Cloud Computing and The Tau Index
Egypt Emerges Initially as the World's Most Aggressive IT Deployer
By: Roger Strukhoff
Oct. 7, 2010 10:00 AM
Cloud computing brings the promise of a more-level IT playing field to all countries of the world, through its shifting of captial expense to providers rather than users. It is the latest development in an era of a rising tide of IT development that has reached most corners of the world through access to the Worldwide Web.
Even now, in the very early days of Cloud Computing, a few countries are purchasing information technology at standout rates, while others lag. In fact, this seems like a good time to benchmark how aggressively countries are deploying IT, so that we can watch how things develop as Cloud proliferates.
These are the initial findings of my effort to determine the impact of IT expenditures on national economies.
Other findings: The US and Germany are in the doldrums, and Australia is asleep; Brazil lags; Poland, Thailand, India, South Africa, and the Philippines are doing well; China is just getting warmed up.
Step off a plane in Mexico City one day, then Mumbai a few days later. You can see and feel the insane energy and dynamism of India by comparison, even though India is the far poorer and more crowded of the two.
You can see for yourself the true economic miracle of South Korea compared to wealthy but stagnant Japan, and a China that continues to struggle to build a world-class economy.
The Tau Index
For now, I am calling my measure the "Tau Index."
Tau, the Greek letter for T, has venerable uses in science to describe perception, torque and stress, clarity (or lack thereof), even mathematical tangents, and relativity. There are Tau numbers and a Tau factor.
Now there is a Tau Index. It seems like a great letter for what I'm trying to describe.
I created it to answer two questions:
The Tau Index considers population, national IT expenditures, the size of an economy, the local cost of living, and income distribution. Although it tends to reward smaller, emerging economies that are extraordinarily aggressive in their current deployment of IT, it will measure any size economy in any state of development.
I used figures from the World Bank figures to find population sizes, IT expenditures, and local economy statistics. I used figures from the UN to find income distribution.
The four keys to deriving the Tau Index are:
My formula is open-ended. Practically speaking, it will stay in the range of 0 to 5. It is linear, not logarithmic (so 4 is simply twice that of 2). It can't be less than zero.
I took a sampling of divergent countries from all the world's regions to get an initial picture. A next step will be to compare all the countries of the world.
I'm aware that there are wide differences of opinion about the specific validity of any and all numbers from the World Bank, the UN, and any other source. But this is not an engineering project; rather, it's merely an attempt to take a snapshot and tell a story.
Trying to Measure What I've Seen
For now, I've looked only at IT expenditures as a whole.
The Tau Index is calculated as follows:
1. Find the gross domestic product (GDP) for a country, in both nominal and PPP terms. Nominal is the actual value of the GDP in US dollars. PPP (purchasing-power parity) reflects local costs, ie, "how far a dollar will go." It's cheaper to live in Malaysia, for example, than in the US.
2. Divide PPP GDP by nominal GDP. Malaysia, for example, has a nominal per-person GDP of $6,980. But in PPP terms, that number is $14,000. This gives us a number of 14,000/6,980 = 2.01.
3. Find the IT expenditure in 2009. In Malaysia, this number was $21.98 billion. Find the nominal GDP. In Malaysia, this number is $188 billion dollars. Divide the IT expenditure into the nominal GDP to get the percentage of the economy that was devoted to IT expenditure. Here, $188 billion/$21.98 billion = 11.7%
4. Multiply that percentage by the number from Step 2. So, 11.7% x 2.01 = 23.4%. This inverse ratio of nominal cost compared to PPP shows the true commitment of this nation to its IT expenditures. Since IT costs the same everywhere, coming up with the $21.98 billion was twice as hard in Malaysia as it would have been in the US. So, there is an effective commitment of 23.4% of the economy to IT.
5. Find the country's Gini coefficient (* see explanation immediately below) to find out how evenly income is distributed in the country. For Malaysia, it's .49. So, divide 23.4% / .49 = .478.
6. Multiply this number by 10 for cosmetic purposes. It's easier to grasp a number like 4.78 than the fractional .478. I then round off to 4.8. This has to do with significant digits, and there were only two in many of the Gini coefficients that I found. So I round to two digits. Again, this is supposed to take a snapshot or tell a story, not serve as a blueprint.
(* I am using the Gini coefficient here, an admittedly controversial number that measures income equitability. The Gini coefficient is either expressed as a percentage (ie, 0.25), or multiplied by 100 to yield a whole number (ie, 25). A Gini coefficient of 1 means that income is exactly the same for everyone in the country; 100 means that a single person controls 100% of the income. Expressed as a percentage, Sweden has a Gini of .25, Germany .28, the US about .41, Brazil .57.)
