The globalization of the last two to three decades has been unbalanced – fast in the spread of finance, information, and communications technologies; slower in the liberalization of trade in goods and services; and lagging in the movement of people and the development of regulatory and other policy responses at the national and supranational levels. With the rapid innovation and spread of digital technologies, this imbalance has become untenable, especially social media platforms which are for the most part ungoverned nationally and where there is little international governance. There is an urgent need for a coordinated, global regulatory response since the spillover effects from (positive and negative) externalities and rise in market power associated with these technologies can threaten the post-pandemic recovery, and at the same time exacerbate the inequalities and other economic and social harms that have arisen.
The innovation process at the heart of new digital technologies is driven by data where high-cost sunk investments and near-zero marginal costs give first movers a tremendous advantage to exploit economies of scale, while treasure troves of data allow firms to exploit economies of scope and information asymmetries to build monopoly power, thus pitting firms against each other as well as countries — those that have large data stores and those that do not. This asymmetry leads to a winner-takes-all environment, which is diametrically opposed to the free trade environment that the world has grown used to and around which supranational institutions, policies, and regulations have been designed.
Furthermore, the Covid-19 pandemic has brought to the forefront many digital divides, gaps in the global financial safety net, and gaps in social, labour market, education, and skills policies. Moreover, these gaps are likely to widen in the absence of a global regulatory response since the ever-increasing reliance on digital technologies serves to boost monopoly and monopsony power; the substitution of labour for capital that particularly affects developing countries and privileges specialized and skills-intensive fields; and the disruption of more and more jobs as technologies such as artificial intelligence further break down jobs into tasks. Although the issue of inequality has been studied extensively, global governance institutions have not yet offered a coordinated response, other than espousing the end of poverty and the reduction of inequality within — and among — countries in the Sustainable Development Goals (SDGs).
Policy making is complicated in the digital era
Policy making is further complicated by the fact that big data and artificial intelligence (AI) cut across traditional government verticals and have implications for the quality of the economy, society, and democracy nationally, regionally, and globally. While technology and its uses have exploded, big data and AI governance are still in their infancy both in national governments and global cooperation processes.
Against this already challenging backdrop, the world is effectively now balkanized into three data blocs — the state-centric China bloc, the firm-centric US bloc, and the person-centric EU General Data Protection Regulation zone. All the other countries, which is to say the developing world and part of the developed world are frozen out of this system and form a fourth bloc. The challenge for global diplomacy is to find ways to have these three blocs work more effectively with each other and to ensure a voice for the “fourth” block.
Bretton Woods institutions do not form a coherent system
Existing global institutions — for example, the IMF, the OHCHR (UN Office of the High Commissioner for Human Rights), the World Trade Organization (WTO) and the World Bank — tend to operate as distinct and disconnected pillars of the international architecture rather than part of a coherent system. Various UN special rapporteurs have tried to draw attention to these areas of intersection, but progress in connecting and resolving these tensions is still slow.
Nevertheless, one fact remains: national policies work best when supported by global cooperation, and vice versa. Examples include the taxation of digital multinational firms; carbon pricing; refugee support; sovereign debt resolution; algorithmic ethics; and labour regulations for the gig economy. Likewise, exciting, ad hoc, and nascent governance processes such as the D10, as well as innovative national responses to digital issues (for example, the French tax on digital firms), will work best if they are supported by established institutions or processes, such as the Organisation for Economic Co-operation and Development and the G20.
However, important questions are being raised around whether the Bretton Woods institutions established after World War II to finance reconstruction, support economic development, and maintain financial stability — including the International Monetary Fund (IMF) and the World Bank — have become outdated. Are they suitable to deal with today’s globalized, digitized, and interconnected economy as well as the integrated nature of social, economic, and environmental problem-solving, rule-making and action that are required to achieve the 2030 Agenda for Sustainable Development? Similarly, does the WTO’s approach, which comes at digital issues via the lens of e-commerce, do justice to the complicated nature of the digital economy? More generally, are these institutions capable of addressing the threats to political and economic stability and security that have emerged as a result of the unchecked dominance of commercial internet platforms? Will they able to do so in a timely fashion?
It is time to review, reinvent and reconstruct global institutions to address today’s digital challenges
It is time for a new era of international data diplomacy. Just as the 2007-08 financial crisis required the creation of the Financial Stability Board (from the Financial Stability Forum), the Covid-19 crisis is an opportunity to galvanise action through the creation of a Digital Stability Board. This Board would have the digital expertise to produce a set of global public goals for data-driven technologies, developing standards, regulations and policies, sharing best practices, and monitoring risks in a multistakeholder, inclusive manner. As the digital world weaves together policy areas, it is essential that our institutions adapt and a new one enters the realm to take on the challenges of coherent, globally consistent standards and policies to minimize digital divides and maximize the benefits of digital technologies in an environment of trust.