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Cho, M. The Key Motive of Adaptive Social Innovation. Encyclopedia. Available online: https://encyclopedia.pub/entry/20765 (accessed on 03 May 2024).
Cho M. The Key Motive of Adaptive Social Innovation. Encyclopedia. Available at: https://encyclopedia.pub/entry/20765. Accessed May 03, 2024.
Cho, Minhyuk. "The Key Motive of Adaptive Social Innovation" Encyclopedia, https://encyclopedia.pub/entry/20765 (accessed May 03, 2024).
Cho, M. (2022, March 20). The Key Motive of Adaptive Social Innovation. In Encyclopedia. https://encyclopedia.pub/entry/20765
Cho, Minhyuk. "The Key Motive of Adaptive Social Innovation." Encyclopedia. Web. 20 March, 2022.
The Key Motive of Adaptive Social Innovation
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This entry is adapted from the peer-reviewed paper 10.3390/su14063408

The fundamental cause of adaptive social innovation can be found in the changes derived from the “digital economy.” Newly born platform capitalism and its industrial structure are expanding their dominant power in economic systems. This is causing extensive upheaval in the fundamentals that support the social and economic environment such as production, consumption, distribution, etc., by reorganizing the production and distribution systems. 

social innovation digital economy institutional transformation

1. Transformation of Production

The transformation of production style derived from the digital economy has decreased the value of human labour, thereby replacing jobs with machines. Since 2010, 50% of all employees in the U.S. have been facing the threat of losing their jobs due to the introduction of robots, software, AI, etc. [1] (p. 38). Additionally, Germany is undergoing a larger scale job replacement than the one in the U.S. In Germany, the job loss rate is expected to be a minimum of 25% [2] and up to 54.2% [3]. Southern Europe is also facing a similar threat [4] (p. 4). In this way, the transformation of production style derived from the digital economy is influencing industries and the labour market directly. Reference [5] (p. 360) pointed out that the speed of invention to reduce the labour force is faster than the speed of new labour force demand. Additionally, this still has implications in production transformation of the digital economy. The direct challenges from production transformation for individuals and markets include the loss of work opportunities, decrease in demand in terms of existing job skills, the spread of new types of jobs, etc.
This kind of transformation is due to discrepancies between the current technology innovation, in 2021, and past technology innovation. Past technology innovation created more jobs than the ones it destroyed, but the current technology innovation is not like that [6]. Using a refined computer algorithm in 2013, Manyika et al. (2013) predicted that of the regular knowledge workers in the world, 140 million people would be replaced [7]. Nowadays, such a prediction is being realized because of AI, robots, IoT, etc., in the digital economy. In particular, the proportion of the groups who have left the labour market due to the loss of opportunities to exchange their labour with wage is getting bigger, thereby causing serious social issues including poverty, polarization, educational discrepancies, and the increase in welfare cost [8][9].
On the other hand, the decrease in demand for semi-skilled labour is drastically reduced and the demand for new kinds of work skills is increased because of the digital economy, so changing the contents of education for the future generation and retraining existing workers are both essential. Due to the changing environment, and as the skill gap is getting bigger due to the capability gap between existing workers, the reduction in labour force and increase in unemployment rate is posing a threat to social and economic fundamentals. A new kind of education system, including lifelong learning, cross-sector education, public–private partnership in education, etc., is needed to foster the work capacity of employees according to the digital economy environment [10].
In addition, the industry structure is changed, as parallel workers are available because of the digital economy, so the traditional relationship between employers and employees is being destroyed. The labour population is not bound by employers, and free from this tight bound, they construct self-organization of labour. This kind of trend is tearing down the walls between “home” and “workplace.” However, these parallel workers are excluded from most social welfare benefits. In Europe, many parallel workers who belong to the self-employed group have lost unemployment benefits and are excluded from occupational health and safety insurance [11]. In other words, the transformation of production style increases new types of jobs such as parallel jobs, remote working, etc., but this kind of change is not being reflected in the employment safety net. So, the labour population who left the existing labour market is failing in getting into the market or are being forced to undertake low-wage jobs.

