Making the frontier sector work

Financial Express

Many of the networks of value could start to become ‘utilities’ as they become more embedded in everyday lives

In the previous article, we introduced the idea of the D-sector. The three traditional sectors have a well-defined, or largely settled, understanding of the many elements that build them: (1) what resources are required, (2) employment and its regulations, (3) the path to skills, (4) how they are priced and valued, (5) taxation policies, and (6) their impact on society. We detail these below.

Defining the D-sector

Resources required: Five elements are required to build a sturdy ‘digital cocoon’: the ability to (1) get on a network, (2) communicate and connect, (3) add value, (4) make and receive payments and (5) access assets and liabilities. We detailed these in the earlier article. There is a role for both the public and the private sector in creating the networks. Many networks that help create value in the fourth sector are largely private today: think of Facebook, Uber, Amazon, AirBnB, MTurk, Fiverr, YouTube or any of the streaming networks, etc. Payment systems like UPI have been developed in the public domain. Over time, many of the networks of value could start to become ‘utilities’ as they start to become more embedded in everyday lives of people as anyone with an MS Teams or Zoom meetings will attest!

Employment: Since the network creates value by linking together buyers and sellers (terms which are used in the widest sense possible), it commands a value. Building credibility on the network, currently billed via “stars” or “like” or “followers” is hence a sine qua non. The employment or income potential on the network gets impacted by the policies of the network. Since this is a new way of earning, it has been hotly contested on whether those who come on the network are employees or partners; or whether the medium carries any responsibility for the messages. Popularly called ‘gig’ work, building long-term incomes, creating the ‘forced savings’ like provident funds, getting advantages of cheaper group insurances, etc. need to be re-imagined. Banks need to develop new models of financing such professionals, especially as the hardware requirements to get on the networks are typically required to be borne by the participant. Transferability or inter-operability of the “credibility” from one network to another will be crucial for participants, especially since networks, like trade routes and fashions, can wax and wane.

Skills and education: The pathways for jobs in the three traditional sectors required building specific skills which were honed via specialized education and on-the-job training. While the importance of the deep skills will continue, the fast-paced nature of change will require learning and relearning new technical skills, if only to remain on the network or to move between them. This will require constant learning interventions which will have to be designed to be easy to consume, understand, assess, and measure. The quality of learning itself will need to be standardized and benchmarked. Carrying the right certifications, which can be verified, as part of the digital profile will become the new CV.

Pricing and valuation: One of the most-quoted phrases of the tech economy is: “if it is free, you are probably the product”. It is amazing how some of the most valuable online activities – from communication to search – are essentially free. Starting positions have a strong anchoring bias: since we have all become accustomed to free, or deeply discounted, services, many industries in the “digital cocoon” have found it difficult to find the right monetization model. There are now moves to create (or redistribute) value: for example, Australia has recently proposed a law which requires dissemination networks to pay for information content. The relative share of value between the network and the participants will take time to reach an equilibrium – and the path will not be linear.

Taxation: If the value distribution is either zero, unknown, or unsettled, this leaves the tax authorities in a quandary. Over the last many years, the idea of Base Erosion and Profit Shifting (BEPS) for multinationals in the traditional sectors has stated to fall in place: companies moving their profits from high to low jurisdictions are now expected to be checked via international cooperation in taxation. Digital taxation continues to remain an unsettled area: the US-French dispute of taxing French wines is response to tax on American digital giants is a case in point; the Apple/Ireland-EU tax case is another. As economic value is created by the D-sector and gains from it accrue to the owners and participants of the networks, finding the right model to tax will be help generate the funds required in creating the pathways for people in the society to enter the D-sector.

Societal impact: Manufacturing and services led the need for urbanization and dense close networks of people working together. The idea of “work from anywhere” will upend the need to be present in dense cities. Many of the largest cities in the world today continue to remain port or riverside cities – they derive their roots from the industrial clustering over the eighteenth and nineteenth centuries on which the services economy of the twentieth century built upon. However, as the information technology reduced the need to be near a port, cities like Bengaluru, Hyderabad and Gurugram in India scaled up. As the fourth sector of work, especially the delivery of services, entertainment or gaming online picks up, it could have a profound reshaping of the geographies, especially in the current tier-2 cities. A specific aspect that banks and monetary authorities should keep an eye out for: as some of these networks become islands of value, they may become systems which require only infrequent conversion of their internal “currencies” with the external world.

The author is with Axis Bank. Views are personal.