The growth, and importance, of the digital economy is often trumpeted as a beacon of the UK’s digital development and financial success of the future. However, a new report commissioned by Google has revealed that  the true size and spread of the sector is much larger than the government can measure.

The report, carried out by the National Institute for Economic and Social Research (NIESR) using Growth Intelligence business tracking software, found that the government’s estimates for the size of the digital economy were far below the true level, in part because of outdated business classifications.

For example, official government estimates put the number of UK companies that form the digital economy at around 187,000 whereas the report found that there are, in fact, at least 270,000. Hal Varian, chief economist at Google, said:

“The UK is one of the world’s strongest Internet economies yet the myth persists that it consists largely of tiny dotcom or biotech startups in a few high technology clusters that quickly bubble up and often go bust.

The reality, as this report shows, is that the digital economy has spread into every sector, from architecture firms whose activities have become almost entirely digital to machine tool manufacturers who now use huge online data-processing facilities, such as Hadoop, to monitor every aspect of their processes.”

In addition to reporting the underestimated number of companies contributing to the digital economy, the study also found that (on average) digital employers hire three more people (15 percent more) than non-digital ones and that digital companies are reporting growth rates some 25 percent faster than non-digital companies.

Additionally, while London may be assumed to be the main hub of growth, there are a number of other areas around the country that have seen a strong digital performance, such as Aberdeen, Middlesbrough and Manchester.

A better way?

Tom Gatten, chief executive of Growth Intelligence, said:

“This research demonstrates the need for a new way of understanding the economy, both for Government and for businesses. Rather than relying on outdated codes or static lists, our new technology and Internet data reveals new opportunities and insights for growth.”

Indeed, the importance of this research isn’t solely in the figures it has unearthed, but instead, it’s true value is in highlighting just how inaccurate the government’s outdated measures are, but then again, it seems even the government knows its measurement tools aren’t up to scratch.

“We may not have an exact picture of the number of businesses in the information economy, or its employment, or the value it brings to the UK economy,” the government notes alongside its own digital economy estimates from last month.

Using incorrect tools for a job is never going to yield the best results, and in this case, means that the government will struggle to accurately measure the sector’s contribution to the overall economy and put in place appropriate legislative measures to best support it.

As the British mathematician and physicist Lord Kelvin said: “If you can not measure it, you can not improve it”.

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