2. Transformation of Consumption

The characteristic of the consumption sector due to the expansion of the digital economy is the transformation of consumption triggered by suppliers. The spread of platform economy, which is a key characteristic of the digital economy, is expanding the monopoly system for a small number of platform companies to dominate the whole market [12][13], thereby establishing a “winner takes all” market structure where only a few, or one, supplier exists [14]. Big tech companies such as Amazon, Google, Meta, etc., who dominate the platform industry, interfere in all kinds of consumption activities of individuals within the platform, exerting their market dominance power [13]. As a result, the purchasing power of consumers is diminishing and the information power of big tech companies is increasing, further strengthening the monopoly systems. This is transforming the consumption sector.
The characteristic of digital technology is the high initial cost for developing and constructing the platform networks, but its marginal cost is becoming almost zero. Jeremy Rifkin (2014) describes how intangible, digitized goods and services that can be possessed without necessarily being owned, requiring quasi-zero marginal costs for reproduction [14]. The typical example is the difference between a paper book and e-book. Paper books require the printing cost to reproduce contents, but e-books need almost zero cost to reproduce contents [15]. Namely, as products, services, and consumer networks grow, the efficiency of internal networks is increasing, but it constrains the competition outside the network [16]. Therefore, the company equipped with a wide range of services can keep the low unit production costs and low price by utilizing a wide range of networks. However, the subjects of monopoly pursue higher prices regardless of low production costs. This leads to the loss of consumers’ purchasing power. Additionally, if competition in the market is diminished, technology advancement is not connected to the quality improvement of products and services or reducing the production cost [17]. So, it will be hard to achieve the biggest advantage of technology innovation, which is obtaining the improved range of products at cheaper prices.
On the other hand, the market dominance of the platform companies is getting bigger thanks to data application. World-renowned platform companies are expanding their investment into the data value chain by using artificial intelligence technology [18]. In a way, this trend is expected to increase the transparency of the market. However, there are some concerns that information asymmetry between consumers and corporations can form a new power relationship focusing on corporations. Big tech companies, which own user data, can understand users better than users themselves. As a result, the big tech companies’ market dominance will further expand. In other words, big tech companies can utilize big data to grasp the potential consumer’s maximum willingness to pay. So, they can classify consumers according to their maximum willingness to pay, and offer different prices based on this data to maximize their profits [16]. 

3. Transformation of Distribution

The expansion of automation and the job crisis due to the digital economy is causing various social challenges, including income disparity and polarization. Since 2000, the demand for semi-skilled workers has been decreasing, and those workers’ wages have decreased or stalled [6]. On the other hand, the demand and wage for highly educated workers are increasing. The wage differences between the two labour groups are becoming bigger, and the income disparity issue is becoming worse [19]. The distribution issue is a key motive of adaptive social innovation, and it could increase the burden of public finance because of the increasing welfare demand. Furthermore, it could be a threat to the future generation’s income.
One of the transformations in distribution structure due to the digital economy is the decline in household income, and this constrains the domestic demand, which is an obstacle in economic growth. In this case, one of the typical government measures is increasing public spending [20]. The rise in public spending impacts on increasing disposable household income, but it is not a sustainable solution [21]. Since 2010, many nations in the world have increased public spending, thereby continuously increasing the public debt-to-GDP ratio. As for the U.S., the UK, and Italy, the public debt-to-GDP ratio reached 100%, causing a negative impact on national finance [6]. At the same time, the break away from the market by the labour population increases the welfare demand and reduces the tax income, so increasing public spending cannot guarantee sustainability.
Meanwhile, the social threat caused by the digital economy is expected to impact the future generation’s income rather than the current generation. Since 2010, the household income for most populations has stalled or decreased. Coupled with digital transformation, the level of income decrease is increasing for less educated and young workers [6]. In addition, companies tend to reduce regular jobs and constrain opportunities for the young generation to create income [22] (p. 421). This means that the young generation could be poorer than their parents.

