What creeping data nationalism and the splintering web mean for business
Last October Russia’s Security Council, chaired by the president, Vladimir Putin, drew up plans to begin developing its own internet.
In an effort to guard against what it termed “offensive operations in the information space,” this initiative, charged to the Ministry of Foreign Affairs and the Ministry of Telecom and Mass Communications, set to release a proposal this August, will set about duplicating domain name root servers—creating, in effect, a separate and distinct internet—and serve the emerging BRIC economies.
This wouldn’t be the first effort to break apart from the global internet and assert national digital sovereignty. Following Edward Snowden’s disclosures of the US National Security Agency’s surveillance of international web traffic in 2013, global outrage prompted the leaders of Brazil and Germany, among others, to call for the development of distinct, sovereign and separate internet infrastructure, whereby information relating to citizens and businesses would remain under domestic control. Brazil and the European Union proposed an undersea cable between the two regions, from Lisbon to Fortaleza, out of American reach. The German Chancellor, Angela Merkel, proposed the EU built its own communications network.
Much of this hasn’t come to pass, and in its most extreme form of total infrastructure severance, most likely won’t. But governments across the world are increasingly pushing to reaffirm their dominance over what has been, until now, a global project of free and borderless internet, on grounds ranging from national security, to citizens’ privacy, to protecting domestic industries. There are divergences on how citizens’ personal data are handled, and how internet companies are regulated, coupled with protectionist measures, sometimes for purported national security reasons, to block out foreign firms from domestic online operations.
As the EU goes in one direction, turning the heat up on domineering internet companies, mandating strict protections on personal data and lofty fines for transgression, the US goes in another, retreating on net neutrality provisions and showing a reluctance to regulate data privacy and protection to the same extent. Behind the Great Firewall, China’s strictly censored and surveilled web demands heavy concessions of foreign businesses seeking access, and is beginning to export its model around the world.
This growing trend is threatening the free flow of data and the open web. An increasing number of countries are mandating, on security or individual privacy grounds, that some data or computer processing is kept or conducted exclusively within their own borders. This phenomenon is known as data localisation. Any foreign business wishing to accept credit card payments from Russia, for instance, must have a data server in that country to handle the transaction. Similarly, the company must transfer data on Russian users to Russian servers, a rule that booted out LinkedIn from the country in 2016.
According to a count by the European Centre for International Policy Economy, a think-tank, instances of significant data localisation have nearly tripled, from 31 to 84, in the decade to 2016.
For some countries, these measures shield local businesses and nascent national technology industries in the face of global competition. Indeed, competition between the US and China over technology such as artificial intelligence is heating up, and data and technology looks like it could become a battleground of protectionism. A US investigation into the Chinese technology sector, under Section 301 of the Trade Act, is expected to result in stricter barriers on Chinese investment in data and IT in the US.
Bad for business
Such moves to assert regional values and policy on the global web are making it harder for businesses to operate across borders, threatening the free flow of digital information, and pose potentially serious consequences for global trade.
Digital flows constitute an ever more important part of the global economy, now generating more economic value, in terms of GDP growth, than the global trade in goods, according to an analysis conducted by McKinsey, a global consultancy. Although trade in physical goods has been flat for some time, the amount of cross-border bandwidth that is used has grown 45 times in the decade to 2016, and is projected to increase by an additional nine times by 2021.
Machine learning, the Internet of Things, digital commerce and other technological trends transforming businesses around the world depend ever more heavily on unimpeded data flows, and aggregated data from across borders.
Protectionist data laws can be complex and expensive to navigate, a headache for big businesses and a prohibitive barrier for smaller ones.
Though examples of data localisation and the like are increasingly common, it’s not certain that the web is heading for a split. Efforts are under way to agree on common policy standards, of the sort so far sidelined in the development of the web. The outcome is not a given, but presents a range of options, from a failed and broken web, to a balkanised web (probably into American, European and Chinese factions) to a globally harmonious one. Each will have different implications.
This EIU Perspectives series seeks to explore these shifts and possible futures. We will assess the realities and extent of data nationalism, investigate its potential impact on the value of data and global data flows, and point to what could happen next. We’ll explore the possible implications for business models in different regions, and how businesses small and large should think about navigating these shifts.
