In the Back Seat or at the Steering Wheel? The Comparative Political Economy of Digital Investment Policies

As the fourth industrial revolution (Schwab 2016) gathers speed, the success of individuals, firms, and societies increasingly depends on how much ‘digital capital’ they possess or command (OECD 2013). Digital capital refers to assets that are widely seen as essential for surviving and thriving in the digital economy. It includes non-physical assets such as skills, software, organizational processes, or patents as well as physical assets such as telecommunication networks and servers. While governments are assigned a crucial role in providing such assets, there are large and often puzzling differences in the extent to which they are capable or willing to do so. Political scientists have therefore payed increasing attention the politics of (digital) investment policies (Boix 1997; Streeck and Mertens 2011; Beramendi et al. 2015; Kraft 2018; Garritzmann and Seng 2019). But while this has made great inroads, it is found wanting in two respects. First, it overwhelmingly looks at education and active labor market spending, that is, on human capital investments, neglecting investments in physical or innovational capital (e.g. R&D) (for exceptions, see Streeck and Mertens 2011; Kraft 2018). Second, it focusses on the role of partisan factors in explaining temporal and geographic differences in investment policies, neglecting other potentially relevant factors such as institutional legacies or state identities. This paper attempts to fill these gaps by providing a more comprehensive analysis of the politico-economic determinants of digital investment policies in European/OECD countries. It first develops a digital investment index that comprises not only investments in human but also in innovational capital, specifically R&D and e-government services. It then uses novel text-as-data methods to shed light on how different state identities – and the accompanying conceptions of public debt (Dyson 2014) and the entrepreneurial role of the state (Mazzucato 2013) – interact with economic, institutional and partisan factors in shaping the political economy of investment policies at the dawn of the second machine age (Brynjolfsson and McAfee 2014).