits align with the substantial investments required.
The best example of this approach is Taiwan’s early focus on the electronic chips industry. The country directed its investments towards a single company, Taiwan Semiconductor Manufacturing Company (TSMC). This company’s electronic chips exports amount to approximately 184 billion dollars, representing a quarter of its GDP. TSMC holds 55% of the global electronic chips contracting market. It also makes several high-tech electronic chips that no one can compete with.
Potentials of Social Development
Social and economic development share an intricate and interdependent relationship, rising and falling in tandem within societies. Social development revolves around a society’s ability to enhance the quality of life for its members, fostering advancements in areas such as education, healthcare, and social welfare.
Some services available in any country play a fundamental role in determining the quality of life of individuals. Foremost among these services are education and healthcare. Previous papers of Masaar have discussed the relationship between digital technology and these services as fundamental rights for citizens in any country. This paper’s approach focuses on the impact of digital technology on the role of social development in driving the economies of poor and developing countries towards the goal of transforming into advanced industrial economies.
Digital technology provides new, easier, more widespread, and lower-cost ways to access information, particularly through the Internet. A significant amount of information accessible through digital technology relates to the technology itself.
This allows large groups of individuals to access specialized information and develop skills related to digital technology. Such individuals can leverage the information and skills they acquire to engage in various activities related to digital technology, either independently or as employees of organizations of different sizes.
Conversely, digital technology is rapidly spreading in various communities, including those in poor and developing countries. This widespread use of personal computers and smartphones, for example, creates a need and demand for numerous services that support users of digital technology applications.
Some of these services do not necessarily require highly specialized expertise or advanced skills. Therefore, many individuals who have acquired knowledge and developed their skills through self-effort can provide simple support services that consumers of digital technology products need. Such services range from selling supplementary items for operating various devices to performing basic maintenance tasks and assembling personal computers from their essential components.
Today, a large number of individuals in developing and poor countries are engaging in an informal market to provide these services. This type of work is not usually available in advanced industrial countries due to the nature of their markets and the prevailing forms of control. The informal market aligns the average income levels in poor and developing countries with the demand for essential services needed for the use of digital technology in its simplest forms.
Although the previously indicated developments pertain to informal methods, most of which are limited to microeconomic entities, they form a social base for demand for digital technology applications as well as a base for related knowledge and skills.
Emerging economic entities of larger sizes can leverage these bases, either to respond to the expanding demand for digital technology-related services or due to the available basic knowledge of how to engage with this technology. The spread of computers and smartphones allows for the development of the digital economy and the provision of more advanced services to those seeking them. Thus, the growth of an informal economy and market around digital technology applications could contribute to the growth of the formal economy and market for these applications.
Challenges of Transferring Digital Technology
The emergence of digital technology is linked to previous technological, economic, and social development stages. These stages vary between countries for several historical reasons. Therefore, it is natural that digital technology has developed in certain countries rather than in others.
Leveraging digital technology depends on the capacity of the poorest and most developing countries to transfer it from the countries where it originated and developed. Technology transfer to any country relies on several factors, some external while others internal.
Although digital technology is characterized by its ease and speed of transfer, compared to previous technologies, the potential for its adoption and use to drive economic growth faces numerous challenges in poor and developing economies. This section of the paper reviews some of the main challenges associated with digital technology transfer to poor and developing countries.
The Structural Weakness of the Economies of Poor and Developing Countries
The poorest and developing countries vary significantly regarding their natural and human resources. However, their economies share many structural problems. These structural problems refer to the kinds of problems inherent in the way an economy is structured and operates in any given country. Such problems affect the potential for any economic activity’s emergence, sustainability, and growth.
Among the structural problems most poor and developing economies face is the dominance of traditional sectors, such as agriculture, over the more flexible and vital sectors, like industry and finance. Countries with more technologically advanced industrial sectors tend to adopt newer technologies more quickly and efficiently. This is because the industrial sector’s social foundation of labor relations is more flexible.
