A positive agenda for discussing the digital economy at the WTO

With e-commerce becoming a top issue in the WTO, developing countries have been struggling to grasp its implications.

Parminder Jeet Singh

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DEVELOPING countries are told that e-commerce presents an unprecedented opportunity for their micro, small and medium enterprises (MSMEs) to access global markets. It is argued that it is the huge transaction costs involved in global trading that leave MSMEs at a disadvantage vis-a-vis big business. E-commerce, the argument goes, removes these costs, thus making for a level playing field.

One heard the same na‹ve logic during the dotcom era: every small trader can have a shopfront on the Internet and thus compete with big business on equal terms. The dotcom bubble promptly burst, and in the following years the Internet has only enabled large businesses of all kinds to further consolidate at the expense of smaller ones.

More than a decade after the dotcom crash, e-commerce re-emerged in the mainstream under the control of a few monopolistic companies like Amazon and Alibaba. It would be a mistake to consider these companies as just providing a neutral digital platform for small producers and traders to interface conveniently with consumers. They penetrate, control and orchestrate the whole value chain, from the very planning of production right up to the point of consumption. This is achieved by employing sector-wide digital intelligence that is built from the granular data collected over their e-commerce platforms, which act as precious data mines.

It is really not e-commerce

More than undertaking commerce, these companies are providers of digital intelligence services - in the same way as Uber is such a provider in the urban transport sector. Alibaba's head, Jack Ma, is a major protagonist of the global e-commerce discourse. In the company's own strategy statements, he is quoted as claiming that the term 'e-commerce' will vanish soon.1 Alibaba recently approached mom-and-pop stores in China to manage their supplies and logistics, leaving to them the consumer interface.2 This shows that Alibaba's core business competency is not necessarily selling goods, but to digitally manage as much of the economic value chain as possible.

If commerce is not the real business for even the so-called e-commerce companies, it becomes important to explore the true nature of the digital economy. This is what we need to do at global forums rather than covering up complex new economic changes under false, even if convenient, labels like e-commerce. Developed countries blame developing countries for refusing to face the fact of a digital economy. Very well, we should indeed discuss the digital economy! But before taking up global digital flows and trade, we need to discuss and understand what the main valuable commodity in global digital flows and trade is, and what the key business model of the digital economy is. The need for such discussions logically precedes talking about digital trade.

Let us develop a global agenda to discuss the nature of digital intelligence, the key service that underpins and defines the digital economy. Take the case of Uber, which claims to be a technology service,3 while regulators want to nail it as a taxi service.4 In fact, it is neither. It is a provider of digital intelligence services for the urban transport sector which has clients among taxi drivers and commuters.

But because of its monopoly nature, hoarding of city data collected from diverse sources, and exclusive access to granular intelligence about the minutest behavioural traits of individual taxi drivers and commuters, the power relationship between it and its clients is extremely unequal. This enables Uber to squeeze the latter at will, mostly in a manner that does not let immediate pain be felt.

In principle, both kinds of its clients are free to effortlessly disengage at any time. However, the digital intelligence that Uber possesses about the sector, and soon enough about individual clients as well (which they may not have about themselves), is of such great efficiency value to the clients that they cannot afford to disengage.  As the lock-ins get stronger, end-to-end sectoral control by the monopoly digital intelligence business keeps becoming tighter.

One needs to just extrapolate the above description of Uber's business model to Amazon in the area of goods, Airbnb in accommodation services, and other platform companies in corresponding sectors. No sector can resist digital-intelligence-based reorganisation, and therefore it is only a matter of time before Uber-like models emerge in all sectors - from the normally commercial ones to the relatively social ones like education, health, agriculture and even governance (a la smart cities).

This is the main digital economy model - to own sectoral platforms and marketplaces, for mining sectoral data, which is hoarded for exclusive private use to produce granular digital sectoral intelligence. The latter is then employed to control the whole sector, by orchestrating every actor's role through use of fine contextual intelligence. It is done in a manner that the concerned actor finds beneficial enough to remain hooked, even as the digital intelligence business owner extracts exploitative profits because of its monopoly nature.

