Governing technological disruption: policy and regulation for a digital age

In 2018, Uganda passed a daily ‘social media tax’ of 200 Ugandan shillings (around US$0.05) for several internet applications, including Facebook, Twitter and WhatsApp. Policymakers hoped the measure would increase revenue. It backfired: after the introduction of the tax, use of online platforms and tax revenues from these services plummeted in the country.

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Regulatory tools from an analogue past are ill-suited to achieve policy goals in the digital age, and decisions made today will affect businesses, societies, and economies for decades to come. As young people are the most active users of information and communication technologies, they are the ones who will be most affected. Policymakers need to adapt and innovate to govern new technologies – not only for the challenges of government today, but also for the future.

Because technological change is dynamic and fast-paced, tech regulation is characterised by uncertainty and complexity. It is difficult to predict the benefits and risks from new technologies, and a reluctance to stifle innovation often leads to policy paralysis. However, maintaining the status quo is certainly no alternative, especially if the status quo fails to guard against major new risks (for example, cyberattacks and data leakages). As our research at the Pathways for Prosperity Commission at the Blavatnik School has identified, there are many areas where traditional governance is being stretched by digitalisation.

Guidelines around the collection, storage and use of data provide a foundational framework for the digital economy. Data governance is relevant for all types of information (from business information to supply chain monitoring to satellite imagery), but is most important in the case of personal data, for which some level of informed consent should accompany collection and use. And these frameworks should account for the fact that transactions increasingly involve moving data between different places, systems and devices. Countries need to establish policies and regulations to support interoperability and data portability (including across borders) in order to maximise the social and economic value of data.

The ability to tax technology companies that offer goods and services to their residents is crucial for governments seeking to harness the benefits of the digital economy. However, taxing digital businesses is challenging for a series of reasons. Technology companies are able to offer goods and services worldwide without having a physical presence in each country. But multinational companies can choose where to book their profits (and thus pay their corporate taxes). The heavy use of intangible assets (e.g. users’ browsing history) and the different revenue models adopted by technology companies make it unclear where or how the value is created in digital value chains. As a result, technology companies often fail to contribute a fair share to national revenues, fuelling further economic inequality, and limiting funds available for education, health and infrastructure. Tailoring taxation policy to the digital economy, therefore, requires not only figuring out how digital services and the data that enables them should be characterised and valued for tax purposes, but also how to distribute this value among the actors and countries involved in the operation.

Countries also need to ensure that digital markets are open to entry and innovation. There are always opportunities for anticompetitive behaviour and monopolies, so governments need effective competition policy to level the digital playing field. While the international debate has been dominated by calls to break up big tech in the US, and record fines in Europe, the majority of countries are still trying to understand the particularities of digital markets and how to update competition rules to deal with features of digital platforms – for example, identifying competitive dynamics in markets where prices offer no guidance because many products are ‘free’ to consumers.

Policymakers know that these issues require new approaches to governance and regulation. The question is about how to do this. Well-resourced countries, such as OECD member states, are grappling with how to adapt their existing frameworks. For developing countries, the challenge is more stark: many of the world’s poorer countries do not even have an effective data governance or competition policy regime. The silver lining here is that developing countries may be able to ‘leapfrog’ in their regulation, using new and adaptive forms of governance, rather than importing outdated regulatory tropes from richer nations. The next generation of leaders will play a central role in this process.

Traditional governance processes are often about promulgating strict rules, but more adaptive processes give policymakers the ability to iterate and adapt quickly – with a focus on constant evolution rather than achieving stability. The aim should be to find the right balance within only a few years, not decades. Some countries are creating ‘regulatory sandboxes’, allowing firms to test and pilot innovations on a small scale, such as a drone corridor in Malawi or the live testing environment for new financial tech in the UK. Other countries are taking a risk-weighted approach: applying different rules depending on a firm’s size, revenue or market share.

These adaptive approaches may work well for regulating local firms, but the technological age also means countries must deal with sprawling global tech titans. Technology policy is crystallising around a multipolar global landscape, with powerful actors – such as the US and the EU, and to a lesser extent, China and India – setting rules that become de facto global standards. But these emerging standards don’t work for everyone. Our research found they aren’t always a good fit for developing countries, whose policymakers want to strike a different balance between priorities (say, between cybersecurity and innovation), and who are working in low-resource bureaucracies.

Some countries are powerful enough to set their own rules, but for many nations with smaller markets, large firms may just exit if their regulations deviate too far from de facto global standards. Indeed, Google refused to comply with Chinese censorship regulations 10 years ago and eventually exited that market. Other countries have used relatively blunt tools to govern these multinational firms – such as Uganda’s social media tax, or Papua New Guinea’s temporary block of Facebook – perhaps partly because they cannot exercise fine-grained regulatory control. Even though they have little clout on their own, small and developing countries still possess significant power in aggregate. If they coordinate through regional groups or loose coalitions of like-minded states, they can shape their own digital governance agenda.

Technology is changing with speed and unpredictability, straining the boundaries of old rules. There are significant opportunities from new digital tech, but also significant challenges in managing the risks from disruption. Government leaders and policymakers should not simply step back and observe this wave of transformation; they should pick up the tools available and become authors of the technological revolution. In 2019, for the first time in history, more than half the world’s population have used the internet. The next generations are set to live digital lives and will need governance frameworks that are designed for the future. This will require novel, adaptive, and cooperative approaches to policy and regulation. Old models of rulemaking – based on rigid statutes and clearly demarcated boundaries – are not well suited to the digital age.

Toby Phillips is the Head of Research and Policy and Beatriz Kira is Senior Research and Policy Officer in the Pathways for Prosperity Commission on Technology and Inclusive Development, a programme founded and managed by the Blavatnik School of Government.

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