• Opinion
  • June 20, 2019
  • 8 minutes
  • 0

Why data protectionism will make us all poorer

Opinion: Keeping data in national silos is not a solution

This article was written by Lawrence Kay, Senior Policy Advisor at the Open Data Institute. For more like this, see our digital government newsfeed.

Enormous amounts of data are exchanged across the world these days, but the flow of it is limited by nations putting restrictions on where it can be collected and what can be done with it.

This is the centuries-old problem of trade protectionism reheated for the digital age. But there is also an extra twist caused by the inherent social and personal nature of most data. It can be dealt with by building data infrastructure that protects privacy while boosting innovation.   

Digital borders

The International Monetary Fund believes that up to two billion people might be using cloud computing to store digital information, and McKinsey thinks internet commerce — which includes data exchange — is worth as much as 3.4 percent of GDP in the world’s leading economies. With economic gains like that, what could be the problem with moving data from one country to another?

There is huge public support in many countries for storing personal data domestically, according to marketing firm Ipsos. In a recent survey, more than 80% of respondents in Indonesia, China, India, and Mexico said they want their personal data to be physically stored on a secure server in their own country.

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Governments around the world are responding, with the European Centre for International Political Economy finding that restrictions on cross-border personal data flows have rocketed in recent years. The Digital Trade Restrictiveness Index ranks China as the world’s most restrictive for digital trade, followed by Indonesia.

Requirements to store or analyse data in the country in which it was collected means that entrepreneurs and consumers are denied the opportunity to use more secure and insightful services elsewhere.

This makes international collaboration in research and business harder, while also raising costs for companies as they are often forced to choose from a smaller number of data storage and data science suppliers.  

Data protectionism on the global stage

As the OECD has found, when data is being moved from a consumer to a company, it often involves organisations in several different countries, each with their own technology, rules, and privacy restrictions. Consumers are then affected by decisions made in any one of any number of countries.

We are frequently bombarded with stories of data loss, so it’s not surprising that many people around the world are concerned about data going abroad. In 2017 the financial services company, Equifax, lost personal data on 143 million US consumers. Now take into account the fear of companies losing their intellectual property through cyber attacks.

Countries can protect people’s data rights while boosting international trade and growth

Theft of intellectual property might have cost the United States around $12 billion annually in recent years.  

But accepting public opinion and data breaches as the only causes for data protectionism lets many countries off the hook. The OECD has identified four common reasons given by policy-makers for restricting the international exchange of data: privacy, regulation, security, and industrial policy. In countries such as China, this can be an attempt to influence the behaviour of international digital companies.

Closed is costly

The European Union’s General Data Protection Regulation (GDPR) includes rules for how data collected in one place can be used in another, and a forthcoming report from the Open Data Institute explores how this is one of many options available to policy-makers around the world with regard to regulation for data infrastructure.

Other contributing factors include things like datasets, standards, technology, guidance, and the organisations that steward data.

Our work suggests that getting those pieces in place and building strong data infrastructure that is as open as possible while respecting privacy could increase the trust that citizens have in data collection, sharing and use, and that there is a danger in not doing so.

For example, proposed regulatory restrictions on data flows could be costing Brazil as much as four per cent of its annual investment. The OECD has estimated that there was nearly $17 billion of equity investment into artificial intelligence across China, the EU, Israel, the US, and some other places in 2017 – establishing international data sharing mechanisms that are transparent, trustworthy, and protect consumers from harm could boost this investment even more, but how?

A worthy effort

Countries can protect people’s data rights while boosting international trade and growth.

The UK has established “fintech bridges” between itself and places such as Australia and Hong Kong, allowing financial firms to learn how to take advantage of flourishing open banking regimes in foreign markets that strive for high data standards while encouraging competition and innovation that benefits consumers.

In a similar spirit, the Global Financial Innovation Network is helping fintechs to work with regulators around the world in a bid to facilitate cross-border services that meet high standards. Onfido, an ID verification company that accepts documents from 195 countries, is an example.

It’s going to take time to do it properly, but regulatory facilitation like this could be a great way to achieve high international data standards, innovation, and economic growth for lots of countries all at the same time. And that really is worth having. — Lawrence Kay

Lawrence Kay is an international policy economist, specialising in the micro foundations of economic growth. He has advised governments around the world on private sector development, designing policy models that boost market dynamism, increase productivity, and raise cross-border trade.

(Photo credit: Unsplash)


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