The world needs a new policy agenda to unleash the power of the digital economy
The world economy is flailing, with growth expected to slow to the weakest pace since the 2008-09 crisis. Growth of cross-border trade remains well below 2007 levels. And global middle classes have not expanded as assumed — to just 13 percent — compared to 56 percent who are still low income.
Luckily, a powerful cure to these ills exists: disruptive digital technologies. 3D printing, virtual currencies, Big Data, and the internet of Everything are creating a new wave of growth opportunities. They empower companies to dramatically cut costs and enable even the smallest of businesses and solo entrepreneurs to get in business and engage in trade.
And yet, creeping digital protectionism and persistent digital divides limit the potential for hundreds of millions to benefit fully from these breakthrough technologies.
Over 100 governments are limiting the cross-border transfer of data, today’s critical input for manufacturing, consumer product, mining, agricultural, services, and hosts of other businesses around the world. Several emerging and advanced are forcing foreign companies to invest in unnecessary duplicate servers in-country as a condition for market access. Protectionist barriers are being raised on 3D-printable designs. Outdated procurement rules complicate governments’ purchases of software and other IT products and services from foreign bidders. Many governments still limit market access for digital products and services. The emerging patchwork of national rules on virtual currencies risk territorialising what could become a single global currency.
While it seems the internet is ubiquitous, digital divides are deepening. Less than half of the world’s population uses the internet. In sub-Saharan Africa, only 13 people out of 100 were netizens in 2013, while in Asia-Pacific, only 33 percent and in Latin America, only 47 percent were. Barely over 10 people in developing regions have fixed broadband.
In the early 1990s, the Washington Consensus set off deep trade and investment liberalisation across the developing and post-communist world — creating, with the IT revolution, a tidal wave of globalisation. Aimed to curb the role of the state in the economy, the Consensus laid out 10 major policy prescriptions — such as deregulation, privatisation, and trade liberalisation — for emerging economies to follow in exchange for aid from the World Bank, the International Monetary Fund (IMF), and Western donors.
It’s now time for a Washington Consensus II to guide how nations should behave in the digital economy and pave the way to the next era of globalisation. Given the persistent stigma around the “Washington Consensus” — a term often associated with unforgiving austerity — the new framework could be called the Seoul Consensus, to celebrate Korea’s rapid ascent to a leading digital economy. Instead of a top-down process led by Washington-based organisations, the new Consensus should be forged by a broad group of thought leaders from around the world — G20 governments, international organisations and multilateral development banks, and think tanks.
Tenets of the Seoul Consensus should include:
- Free market access to digital goods and services, as well as goods and services that support the digital economy
- National treatment for foreign investors in digital companies and services
- Free cross-border flow of data
- New rules and enforcement of intellectual property of digital goods and services
- Open government procurement in IT products and services for foreign bidders
- End to policies forcing foreign companies to set up servers in local markets
- End to digital censorship and freedom for all to access the internet
- Privacy policies based on consumer choice and voluntary industry codes of conduct
- Real-time information-sharing on cyber threats that impinge on free and open use of the internet
- Robust, targeted aid by development banks and donors, as well as public-private partnerships, to accelerate digitisation in the developing world
A Seoul Consensus would focus policymakers’ minds, empower think tanks and watchdog groups to keep governments’ feet to the fire, and guide the spending of donor dollars. It could be backstopped by a Digital Trade Organisation, a nimble forum for dialogue, inter-governmental codes of conduct, independent data gathering and analysis, and bottom-up data from market participants on the barriers that companies and consumers face in the digital economy.
Broad guidelines, policy dialogue, and increased transparency won’t necessarily prevent bad policy — but they are a critical start. Every country that wants to see its companies and citizens prosper in the 21st century world sees the value proposition. The G20 meetings in Turkey this year could be a great place to start.
This article first appeared on GE’s Ideas Lab blog.
Kati Suominen is the Theme Leader of the E15 Expert Group on Regional Trade Agreements and a member of the Expert Groups on Global Value Chains and the Digital Economy. She is the Founder and CEO of TradeUp Capital Fund and of Nextrade Group, LLC. She is also Adjunct Fellow at the Center for Strategic and International Studies (CSIS), and Adjunct Professor at UCLA Anderson School of Management. She is authoring her tenth book, Globalization 4.0: How Disruptive Technologies Reshape Business and Policy in the Hyperconnected World.