This makes it easier for people working in the industrial sector to move from one field to another than for people working in agriculture. Additionally, the industrial sector relies on certain specialized skills, which, in turn, require higher educational levels than those needed for traditional agricultural practices inherited over thousands of years. This means that the growth of the industrial sector in any country represents an incentive for the spread of a minimum level of education that qualifies individuals to work in it.
Digital technology is undoubtedly fundamentally related to industrial activities. Although it differs from the traditional industrial activities that preceded it, it is based on the same foundations on which these activities are built. Therefore, countries with a large industrial sector have a better opportunity to absorb and efficiently utilize digital technology. Given the weakness and small size of industrial sectors in most poor and developing economies, they face significant challenges in adopting digital technology.
This challenge becomes more significant when digital technology is used to drive economic development in these economies. A country may adopt digital technology in a consumeristic way among its higher-income groups. Government sectors in this country can also rely on aid and cooperation projects with international bodies to adopt digital technology in their operations.
However, this does not significantly impact economic growth in this country. This is because the productive sectors remain unable to adopt digital technology in their operations, and there is insufficient flexibility for local investments to shift towards establishing and developing digital technology industries.
One of the prevailing structural problems in poor and developing economies is the weakness of their financial sector. This is primarily due to the weakness of capital accumulation in these economies, which leads to a lack of financial resources available for investment in general.
However, the financial sector’s weakness is primarily reflected in the low ratio of bank deposits to the money circulating in the market. This makes reliance on financial instruments less effective in the economy, hindering the development of these tools and slowing the adoption of more flexible and advanced ones. The weakness of the financial sector also makes the economy less flexible in general. This is reflected in the difficulty of transferring investments between different economic activities.
The less financial flexibility an economy has, the more difficult it is to adopt new technology. This weakness leads to the financial sector’s inability to finance small and micro industries due to their high investment risk. This is mainly reflected in the economy’s ability to adopt many activities, specializing in digital technology, characterized by reliance on small and microeconomic entities. Such entities do not find sufficient support from the financial sector in poor and developing economies due to their weak financing and inadequate financial tools available to support them.
Poor Infrastructure
The vast majority of poor and developing economies suffer from severely weak infrastructure. This is usually because infrastructure projects are always expensive and require a long time to yield tangible economic returns. As a result, poor and developing countries often struggle with inadequate infrastructure that fails to cover their entire geographical area. They also face low efficiency in this infrastructure, either due to insufficient initial investment or an inability to maintain and develop it at an appropriate rate.
This weakness represents a major obstacle for poor and developing countries to adopt digital technology. Although many digital technology-related activities do not require large initial investments, they depend on the infrastructure expected to be available, primarily electricity facilities and communications networks.
Many poor and developing countries still cannot provide electricity to all their citizens. Additionally, many of these countries suffer from unstable electrical networks, either due to a lack of resources to operate power plants or because these plants are outdated and lack sufficient funding for maintenance and upgrades.
The same applies to communications networks, but with the addition of the fact that communications technology is developing rapidly worldwide. The development of communications networks requires large investments to keep up with the latest technological advancements.
Ultimately, this weakness in infrastructure makes it challenging to leverage digital technology’s comparative advantages. Small and micro-entities in poor and developing countries face significant difficulties operating and competing in markets reliant on digital activities.
This results in a waste of time and effort when addressing infrastructure problems. In order to function minimally, these entities require stable electrical power to operate devices and equipment without damaging them. They also require a stable internet connection at an acceptable speed, which is still unavailable in many poor and developing countries today.
Lack of Expertise and Skills
Previous papers of Masaar have addressed the issues related to the decline in educational services in poor and developing countries. This paper sheds further light on the problem of the lack of expertise and skills necessary to utilize digital technology, specifically concerning the economic structure in these countries.
