4 ways regulators should keep up with the global digital economy
- Governments must learn to regulate digital industries without stifling innovation.
- Today’s regulatory institutions are rooted in the 20th century and lack oversight broad enough to cope with the digital economy.
- In seeking to remedy this, governments should consider four different areas.
Governments are grappling with the challenge of regulating new and rapidly expanding industries while guarding against potential risks since technological change first accompanied the Industrial Revolution. 18th and in the 19th century, governments had to support the development of entirely new industries while tackling problems in areas such as child labor, sanitation and air quality.
These challenges had to be met because of the dramatic economic and social effects of these industries. There were very clear advantages for the government in supporting their development, but also huge potential disadvantages in allowing the market to dictate the terms.
Governments today face a similar tightrope act in regulating the global digital economy forged by the Fourth Industrial Revolution. The public sector must enable businesses to develop innovative new digital products and services, while incorporating regulatory security measures against possible harm and clear guidelines within which businesses can operate safely.
The difference is that, this time, public institutions anchored in the 20e century and organized around the regulation of single industries must be modernized to keep pace with large companies increasingly spanning multiple sectors as part of the new digital economy. Consider financial services: Activities like buying and paying for goods on social media have both retail and financial services elements and are regulated by multiple organizations. As a result, new regulations continue to be rolled out, overseen by different agencies, to cover additional areas, creating a patchwork of regulators both nationally and internationally.
Even new cross-industry regulations often need to be broadened further in order to fairly cover all of the growing digital business. For example, the GDPR in Europe, a policy designed to protect consumers by protecting individual data, can make it difficult for start-ups and scale-ups to access the vast amounts of consumer data held by large companies. . Yet often large companies can still share data on their own platforms. This creates new competitive challenges, which are regulated by a different set of institutions.
So what can be done? To be effective, governments must rethink how they regulate the rapidly growing global digital economy, taking into account four new emerging and parallel digital challenges.
Over the past century, regulators have identified challenges within markets that have lent themselves to the development of regulatory agencies or bodies that deal with that specific market, such as energy or telecommunications. Or they focused on a specific challenge, such as how to deal with monopoly power.
But in the digital economy, the biggest companies span everything from consumer goods and retail to telecommunications and energy. Regulators also need to be refocused on equally broad definitions of issues and markets.
For example, in the UK, the Competition and Markets Authority (CMA) and the Information Commissioner’s Office (ICO) are cross-industry competition and data protection agencies that set standards across the economy. In a recent review of digital markets, the AMC recently began to redefine markets and market power.
In the United States, the Federal Trade Commission treats data protection as part of its broader consumer protection mandate and has experience in automated decision making. He could take an even more holistic view of data protection and competition under his new chairmanship, who is a well-known figure in antitrust circles.
Regulators also need to find a way to deal with unprecedented financial firepower that gives big tech companies the opportunity to outflank them on many fronts. Some of the larger companies have annual budgets greater than the GDP of most countries. With digital services becoming an integral part of everything from how we buy to how we move to how our financial services are processed, the operations of large digital players are critically important to how businesses operate. national digital economies. As a result, some decision makers envision regulatory frameworks requiring operational resilience requirements.
In addition, many digital services are now spread across geographic boundaries. As a result, regulation in one area may not provide a complete solution in the absence of agreements between a wider range of nations and states. This is where supranational bodies play an important role in setting standards for national regulation and providing guidance on global issues such as cross-border data sharing.
There are precedents for international regulation of the financial services market, such as the Financial Stability Board, which oversees financial markets, coordinates financial authorities and sets international standards. The massive, international and cross-sectoral scale of digital markets will create new challenges and make international coordination difficult. Nonetheless, this is no reason to shy away from it, recognizing that it may need to take the form of regional rather than global coordination of like-minded nations in the short term.
3. Digital some products
The regulation of digital data relative to other products also needs to be rethought. There is an implicit assumption that physical products sold on a digital platform are covered by current regulatory regimes.
However, the current absence of an explicit cross-sector consumer protection body in any country exposes consumers to the digital exploitation of rules where products and services fall across sectors. For example, consumers may mistakenly assume that food sold by online retailers meets national safety standards. Another is that an unregulated âbuy now, pay laterâ credit offer can look like a loan to a borrower, much like a credit card or bank overdraft. But while he can feel the same for a client, the protections offered differ.
Even when companies are subject to the same regulations, the reality of day-to-day surveillance is that digital activities are often not yet scrutinized in the same way and therefore not subject to the same intensity of surveillance.
4. Digital behaviour
Finally, regulation must be designed to respond to new forms of digital behavior. One of the biggest lessons from past regulatory reforms has been that individuals do not always react in the way that regulators expect. When the UK government, for example, began to significantly open up the electricity and gas markets, it was assumed that free markets would lead consumers to shop around and switch providers for a better deal.
These assumptions were based on standard economic assumptions about how consumers seek to maximize their own benefit. But it turned out that the vast majority of people stuck with the incumbent provider.
Digital regulatory approaches need to be built around a more sophisticated understanding of what people actually do with new digital products and services, rather than how we might expect them to behave – even though consumers themselves are not always aware of how their data is being used. and its extracted value.
A sustainable digital economy
Technological innovations are becoming more and more integrated into our daily lives, generating new and precious opportunities but also digital risks which are increasing exponentially. Genuinely protecting consumers, while encouraging further technological advancement, will require a more modern and holistic regulatory architecture on the part of governments.
As a starting point, policymakers can begin to reconcile digital tussles between regulatory agencies by creating regulatory colleges and cooperative forums that help provide solutions to some of the cross-sectoral challenges that the new digital economy poses. . This is starting to happen, for example through the Digital Regulation Cooperation Forum in the UK, which seeks to understand where coordination points are needed and address them head-on.
What is the World Economic Forum doing on digital trade?
The Fourth Industrial Revolution – driven by rapid technological change and digitization – has already had a profound impact on global trade, economic growth and social progress. Cross-border e-commerce has generated billions of dollars in economic activity continuing to accelerate and the ability for data to cross borders underpins new business models, increasing global GDP by 10% in the past decade alone. .
The application of emerging technologies in trade aims to increase efficiency and inclusiveness in global trade by enabling more small and medium-sized enterprises (SMEs) to repeat its advantages and by closing the economic gap between developed and developing countries.
However, digital trade barriers, including outdated regulations and fragmented governance of emerging technologies, could potentially hamper these gains. We lead the charge of applying 4IR technologies to make international trade more inclusive and efficient, from enabling e-commerce and digital payments to designing trade standards and policies around emerging technologies (“TradeTech”) .
But what we really need is a new surveillance architecture tailored to the needs of the digital economy age. Such a regulatory architecture for the digital economy should bring together and comprehensively address new emerging cross-sector risks in terms of scope, scale, products and behavior.