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Data a Key Driver of Transatlantic Economic Growth

digital

The Transatlantic Policy Network hosted an event on Capitol Hill yesterday to discuss the data revolution in the transatlantic marketplace. The discussion was timely, for the reality is that data is the key commodity in today’s knowledge-based economy. In fact, a recent study by Finland’s TEKES finds that, by 2025, half of all value created in the global economy will be created digitally. Meanwhile, half of all global trade in services depends on access to open, cross-border data flows. Indeed, a wide range of industries—from manufacturers to miners, to banks, hospitals, and grocers—depend on the ability to move data across borders and/or analyze it in real-time as a fundamental component of their supply chains, operations, value propositions, and business models, as ITIF writes in Cross-Border Data Flows Enable Growth in All Industries. And this is as true for small businesses at it is for large—a 2014 study found that 60 percent of U.S. and European businesses with 50 or fewer employees regard data analytics as important to their enterprises’ success.

Moreover, the competencies of countries, and their enterprises therein, at extracting value and insights from data is instrumental to their economic growth potential. As the Lisbon Council’s Paul Hofheinz and Progressive Policy Institute’s Mike Mandel write in Uncovering the Hidden Value of Digital Trade, if six of Europe’s largest economies—France, Germany, Italy, Spain, Sweden, and the UK—could raise their “digital density”—defined as the amount of data used per capita in their economies—to U.S. levels, those countries could generate an additional €460 billion in additional economic output per year; an average 4 percent boost to their baseline economies.

Worryingly, some European policies—such as the proposed General Data Protection Regulation (GDPR)—which seeks to establish a single, European-wide data protection regime—would send Europe’s ability to generate value from data in the opposite direction. For example, the GDPR could compromise the business models used by many U.S. and European Internet companies, and researchers have found it could reduce the effectiveness of online advertising in Europe by as much as 65 percent. Further, it’s estimated that the cost to European small businesses of complying with the GDPR will tally €7,200 annually. In total, the European Center for International Political Economy (ECIPE) finds that implementing these broad data protection rules would reduce European GDP by at least 0.4 percent and as much as 1.1 percent annually.

It’s also disconcerting that the DSM takes a skeptical stance toward digitial platforms, with the DSM’s chapter on “online platforms” opening with the words “problems and problem drivers,” not by discussing the powerful efficiencies and innovative new service offerings that digital platforms operating at scale make possible. Now, to be fair, the United States also has its own challenges in the digital economy; for example, ITIF estimates that concerns stemming from the lack of transparency surrounding pervasive digital surveillance techniques will cost U.S. cloud computing providers up to $35 billion by 2016.

The takeaway is that we need better policies to guide the use of data if we’re going to maximize its transatlantic economic potential. Policymakers should start by recognizing that—if the T-TIP is truly going to be a “21st century trade agreement”—it can’t fail to address a vital input contributing half of the value in the modern economy. Therefore, at a minimum, the T-TIP should include provisions prohibiting localization barriers to digital trade—such as mandatory local data storage laws or requirements to use local ICT infrastructure in the provision of digital services. It should also include language protecting cross-border data flows, such as that already negotiated by the United States’ Trade Representative’s Office and the European Commission in The EU-US Trade Principles for Information and Communication Technology Services. In particular, the provisions state that “governments should not prevent service suppliers of other countries, or customers of those suppliers, from electronically transferring information internally or across borders, accessing publicly available information, or accessing their own information stored in other countries.”

We should also recognize that a one-size-fits-all privacy policy is not going to work on both sides of the Atlantic. While many Europeans believe privacy is a fundamental human right, many Americans believe that while citizens certainly have a right to privacy, they also have the right to manage their privacy settings online in exchange for the provision of innovative, value-added digital services. Thus, a continued, effective Safe Harbor program will be needed.

But because data is so critical to the modern global economy, the United States and European Union could push further to protect the free and unfettered movement of data across the globe, for example by championing a “Data Services Agreement” at the World Trade Organization, which would commit participating countries to protect cross-border data flows and prevent signatory countries from creating barriers to them. It would be akin to an Information Technology Agreement—which 54 countries commendably agreed to expand with 201 new product lines just this week—for cross-border data flows.

The United States and European Union could also lead in creating a “Geneva Convention on the Status of Data,” as ITIF writes in The False Promise of Data Nationalism. The purpose of such as convention would be to establish international legal standards for government access to data and multilateral agreements for questions of jurisdiction and transparency. Such a convention would not only address the issues of localization and barriers to data flows, but could also limit unnecessary access by governments to data on citizens of other countries and improve mutual legal assistance treaties.

In conclusion, we need to protect the ability of individuals and companies to engage in commerce without geographic restrictions. Companies are using data in creative and wondrous ways to create new value for the global economy. Policymakers must be equally visionary in shaping rules that protect citizens’ rights to privacy without unduly encumbering data’s catalytic economic growth potential.

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About the author

Stephen Ezell is vice president, global innovation policy, at ITIF. He focuses on innovation policy as well as international competitiveness and trade policy issues. He is coauthor of Innovating in a Service-Driven Economy: Insights, Application, and Practice (Palgrave MacMillan, 2015) and Innovation Economics: The Race for Global Advantage (Yale, 2012). Ezell holds a B.S. from the School of Foreign Service at Georgetown University.