References

  1. Frey, C.B.; Osborne, M.A. The future of employment: How susceptible are jobs to computerization? Technol. Forecast. Soc. Chang. 2017, 114, 254–280.
  2. Arntz, M.; Gregory, T.; Zierahn, U. Revisiting the risk of automation. Econ. Lett. 2017, 159, 157–160.
  3. OECD. How’s Life in the Digital Age? Opportunities and Risks of the Digital Transformation for People’s Well-Being; OECD: Paris, France, 2019.
  4. Akaev, A.; Sarygulov, A.; Sokolov, V. Digital economy: Backgrounds, main drivers and new challenges. Soc. Hum. Serv. Web Conf. 2018, 1–9.
  5. Keynes, J.M. Economic Possibilities for Our Grandchildren. Essays in Persuasion. 1930, pp. 358–373. Available online: https://www.aspeninstitute.org/wp-content/uploads/files/content/upload/Intro_and_Section_I.pdf (accessed on 9 January 2022).
  6. Dobbs, R.; Madgavkar, A.; Manyika, J.; Woetzel, J.; Bughin, J.; Labaye, E.; Kashyap, P. Poorer Than Their Parents? Flat or Falling Incomes in Advanced Economies; McKinsey Global Institute: San Francisco, IL, USA, 2016.
  7. Manyika, J.; Chui, M.; Bughin, J.; Dobbs, R.; Bisson, P.; Marrs, A. Disruptive Technologies Advances That Will Transform Life, Business, and the Global Economy; McKinsey Global Institute: San Francisco, IL, USA, 2013.
  8. Autor, D. The Polarization of Job Opportunities in the US Labor Market: Implications for Employment and Earnings; Center for American Progress: Washington, DC, USA, 2010; Volume 6, pp. 11–19.
  9. Chakravarty, S.R. Inequality, polarization and poverty. In Advances in Distributional Analysis; Springer: New York, NY, USA, 2009.
  10. Leopold, T.A.; Ratcheva, V.; Zahidi, S. The Future of Jobs Employment, Skills, and Workforce Strategies for the Fourth Industrial Revolution; World Economic Forum: Cologny, Switzerland, 2016.
  11. Matsaganis, M.; Özdemir, E.; Ward, T.; Zavakou, A. Non-standard employment and access to social security benefits. Soc. Situat. Monit. Res. Note 2016, 8, 1–44.
  12. Blanke, T.; Pybus, J. The material conditions of platforms: Monopolization through decentralization. Soc. Media Soc. 2020, 6, 87–96.
  13. Gillespie, T. Custodians of the Internet; Yale University Press: New Haven, CN, USA, 2018.
  14. Rifkin, J. The Internet of Things, the Collaborative Commons, and the Eclipse of Capitalism; Palgrave Macmillan: Basingstoke, England, 2014.
  15. Valenduc, G.; Vendramin, P. Work in the Digital Economy: Sorting the Old from the New; European Trade Union Institute: Brussels, Belgium, 2016.
  16. Overdiek, M. Digitalization of the Global Economy: Monopolies, Personalized Prices and Fake Valuations; Digitization and Innovation: Gütersloh, Germany, 2020.
  17. Kennedy, J. Monopoly Myths: Do Internet Platforms Threaten Competition? Information Technology and Innovation Foundation: Washington, DC, USA, 2020.
  18. UNCTAD. Inequalities Threaten Wider Divide as Digital Economy Data Flows Surge; UNCTAD: Geneva, Switzerland, 2021.
  19. Goldin, C.; Katz, L.F. Education and Technology: Supply, Demand, and Income Inequality. VoxEU, 2009. Available online: https://voxeu.org/article/education-and-technology-supply-demand-and-income-inequality (accessed on 9 January 2022).
  20. Yoo, I.H.; Yi, C.G. Conceptual Approach to Understand Economic Innovation: Based on the Digital Technology Innovation. J. Korea Technol. Innov. Soc. 2021, 24, 799–819. (In Korean)
  21. Afonso, A.; Schuknecht, L.; Tanzi, V. Income distribution determinants and public spending efficiency. J. Econ. Inequal. 2010, 8, 367–389.
  22. Bozio, A.; Emmerson, C.; Peichl, A.; Tetlow, G. European public finances and the great recession: France, Germany, Ireland, Italy, Spain and the United Kingdom compared. Fisc. Stud. 2015, 36, 405–430.
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Subjects: Social Issues; Public Administration; Industrial Relations & Labor
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