The imbalance in the economic structure of many poor and developing countries, with the predominance of traditional activities over industrial ones, leads to low demand for expertise and skills that require higher education. Consequently, two factors combine: the weakness of educational services in these countries and the low demand for their outputs. This results in fewer individuals possessing the minimum necessary education to specialize in technical fields, particularly digital technology-related ones.
Adjusting Competition Conditions
The dominant global economic model today is based on the principle of competition. However, a significant portion of the international discourse, whether from organizations like the United Nations or advanced industrial countries, focuses on cooperation and balanced development. These two approaches are combined by directing the practical application of cooperation and balanced development concepts to enhance the capacity of poor and developing economies to compete.
This application overlooks the fact that one of the fundamental reasons for the weakness of poor and developing economies is their lack of participation in defining the conditions of economic competition. It also ignores that these competition conditions are constantly changing.
This evolution primarily depends on the prevailing economic conditions in advanced industrial countries; it tends to align with emerging developments in these countries, particularly technological advancements. In other words, the conditions of economic competition emerge with an inherent bias in favor of advanced economies from the outset.
The next section of the paper discusses how the evolution of digital technology has altered the conditions of economic competition and the impact of this shift on the ability of poor and developing economies to engage in that competition successfully.
The Impact of Digital Technology on Competition Conditions
One of the main features of digital technology is its pervasive integration into all aspects of daily human activities, particularly economic activities. This means that the processes humans engage in daily have become reliant per se on digital technology. As a result, the extent to which digital technology is integrated into any economic activity has become a crucial factor for competitiveness in that field. This creates several challenges, as the necessity to use digital technology adds further requirements that any economic activity must meet to have a chance to compete.
For many economic sectors today, using digital technology in most of their operations is no longer a luxury. In numerous cases, it has become essential for the sustainability of economic activity, while continuous updates to the digital technology applications in use are sometimes not just an option but a necessity.
This places varying degrees of pressure on different activities in poor and developing countries. Sometimes, these pressures can be too much for medium or small economic entities. Financial pressures may arise when costly applications are needed, or devices, equipment, and other requirements are acquired, such as connecting heavily to the Internet. Some of these pressures may also be practical, such as the lack of labor with sufficient skills and experience capable of handling some of the more complex digital technology applications.
Barriers to Adopting the Digital Economy
The digital economy here refers to e-commerce, e-banking, service delivery platforms, employment and freelancing platforms, etc. It is today one of the fastest growing economic sectors in the world. Therefore, it provides wide-ranging opportunities for achieving rapid economic growth for the poor and developing countries that need this growth the most.
However, adopting a digital economy in these countries faces several challenges. One of the most significant challenges is the weakness of the financial sector in poor and developing economies. The paper indicated, in a previous section, the impact of the financial sector’s weakness on the potential of adopting digital technology in general.
Regarding the adoption of the digital economy, the financial sector’s weakness in poor and developing countries is reflected in the limited reliance of ordinary citizens on its services. In other words, most poor and developing economies still rely on direct cash transactions in markets to complete exchanges of goods and services.
This results in some digital economy activities being less efficient due to the need for additional steps in the money exchange cycle. For other activities, such as remote work and freelancing platforms, this barrier can completely prevent the activity from occurring, as there are no alternatives to electronic payment methods to accomplish money exchanges in these contexts.
Among the barriers to adopting the digital economy are factors related to the availability of a minimum level of skills in using digital technology tools and applications among large segments of society. These factors include the prevailing income levels and the ability of ordinary individuals to acquire technological devices, such as computers and smartphones. These factors also include education levels, which affect how ordinary individuals can handle digital tools and applications.
Undoubtedly, poor and developing economies experience varying degrees of low average income among ordinary individuals and low education levels among large segments of the citizens. In addition, daily interaction patterns based on direct communication are prevalent, coupled with a widespread distrust of indirect means of communication.
