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A new digital framework: markets, rules and innovation

Digital format, 24/06/2021, Aspen Transatlantic Dialogue

In what is a changing transatlantic and international context, the European Union has opened a new phase in the debate on the digital economy. It could be said that institutional constraints no longer exist on regulatory activity in this sector; the problem now is, if anything, to direct political will and garner broad consensus on updated rules. The principle of digital taxation has been outlined in general terms, even at the level of the transatlantic dialogue, but the precise legislative details still need to be worked out.

This debate has come at a moment of deep economic uncertainty following the most acute phase of the pandemic crisis, although prospects for recovery do appear good. This, therefore, is a moment of revival during which all digital scenarios will have considerable importance in terms of both innovative stimulus as well as transition to qualitatively different development models.

Investments in European digital competitiveness are a fundamental component in European planning, and a series of priorities have already been set: small and medium-sized enterprises (SMEs), e-government, broadband access, cutting-edge technology research and human capital. Joint investments are going to be essential to achieving the critical mass for the necessary financial effort. At the same time, redesigning overall rules has become indispensable in a context made more promising owing to the attitude of the Biden administration (given that some of the rules are going to have to be global). In any case, one source of general concern is that the EU and the US have not yet reached an agreement on how data is to be exchanged across the Atlantic, which runs the risk of seriously weakening the global internet.  A point of compromise, realistic under the current conditions, could realistically be based on a convergence of the best standards available for combining innovation, competition and consumer protection.

The three main lines of action that the EU has undertaken are precisely with regard to competitiveness (abuse of dominant position, etc.), transparency and consumer protections (personal data and the digital content managed by platforms), launching a regulatory framework for artificial intelligence (with greater legal uniformity and the active involvement of labor, health and educational spheres). The single European market will surely pave the way in all these sectors, taking into account however the need to foster the highest possible degree of global cooperation.

It is true that European trade policy has not yet fully adapted to the demands of the digital sector and the continuous and massive transfer of data; progress is underway but needs to be speeded up. The Digital Market Act aims to create a sort of digital data Schengen Area, even though ownership of data cannot be guaranteed exclusively to consumers since without the intervention of major platforms those data would not be collected or processed in a useful, and above all correlated, way. The effort is therefore to optimize data to the benefit of the greatest possible number of private actors.

There is strong consensus in the United State as well on the disproportionate growth in the power of the major platforms, and that a balance needs to be struck between these operators, SMEs and individual users. The imbalances that have formed over recent years have generated massive transfers of capital, given current tax rules, which have led to market distortions.

Looking at the global context, the disruptive nature of new digital technologies makes inevitable certain delays in regulation, including fiscal, and part of this problem is structural. According to some experts, the temptation to focus too much on “product design” is to be avoided because innovations will always be too rapid to keep up with, thus overly specific legislation could turn out to be counterproductive.

A point of synthesis could be found in one general principle: only the proper functioning of competitive markets will allow for the full optimization of data flows for the good of the economy and the overall society.

Expansion of the ultra-broadband is a true multiplier of productivity, and increases in the mass of global data are, according to estimates, only in their initial phase. At the same time, there is the widespread problem of global internet access and of serious lacunas in digital literacy, not least in some OECD countries (such as Italy). These various bottlenecks are being discussed by the G20, which is placing the accent on both infrastructure and human capital and the necessary skills (a culture of constantly updated innovation) to best exploit digital opportunities. Another area to focus on is public/private partnership, starting with investments in research and development and the creation of an efficient and open ecosystem for work.

A healthy digital society must also maintain a balance between rewarding talent and protecting those weaker (or perhaps older) segments that could find it difficult to interface with digital technologies. The fundamental ingredients are, therefore, infrastructure, access and skills; and these depend, in turn, on continuous refreshment.