Figure 1 the data, information, knowledge, and wisdom (DIKW) construct
Reluctantly, Europeans acknowledge their profound dependencies on foreign, de-facto American, digital infrastructure. The US and China hold over 90% of the 70 largest digital platforms' market value and control 75% of the cloud computing market. Both nations leverage this for the geopolitical contest.
Digital sovereignty for Europe is now vogue in Brussels. How can Europe increase its control? By "control," I mean here the ability to:
- inspect and detect abuse of digital data, and
- correct, if necessary unilaterally, the noncompliance.
European officials place high hopes on regulation, including the GDPR regime, anti-trust rulings, and data localization. I argue that the nature of data precludes effective control via regulation. The root of the problem that data, information, and knowledge differ from other "things."
Economics of data
Most of the human experience is with tangible goods. Take a loaf of bread and two people: if you give me half, you will remain with 50% less. Economics calls such a traditional good a rivalrous good: consumption by one party directly reduces the ability of another party to consume it. Most tangible goods are excludable: if one takes a bite, the other can no longer eat the same piece. Competition for rivalrous goods is a zero-sum game.
Another attribute of goods is their durability. If you save your half of a loaf for next week, the bread spoils, and the good perishes. You have succeeded in preventing a competitor from consuming the good, but also failed to enjoy it yourself. Hammers are durable; fresh produce is not.
Our social, economic, and political frameworks are honed for tangible, rivalrous resources. Even the traditional factors or forces of production have been rivalrous: land, raw material, labor, and capital. Economists thus concentrated on accumulation and utilization of tangible objects rather than accumulation and utilization of knowledge.
Enter the 2018 Nobel Prize in Economic Sciences. Romer's (and Nordhaus's) scholarship has received the highest honor for demonstrating how the conventional forces of production fail to explain modern economic growth and how data, information, and ideas can drive long-term economic growth. Moreover, Romer's "new growth theory," first presented in "Endogenous Technological Change" (1990,) stresses how DIKW differs substantively from the traditional production forces or tangible, rivalrous goods.
Knowledge, information, or data are non-rivalrous and durable. One can share her data, information, or ideas, but her share never diminishes as a result. Discoveries differ from all other economic inputs: the same discovery can be used repeatedly by any number of actors. Each one will have access to and can utilize the same idea. Consider software copies: your PC runs Windows. When another PC runs Windows, your software is not affected, consumed, or reduced in any way. A sovereign may outlaw illegal copies but cannot hamper the functionality of a PC running a pirated software. Moreover, no number of PCs running pirated copies can diminish the functionality of the legal ones.
Most tangible goods have limited shelf life, but knowledge, information, or data do not expire. Even those data or pieces of knowledge deemed obsolete can be later usefully recombined with others. In fact, nearly all modern scientific discoveries are combinatory and interdisciplinary.
Data control in the context of geopolitical competition
Companies gather, harvest, store, access, process, analyze, trade, exchange, and transmit digital data in huge volumes every minute. Data typically serve as input for further applications and services. Contracts and regulations can legally govern these activities. This comforts European leaders: even if one does not own data, one can improve her competitive position through norms and rules. Most foreign companies actually accept Europe's demands. A bigger prize is achieving compliance of the American digital behemoths, with the US government typically putting its weight to promote American interests. But Microsoft and Google – the near-monopolies in their market – already have voiced their willingness to take upon themselves the burden of European regulation. Brussels can, and will, celebrate the regulatory superpower of Europe. This is not enough for advancing Europe's geopolitical competitiveness.
Legal constructs cannot prevent misuse of data as input. It is nearly impossible to detect misuse from the outside. Organizations will thus never face practical external barriers to use digital data as they wish. The reasons are substantial: data are
- largely intangible,
- partially excludable good.
The reality is that only those who operate data can exercise control. Data localization may enable future prosecution but does not directly improve sovereign control. Google, Facebook, and the rest use mundane aggregate data to match ads with potential buyers. "Why am I seeing this ad?" Answers depend on the voluntary cooperation of the companies. It is tough to reverse-engineer decisions and identify data that fed any of the proprietary algorithms.
Even with American companies fully complying with European guidelines, nothing prevents others from using the same data. One increasingly common venue is to source data from leaks and cyber breaches. The victims are highly unlikely to detect data breaches: after all, their copy and processes remain intact. Changes in a competitive geopolitical or market position, driven by the exploitation of other's data, are nearly impossible to detect, explain and attribute in meaningful time. Those who had succeeded to detect past abuses have enjoyed privileged access to people, infrastructure, or databases. How would one control the use of data as an input, and for what purposes? After all, no matter how, how often, when, and where data - original or copied - is being used, it will remain intact. Unlike a half-eaten slice, no evidence of consumption remains.
When dealing with non-rivalrous, largely intangible, durable, and only partially excludable goods, legalistic approaches will not suffice. Placing its faith in data regulation will leave the EU lagging even further behind the USA and China in the global geopolitical competition.