The raw material for digital intelligence is data, which is collected by platform companies from sources that mostly lie outside their ownership realm. It could come from people's online behaviour and interactions, machines and other physical things, or the natural environment.

A question arises: on what basis does a platform company affirm exclusive ownership over such personal, social or natural data? It is even more problematic when such data of a country is appropriated by foreign entities, as is the case with developing countries' data in the hands of North-based digital corporations. Since the value of data to produce digital intelligence sustains over a long time and is cumulative, the continued outflow of data from developing countries would translate into long-term avenues for their economic, social and political exploitation.

Digital economy issues to discuss

Developing countries should not be defensive about discussing the digital economy and digital trade. Rather, they should make it clear that they are indeed eager to discuss core digital economy issues, like:

(1) The main stock in trade of the digital economy, which is digital intelligence, and its nature.

(2) The central business model of the digital economy, which is to develop digital intelligence and provide it as a service, but mostly leveraging monopoly provider status, to control and 'intelligent-ly' orchestrate economic activity across a sector and seek rent from it (think Uber). Are alternative, non-monopolistic business models possible for digital intelligence services?

(3) The nature of the raw material from which digital intelligence is developed, which is personal, machine, physical and natural data. Most importantly, there is a need to discuss who legitimately owns the economic value of each kind of this data. A recent European Union policy document raises questions about the ownership of machine-generated data,5 but the same questions apply to all other kinds of data as well.

(4) Can data collected (or mined) inside a country, of all the mentioned varieties, be considered a national resource, on the lines of natural resources, and its use be determined by public interest conditions arising from its collective ownership?

(5) What kinds of regulatory frameworks are required to address the problem of monopolistic privatisation of every sector's data and digital intelligence, which will have pernicious economic and social impacts? How can open paradigms for such common sectoral resources be explored?

(6) What are appropriate digital industrial policies for developing countries at different levels of development and digitalisation? What is the role here of public data infrastructures and 'data commons', which can enable a level playing field for domestic digital businesses?

(7) How and to what extent can locally sourced data and digital intelligence be employed to first build a strong domestic data/digital economy before its gradual integration with the global data/digital economy? What role can regional digital single markets6 play in this regard?

It should be evident that these core issues surrounding the digital economy need to be discussed first, before global digital trade talks get under way.

The issues that developed countries want to begin trade negotiations on, generally, are: (1) ensuring free global flow of data; (2) facilitating global electronic transactions under private law frameworks; and (3) circumscribing national technology regulatory powers. They have been successful in presenting these issues as being what basically frames digital trade and economy, and developing countries as being digital Luddites who are resisting the inevitable digital economy.

Developing countries must turn the tables on developed countries, putting forward the real core issues of the digital economy and inviting a discussion on them. With its accent on e-commerce, the WTO Ministerial Conference in Buenos Aires is an appropriate place to launch such a discursive offensive.  

Notes

1 http://cw.com.hk/news/alibabas-jack-ma-e-commerce-will-vanish-soon

2 https://www.chinamoneynetwork.

com/2017/08/31/alibaba-transform-chinas-mom-pop-shops-offline-expansion

3 https://citizen.co.za/news/south-africa/1454013/were-a-technology-company-not-a-taxi-service-says-uber/

4 https://www.infoworld.com/article/3196034/regulation/uber-offers-taxi-service-not-software-as-a-service-says-eu-court-official.html

5 'Building a European Data Economy', http://ec.europa.eu/newsroom/dae/document.cfm?doc_id=

41205

6 Like the EU digital single market being developed with a common data regulatory system, and other shared features like e-security architecture, and public data platforms for key sectors like health and transport.

*Third World Resurgence No. 324/325, August/September 2017, pp 41-42