Striking Numbers on the Digital Economy, Tech Firms and the Pandemic

By SBE Council at 27 May, 2022, 11:08 am

Not only were digital economy sectors insulated from declines in other areas of the economy, but in key ways, the digital sectors – that is, entrepreneurs, small businesses and the much-maligned “Big Tech” in vital technology sectors – served as lifelines to other industries, to other entrepreneurs and workers, and to consumers.

by Raymond J. Keating –

If you needed another reminder of how important technology and tech firms are to U.S. consumers, small businesses and workers, take a look at a new report from the U.S. Bureau of Economic Analysis titled “New and Revised Statistics of the U.S. Digital Economy, 2005–2020.” Indeed, the data presented verify the essential importance of digital firms and technologies to Americans during the pandemic.

The authors – Tina Highfill and Christopher Surfield – reported the following:

● “The new data show in 2020, the U.S. digital economy accounted for $3.31 trillion of gross output, $2.14 trillion of value added (translating to 10.2 percent of U.S. gross domestic product (GDP)), $1.09 trillion of compensation, and 7.8 million jobs.”

● “Growth in price-adjusted GDP (also referred to as ‘chained-dollar’ or ‘real’ GDP) was 4.0 percent in 2020, greatly outpacing growth in the overall economy, which contracted –3.4 percent.”

● “The annual growth rate for real gross output [from the digital economy] averaged 4.8 percent between 2012 and 2020, much faster than the overall economy’s growth of 1.5 percent over the period.”

● The following table shows the breakdown of the digital economy’s output:

Source: U.S. Bureau of Economic Analysis, “New and Revised Statistics of the U.S. Digital Economy, 2005–2020.”

● “Hardware, software, and business-to-consumer (B2C) e-commerce were the main drivers of growth in the digital economy for 2020.”

In an understatement, the authors declared: “These new digital economy statistics suggest this area of the economy was mostly insulated from the declines seen in other areas of the economy caused by the pandemic.”

In reality, of course, not only were digital economy sectors insulated from declines in other areas of the economy, but in key ways, the digital sectors – that is, entrepreneurs, small businesses and the much-maligned “Big Tech” in vital technology sectors – served as lifelines to other industries, to other entrepreneurs and workers, and to consumers.

Indeed, as highlighted by a recent SBE Council survey of pandemic startups, access to and the availability of technology and digital tools – such as social media, e-payment options, affordable online advertising, ready access to infrastructure support like shipping and e-commerce sites, were all cited as critical to the launch of these new businesses.

One would hope that elected officials would recognize, and indeed, celebrate these significant accomplishments by tech firms in serving much of the rest of the economy. Instead, however, we see odd political attacks against so-called “Big Tech” with efforts to ramp up regulation, especially antitrust regulation against firms that are in dynamic, ever-changing industries, and competing against current, emerging and future competitors.

Among the lessons that should have been learned during this pandemic is that policymakers should be focused on tax and regulatory relief that incentivize entrepreneurship and investment across the economy, including in the digital economy.

Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council.