COMMENT In an official trip to Beijing early this November, Prime Minister Najib Abdul Razak tapped Alibaba Group founder Jack Ma as an adviser to the Malaysian government on the digital economy.

The digital economy is now a major source of economic growth for the world. It also offers new opportunities for entrepreneurs to innovate and enhance social welfare and efficiency. This is something that Malaysia cannot miss if the country wants to transform itself to a knowledge-based developed economy.

But the digital economy is also proving disruptive. It changes how businesses operate in many sectors, and in the process, old physical intermediaries, which firms in the past relied on to deliver goods and services to consumers, are eliminated. Replacing them are new online intermediaries which are mainly multinational corporations that exchange across borders directly with consumers.

This change will have implications for global income distribution. As wealth is shifted across borders towards innovators, those in traditional industries, particularly workers, are the main casualties. Such impacts are evident in the disruption brought by Uber, and it is unsurprising that taxi drivers have been protesting, rightly or wrongly, against the ride-sharing service provider.

This does not, however, suggest that the digital economy should be responded to with protectionism. This is akin to throwing the baby - the benefits and the improvement we enjoy that come with the digital economy - out with the bath water. In the case of Uber, such disruption proved to be a catalyst in pushing for a long-awaited reform to Malaysia’s taxi industry, which is infamous for its low efficiency and domination by crony companies...