The swift transition to a hyper-digitised global service economy has enabled cross-border digital platforms to capture unprecedented market power, centralising high-value research and design in global mega-hubs while hollowing out regional administrative and support sectors. This digital dislocation has bypassed traditional semi-skilled service workers, exacerbating intra-national geographic divides.
An international economic watchdog recently observed that while aggregate national incomes have risen due to cheaper software and digital services, the "digital backwaters" face persistent structural unemployment, falling real wages, and a depleted local tax base. The report highlights that passive redistribution or universal basic income alone cannot resolve this geographic divergence. Instead, it urges governments to employ aggressive supply-side fiscal interventions, including state-backed venture capital for regional innovation clusters, and comprehensive digital skills training.
Furthermore, to fund these interventions, the watchdog proposes a radical overhaul of digital services taxation to capture value where it is consumed rather than where intellectual property is registered. Although some politicians advocate for digital protectionism or data-localization laws, critics warn these will isolate the domestic economy, making alternative fiscal and structural strategies vital for shared prosperity.
With reference to Extract B, discuss two macroeconomic policies, apart from digital protectionism, that a government could use to reduce the negative impacts of global digital integration.