How Do We Measure Impact?
The idea is that the impact of technology will flow more smoothly through a place that has a more even distribution of income.
In the real world, this means it's a lot easier for the poorer folks of Germany's housing projects to get connected to the Web than it is for people in Rio's favelas. Businesses can also leverage their IT investments to reach a higher percentage of the population in, say, Canada than in Mexico.
The UN has created a diffusion index to track how countries are addressing the so-called digital divide on a global basis. To me, that represents a political debate.
The Leaders in the Clubhouse
Mexico actually overcomes its high Gini coefficient to score slightly higher than Canada, because its relatively low cost of living multiplies its IT expenditure. Mexico does much better than the US for this reason, and also because the US has a Gini coefficient that is heading away from Canada and toward Mexico.
Egypt finished at the top of the list because it has a very low relative cost of living, its income is distributted fairly evenly (no doubt a legacy of its socialist past)-and it spends a lot of money on IT, relatively speaking. Egypt poured almost $11 billion into IT last year, representing 18.8% of its cost-adjusted economy.
South Korea is no longer an inexpensive place, but it has a low Gini coefficient, and it's been spending upwards of 10% of its nominal economy on IT for several years. Last year's IT expenditures of $66 billion were actually significantly down from the most immediate prior years.
Trying Not to Overthink
But I don't necessarily see a direct connection between the two. The US, for example, has seen income disparity rise even as it has spent trillions of dollars on IT over the past decade.
Additionally, the Tau Index can't account for extraordinary aspects of a particular society-the high remittance rates into Mexico and the Philippines, the high amounts of imported labor into Saudi Arabia and the UAE, the extraordinary military budget of the US, or the vastness of Russia, to list just a few examples.
One might also hope that increased IT deployment and access makes for a freer society. But simply looking at raw IT expenditures and comparing them with local costs and local income distribution provides no insight this statement's validity.
The Tau Index clearly does not account for a nation's particular investment climate, how innovative it is in using IT, or how its government treats its people.
For now, here are how the countries I initially examined fared:
Stars (Tau Index = 4.0 and above)
Standouts (3.0 to 3.9)
Strivers (2.0 to 2.9)
Stragglers (below 1.5)
A Few More Observations
Brazil is encumbered with a big population, a high cost of living for a still-developing country, and a Gini co-efficient that has brought the word "Brazilianization" into the US lexicon as something to be feared.
Many Australians have long decried their country's dependence on natural resources and a smallish population to ensure a continued good life; this number shows the country does truly lag.
Canada, although a similar large country with abundant resources and a smallish population, has also been traditionally a major manufacturing center and financial services player. It's expenditures (as a percentage) mirror that of the US.
And look at Cameroon, which has a tiny IT expenditure of less than $1 billion. It also has a low population (19 million), a Gini coefficient lower than that of China, and a low cost of living that makes its modest IT budget equal 9.6% of its cost-adjusted GDP.
Keep Your Eye on China
But we shouldn't be fooled by its relatively low rating here. China has arrived at its present position by being a great low-end exporter. It is now transitioning to the higher end, both in imports and exports. One would guess that we ain't seen nothing yet when it comes to China spending money on IT.
Uncle Sam and Onkel Fritzi
One recent estimate says the US must spend $5 trillion or more over the next quarter-century to get its infrastructure back up to speed. Bad roads, failing bridges, and nasty airports in an increasingly dysfunctional security-driven state have taken the bloom off the roses that grew in the 80s and 90s.
Gleaming Asian airports and skylines--and the IT expenditures that complement them--point to a fading America. The US expenditure on IT is huge in absolute terms. But the Tau Index reflects a country that is treading water.
Germany resides next to the US in this ranking. Yet the country has seemingly regained its footing as a global manufacturing and economic leader. Why does the Tau Index say it's mediocre?
Part of the reason is the strength of the Euro versus the US dollar, which makes Germany very expensive. Another aspect could be that Germany devotes its IT expenditure very efficiently to the places where it's most needed.
Or maybe the country just isn't spending enough; it spends only 5.9% of its nominal GDP on IT, compared to 7.3% for the US, 7.8% for the UK, and 7.2% for Switzerland.
I'll provide the raw data and some comments about each of these countries in future posts, and layer in many more countries. Then, when it is time-maybe as early as next year--I may have to add a kicker that measures the percentage of expenditures on Cloud Computing versus traditional IT. The Cloud Tau Index, perhaps?
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