Which Economies Showed the Most Digital Progress in 2020?

Over the last year, the pandemic has caused the global economy to contract by 4.4%. At the same time, one trend has accelerated worldwide: digitalization. As countries face repeated lockdowns, school closures, and shutdowns of entire industries, digital capabilities — whether for remote schooling, e-commerce, or working from home — have become more essential than ever. But how exactly has this played out around the world — and what do governments, businesses, and investors need to do to come out on top?

To explore these questions, our colleagues at Tufts University’s Fletcher School partnered with Mastercard to develop a third edition of the Digital Evolution Scorecard (following earlier editions published in HBR in 2015 and 2017). The 2020 edition is accompanied by an interactive policy simulator, and offers analysis of 90 economies based on a combination of 160 indicators across four key drivers: Supply Conditions, Demand Conditions, Institutional Environment, and Innovation and Change. Specifically, we used a combination of proprietary and public data from more than 45 different databases, as well as analyses conducted by the Fletcher School’s Digital Planet team, to explore the following questions across our core subject areas:

• Supply Conditions: How developed is the infrastructure — both digital and physical —required to facilitate a digital ecosystem? This could include bandwidth availability, quality of roads necessary for e-commerce fulfillment, etc.
• Demand Conditions: Are consumers willing and able to engage in the digital ecosystem? Do they have the tools and skills necessary to plug into the digital economy?
• Institutional Environment: Do the country’s laws (and its government’s actions) support or hinder the development of digital technologies? Are governments investing in advancing digitalization? Are regulations governing the use and storage of data enabling growth, or creating barriers?
• Innovation and Change: What is the state of key innovation ecosystem inputs (i.e., talent and capital), processes (i.e., collaborations between universities and industry), and outputs (i.e., new, scalable digital products and services)?

The scorecard takes in all this data and then assesses economies along two dimensions: the current state of the country’s digitalization and the pace of digitalization over time (as measured by the growth rate of the digitalization score over 12 years, 2008-2019). As shown in the graphic below, the resulting “atlas” for the digital planet segments economies into four distinct zones: Stand Out, Stall Out, Break Out, and Watch Out.

Stand Out Economies

This zone includes economies with both high levels of existing digitalization and strong momentum in continuing to advance their digital capabilities. Three economies are particularly notable: South Korea, Singapore, and Hong Kong. These, along with others, such as Estonia, Taiwan, and the United Arab Emirates, are consistently top performers in this index, and have demonstrated both adaptability and institution-led support for innovation. Interestingly, the U.S. also shows remarkable momentum for an economy of its size and complexity, scoring second in digital evolution after Singapore.

So what does it take to be a Stand Out economy? While every case is different, our analysis suggests that the most successful of these countries prioritized:

1. Expanding adoption of digital consumer tools (e-commerce, digital payments, entertainment, etc.)
2. Attracting, training, and retaining digital talent
3. Fostering digital entrepreneurial ventures
4. Providing fast, universal, terrestrial (e.g. fiber optics) and mobile broadband internet access
5. Specializing in the export of digital goods, services, or media
6. Coordinating innovation between universities, businesses, and digital authorities

Break Out Economies

This zone is characterized by economies with limited existing digital infrastructure, but which are rapidly digitalizing. China is a noteworthy outlier in this group: Its digital evolution is significantly higher than that of all other economies, due in large part to its combination of rapidly growing demand and innovation. Indonesia and India are also notable members of this group, ranking third and fourth in momentum despite their large economies. In addition to these large emerging economies, midsize economies such as Kenya, Vietnam, Bangladesh, Rwanda, and Argentina have all displayed increasing digital momentum, suggesting the potential to rapidly digitalize for both post-Covid economic recovery and longer-term transformation.

Based on our analyses, we found that successful Break Out economies prioritized:

1. Improving mobile internet access, affordability, and quality to foster more widespread adoption
2. Strengthening institutional environments and developing digital regulations
3. Generating investment in digital enterprises, funding digital R&D, training digital talent, and leveraging digital applications to create jobs
4. Taking steps to reduce inequities in access to digital tools across gender, class, ethnicity, and geographic boundaries (though many access gaps still remain)

Stall Out Economies

This zone is characterized by economies — many of which are in the EU — that have mature digital landscapes, but which exhibit less momentum for continued advancement. In part, this is likely to due to the natural slowing of growth that accompanies maturity. Many in this zone have also intentionally chosen to slow their growth in order to ensure that they grow responsibly and inclusively. To regain momentum (without sacrificing these values), these countries should prioritize:

1. Safeguarding against “digital plateaus” by continuing to invest in robust institutional foundations, regulatory environments, and capital markets to support ongoing innovation
2. Continuing to use policy tools and regulation to ensure inclusive access to digital capabilities and to protect all consumers from privacy violations, cyberattacks, and other threats (while still keeping data accessible for new digital applications)
3. Attracting, training, and retaining professionals with digital skills, often through reforming immigration policies
4. Identifying new technological niches and fostering environments friendly to innovation in those areas

Watch Out Economies

Finally, this zone — which includes countries across Africa, Asia, Latin America and Southern Europe — is characterized by shortcomings in both existing digital capabilities and momentum for future development. Countries in the Watch Out zone can look to Break Out economies as role models and benchmarks for how to use digital growth as a lever for economic resilience. Particularly for those that demonstrate emerging or sustained digital demand, Watch Out economies should prioritize:

1. Making long-term investments to address basic infrastructure gaps
2. Creating an institutional environment that supports safe, widespread consumer adoption of digital products and services, especially those that enable productivity and job creation
3. Promoting initiatives (particularly through public-private cooperation) that invest in digital access to historically disadvantaged segments of the population
4. Promoting applications that solve pressing needs and could therefore act as catalysts for widespread adoption of digital tools (such as mobile payment platforms)

Understanding the 2020 Digital Evolution Scorecard in Light of the Pandemic

Of course, an analysis of global technology and economic trends over the past year would be incomplete without an examination of the impact of the Covid-19 pandemic. Most interestingly, while a high Digital Evolution score has generally correlated with greater economic resilience to the disruptions of the pandemic, it hasn’t been a guarantee.

To explore this question, we mapped countries’ Digital Evolution scores against their percentage decrease in GDP growth from Q2 2019 to Q2 2020 (adjusted for inflation). As expected, we found that overall, the level of digital evolution helped explain at least 20% of a country’s economic resilience — or cushioning — against the pandemic’s economic impact. This cushioning comes from many sources: For example, more digitally-evolved economies tend to derive a larger share of their GDP from high tech sectors, where the workforce can shift to remote working more readily. In addition, digitally-evolved economies tend to be better at delivering public services online due to superior infrastructure, experience with digital transformation in much of the public sector, and accessible, affordable internet. Some even leveraged their superior digital evolution for contact tracing, exposure identification, data collection, and public health messaging that significantly minimized economic disruptions (South Korea and Taiwan offer excellent examples).

That said, this effect was not universal. Vietnam scored low on our digital evolution scorecard, but the impact of the pandemic on its economy has thus far remained smaller than expected. Vietnam is the only South East Asian country on track for economic growth this year, largely because the government was able to keep the virus under control through aggressive preemptive measures. In addition, the recent economic boom from Chinese manufacturing shifting to the more affordable Vietnamese market also helped the country to maintain its economic growth through the crisis.

On the opposite end, we also saw that the UK — a highly digitally-evolved economy — experienced an economic decline on par with India or Rwanda. Not only was the government response to the pandemic less than optimal, the composition of the UK economy also caused it to suffer disproportionately from social distancing and lockdowns: Services (which are are disproportionately reliant on in-person activities) make up around three quarters of the UK economy, and 10.9% of the country’s GDP comes from travel and tourism — all of which were severely curtailed due to social distancing requirements.

Overall, digital evolution is an essential contributor to economic resilience, but it is no panacea. The government’s Covid response, as well as the unique composition of its economy, can make a big difference as well.

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Aside from the impact of the pandemic, this analysis also illustrated several more long-term trends around how the most successful countries are pursuing digital evolution:

1. More data privacy, less data protectionism.

Economies that provide secure, frictionless digital experiences nurture the most positive, engaged consumers, creating the most active digital ecosystems. These ecosystems then generate more data, which is the lifeblood of a competitive digital economy, enabling a virtuous cycle of growth. Economies such as Singapore, Japan, Canada, and the Netherlands illustrate this approach well, with a combination of open data flows and strong privacy protections.

Meanwhile, economies such as China, Russia, Iran, and Saudi Arabia represent a paradox: While significant state investment and control over their digital ecosystems can lead to higher digital momentum, these economies also impede the free flow of data, resulting in missed opportunities to further boost that momentum through digital products and applications that rely on widely accessible data. The growing popularity of data localization laws (i.e., regulations that limit the transfer of data across international borders) is ultimately making data less accessible, which not only hinders global growth, but often also diminishes countries’ own competitiveness by raising costs for digital businesses, reducing competition, and encouraging rent-seeking behavior among domestic actors.

To start to address these challenges, policymakers would do well to measure, monitor, and understand the value of what we call the “New GDP”: a country’s Gross Data Product. Once they’ve begun to understand their New GDP, economies can begin to unlock its full value by encouraging open data flows while providing adequate privacy protections for their citizens.

