Big Data’s economic impact

Big Data is beginning to have a significant impact on our knowledge of the world. This is important because increases in human knowledge have always played a large role in increasing economic activity and living standards. Continued improvements in the price and capacity of tools for collecting, transmitting, storing, analyzing and acting upon data will make it easier to gather more information and to turn it into actionable knowledge of how systems work.

Big Data is best understood as an untapped resource that technology finally allows us to exploit. For instance, data on weather, insects, and crop plantings has always existed. But it is now possible to cost-effectively collect those data and use them in an informed manner. We can keep a record of every plant’s history, including sprayings and rainfall. When we drive a combine over the field, equipment can identify every plant as either crop or weed and selectively apply herbicide to just the weeds.

Such new use of data has the capacity to transform every industry in similar ways. A recent OECD report listed some of the ways that more and better data will affect the economy:

• Producing new goods and services, such as the Nest home thermometer or mass customized shoes;
• Optimizing business processes;
• More-targeted marketing that injects customer feedback into product design;
• Better organizational management; and
• Faster innovation through a shorter research and development cycle.

A report from McKinsey Global Institute estimates that Big Data could generate an additional $3 trillion in value every year in

just seven industries. Of this, $1.3 trillion would benefit the United States. The report also estimated that over half of this value would go to customers in forms such as

fewer traffic jams, easier price comparisons, and better matching between educational institutions and students. Note that some of these benefits do not affect GDP or personal income as we measure them. They do, however, imply a better quality of life.

The impact affects more than consumers, however. Erik Brynjolfsson of MIT found that companies that adopt data-driven decision making achieve 5 to 6 per cent higher productivity and output growth than their peers, even after controlling for other investments and the use of information technology. Similar differences were found in asset utilization, return on equity, and market value.

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