Finally, in poor and developing economies, there is a widespread presence of what is known as the informal economy or market, i.e., the one that is not bound by the official legal framework that governs practicing economic activities. The informal economy and market often extend to digital economic practices, which leads to the absence of formal oversight of these practices. As a result, consumer trust in these services is diminished, which, in turn, impacts the overall confidence in digital economic practices.
Monopoly and Centralization of Digital Technology
Digital technology and its applications originated in advanced industrial countries. Numerous private sector companies participated in developing this technology, leveraging their early adoption to grow rapidly and capture a significant market share. The various aspects of digital technology, its applications, and the industries based on it each have a clear pattern of monopoly.
From basic industries such as microchips and semiconductors to internet services and social media platforms, a limited number of large companies dominate each sector, controlling most of the market. Most of these major monopolistic companies are among the largest globally today, including Microsoft, Amazon, Apple, Meta (which owns Facebook, Instagram, and WhatsApp), Nvidia, and Google.
Monopolies in digital technology sectors narrow the competitive landscape for companies attempting to enter or grow within these markets. Even when startups manage to achieve notable success through innovations, it often ends with acquisition where one of the major companies acquires them.
This global phenomenon has an amplified impact on economic entities in poor and developing countries due to their limited resources and the challenging conditions under which they operate. Consequently, these entities’ ambition to compete in digital technology markets is nearly impossible.
This limits the scope of work for economic entities seeking to operate in the digital technology field. The workspaces available to these entities are limited to performing agency roles for large companies or building services and applications based on the technologies developed by these companies; therefore, their work always remains dependent on their products. The monopoly and centralization of digital technology also entail a ceiling for growth that is difficult or impossible to exceed for emerging entities operating in their markets.
Migration of Material and Human Resources
The migration of material and human resources from poor and developing economies to advanced industrial economies is likely the result of the various factors discussed in the previous sections of this paper. The challenges of transferring digital technology to poor and developing countries and the difficulty of competing there make the expected return on investment in digital technology lower than in advanced industrial countries.
Advanced industrial countries have various favorable factors for investment in digital technology sectors. Consequently, individuals and entities with adequate capital accumulation in poor and developing countries prefer to direct their investments in digital technology outside these countries.
This means that even in cases where structural issues in poor and developing economies are addressed and capital is liberated from traditional sectors, this capital does not flow towards developing the communications and information technology sector within the country itself. Instead, it migrates to advanced economies.
It’s not just capital that tends to migrate from poor and developing countries to advanced industrial ones; raw materials essential for industries supporting digital technology also follow this trend. Some of the poorest countries are simultaneously rich in raw materials necessary for the fundamental industries of information technology. A prominent example is the Democratic Republic of the Congo. While many rare minerals essential for electronic chip production are concentrated in Congo, several factors prevent the establishment of industries that utilize these minerals within the country.
Finally, the migration of resources from poor and developing countries to advanced industrial ones also includes human resources. Local markets cannot absorb individuals with advanced skills and expertise, nor do they provide satisfactory employment opportunities, whether in terms of financial returns or job security.
Additionally, the prevailing living standards in poor and developing countries and political and social issues create an environment that drives individuals to seek opportunities for migration abroad. Consequently, many specialists in digital technology fields from these countries strive to migrate to advanced industrial countries, where they can achieve greater professional success and a better quality of life.
Conclusion
Digital technology represents a promising path to helping poor and developing countries overcome their economic challenges and catch up with advanced industrial countries. However, this path is not as straightforward as it may seem at first glance. Poor and developing economies face numerous challenges that hinder their ability to leverage digital technology for their goals. This paper has provided a brief overview of this issue.
The paper’s first section outlined what digital technology can offer to expand development opportunities in poor and developing countries. The second section addressed some of the challenges these countries face in adopting and utilizing digital technology. Finally, the last section presented an overview of how digital technology itself modifies the conditions of economic competition and how this adjustment negatively impacts the ability of poor and developing economies to compete and grow.