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.

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.