Productivity is a linchpin of economic growth and explains some aspects of cross-country differences in income per capita. In recent years, the productivity gap between frontier firms and the rest has widened significantly. This raises challenges for the inclusivity of growth. Unscrambling the dynamics of technology diffusion together with the changes brought about by digital transformation in the midst of an explosion of machine learning, automation, additive manufacturing, artificial intelligence, and the internet of things, is key to understanding slowing aggregate productivity growth.
On the one hand, knowledge diffusion is related to the spread of ideas and knowledge that may lead to invention, imitation, mimicry, new applications, and innovation. Technology diffusion on the other hand occurs at cascading levels of accretion, and across different assemblages of users, including individuals, households (consumers), or businesses (producers). Businesses operate in different sectors of the economy, while consumers and producers may be located in different cities, provinces, or overseas territories.
In a September 2022 McKinsey report, the economies of France, Germany, Italy, Spain, and the United Kingdom are described as the “Big 5”. In the same report entitled, “Digital Challengers on the next frontier in Central and Eastern Europe,” Belgium, Denmark, Estonia, Finland, Ireland, Luxembourg, the Netherlands, Norway, and Sweden are described as “Digital Frontrunners”. Bulgaria, Croatia, Czech Republic, Hungary, Latvia, Lithuania, Poland, Romania, Slovakia, and Slovenia form a cluster described as “Digital Challengers”. The case of Romania is of heuristic utility.
By 2030, accelerated digital growth is estimated to bring Romania’s digital economy to about €52 billion. Romania’s top executives have placed building new businesses as one of their top three priorities. The vision is for new product development, services, and innovative business models that could deliver about fifty per cent of their companies’ revenues in five years. Creating the economic shift demands a series of decisive actions. The first step was to understand future value pools and some of the associated nascent technologies. The task here was to understand how these two trends combine to create “hot spots”. The next steps included grit, ringfencing investments and resources, setting achievable targets, and publicly supporting, and committing to investing in growth.
Prior to 2019, few grocery-delivery companies existed in Romania. When the Czech online grocery retailer Rohlik announced in March 2021 that it intended to enter the Romanian market, eMAG launched “Freshful” with investments in cold storage facilities and new digital platforms and FinTech. eMAG’s grocery service set out to serve the Bucharest metropolitan area with a range of frozen products, beverages, fruits and vegetables, and dairy. During the COVID-19 pandemic, supermarkets and food shops were difficult to access. However, the growth of the online groceries segment remains loosely coupled with the development of App and Gig economy services like Bringo and Glovo.
Bringo is a courier service. Bringo gets a delivery request and drivers around the city submit multiple price tags for the job. The client selects the delivery price tag that best suits their needs. Glovo is a Barcelona-based quick-commerce start-up. It is an on-demand courier service that buys, picks up, and delivers goods ordered through its mobile App. After fervent expansion in 2019 to 2021, many services have exited the market or sold to competitors as the online food-delivery market has become crowded. In Romania, while the share of online shoppers skyrocketed during the pandemic, the portion of people aged 16 to 74 who shopped online in 2021 was 44 per cent, considerably lower than the EU average of 74 per cent, according to McKinsey.
In 2021, there was a move to fully digital shopping across industries—except for groceries, where almost 60 per cent of consumers preferred in-person shopping; this was the only sector to see digital usage fall compared to 2020. Supermarkets also had the highest rate of fresh digital users aged 35 to 44. Digital commerce in the Digital Challengers cluster grew by more than €21 billion in 2019–21, accounting for more than 80 per cent of growth in the region’s digital economy in the period. Overall, the trend is that Digital Challengers in Europe are catching up.
Apart from App and Gig economy services, the outsourcing of the employment of nonprofessional and nonmanagerial employees to outside contractors is a developing pattern. David Weil, in his anecdotal data on this trend calls it “fissuring”. One consequence of “fissuring” is that firms are much less likely to invest in training employees who actually work for another company. Moreover, workers in “fissured” workplaces are much less likely to share the product market gains than are workers on the “establishment”.
This also makes these workers less willing to extend their tenure at such firms. Such workers may not benefit from terms and conditions, that ring-fences them into the critical talent pool of the firm or its upskilling and talent management strategy. Fissuring is just one feature of a general pattern in which job quality appears to be declining even when skills are taken into account. The atrophy of regular fulltime work, as employers convert workers into independent contractors is an emerging trend alongside employers that now rely on the “Gig” and “App” economies for part of their workforce.