2. Mobile internet access is necessary — but not sufficient.

Mobile internet access has been a strong driver of momentum for Break Out economies, and it is the fastest route to getting the third of the global population that doesn’t yet have internet connectivity online. India is the preeminent example: Its internet connectivity has doubled in the last four years, and the country is on track to add 350 million smartphones by 2023.

However, mobile phones are merely the first step in unlocking the benefits of digitalization. The pandemic has illustrated how the quality of both access (i.e., reliable broadband versus sporadic satellite connections) and devices (i.e., laptops and tablets well-suited to learning and working versus low-end mobile phones) is a key component of economic resilience in a time of heavy reliance on digital technologies. For example, when the pandemic shut down in-person schooling in India, many children had to resort to WhatsApp to communicate with their teachers. Although the messaging app was certainly better than nothing, the limited growth of India’s digital ecosystem beyond mobile phones created major inequalities in access to essential education.

Given these considerations, less digitally-advanced economies would do well to focus on improving access to affordable mobile internet — but should not lose sight of the need to also invest in better devices and faster, more reliable access. This strategy has contributed to the high momentum demonstrated by Break Out zone economies such as Kenya, India, and Vietnam. And of course, China leads the pack globally when it comes to mobile adoption, thanks to a combination of massive investments in 4G infrastructure and a competitive mobile device marketplace including Xiaomi, Oppo, Huawei, and Vivo.

While investing in mobile is a great first step for economies with limited existing digital infrastructure, policymakers should endeavor to expand their gaze beyond simply increasing the number of mobile devices, recognizing that longer-term growth will depend on the quality of internet access, the devices, and the overall consumer experience.

3. The innovation-inclusion tradeoff.

Once economies reach a higher level of digital evolution, they often encounter a tradeoff between maintaining their rapid momentum and fostering institutions that prioritize digital inclusion — that is, the equitable distribution of digital development across class, gender, ethnicity, and geography. While smaller economies such as Singapore and Estonia may have an easier time maintaining their innovative edge while still ensuring an inclusive digital environment, larger, more complex economies can struggle to balance innovation with the bureaucracy needed to responsibly regulate that innovation.

For example, European economies — most of which fall into the Stall Out zone — hold six of the top 10 spots on our Digital Inclusion index. These economies have pioneered inclusive public policies such as ensuring affordable internet access, providing assistive technologies for the disabled, and investing in workers’ digital skills, and they are at the forefront of developing regulations for data governance and privacy. Many of these initiatives have (rightly) become a standard for the rest of the world — but that focus on inclusion has somewhat slowed slowed the pace of new digital development in many of these economies. These tradeoffs may well be worth making, but governments and citizens alike will benefit from clearly understanding and planning for their potential impact on digital momentum.

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There is much that decision-makers from every country can learn from their positions on the 2020 Digital Evolution scorecard. But they can also learn from other countries — as benchmarks, role models, or even cautionary tales. For example, Singapore, Estonia, Taiwan, and the UAE have all established effective, self-reinforcing digital ecosystems through a combination of strong institutions and investment into attracting global capital and talent. They have also successfully leveraged these digital strengths to adapt to the challenges of the pandemic, demonstrating the importance of digital development for building economic resilience. Despite their small size, economies like these can serve as models for leaders around the world.

In addition, large economies with high digital momentum such as China, India, and Indonesia can serve as role models for other large developing economies, such as Brazil and Nigeria, that  may be looking to step up their digital momentum in the coming years. And smaller developing economies can look to midsize “leapfrog” nations such as Kenya, Vietnam, Bangladesh, Rwanda, and Argentina for examples of how digital momentum can rapidly transform an economy.

There are no one-size-fits-all solutions to digital evolution. Every country is unique, and the factors that enable one economy to succeed are far from certain to work in another. But despite these limitations, the 2020 Digital Evolution Scorecard can still offer clarity around the current state of both digital development and digital momentum around the world — as well as the impact of that digital evolution on countries’ responses to the pandemic. Insight into how the nations of the world have fared (and what policy choices helped them get where they are) is the first step for anyone interested in fostering digital growth and economic resilience — in their own community and around the globe.

The authors are grateful to Griffin Brewer, Christina Filipovic, and the Digital Planet team at the Fletcher School, and Paul Trueman at Mastercard.

Editor’s note: Every ranking or index is just one way to analyze and compare companies or places, based on a specific methodology and data set. At HBR, we believe that a well-designed index can provide useful insights, even though by definition it is a snapshot of a bigger picture. We always urge you to read the methodology carefully.