Talking Trade blog
The siren call of data nationalism
Published 21 May 2020
Data nationalism is a reflexive response by many countries to the emergence of a new economic resource that appears to be powering a leading-edge sector of the global economy. In some ways, hoarding is a default and adaptive behaviour that kicks in any time, as COVID-19 shows again, when there appears to be an uneven supply of resources.
Two key questions drive data nationalism: Shouldn’t countries hoard data in order to raise up their own national champions? If data is the fuel that drives companies, why would a country allow that fuel to travel across borders and power growth elsewhere?
These questions seem especially relevant when the “data” in question is increasingly seen to be held in a small number of very large foreign intermediation platforms. These platform businesses seem to grow richer while developing countries get to consume the products--but feel largely shut off the value-add production side.
And so many are turning to the siren call of data nationalism.
Data Nationalism as a Pastiche of Import Substitution Industrialization
Data nationalism is not new. In many ways, it is a modern rendition of an older theory – Import Substitution Industrialization (ISI).
Initially conceived during the Great Depression, ISI was intended to help developing countries industrialize rapidly. The core argument of ISI was that achieving economic growth for developing countries required having the entire supply chain located physically inside the country’s border. The theory hinged on the notion that by imposing protectionist policies, countries could reduce dependence on imported manufactured goods and give domestic manufacturers a leg up on foreign competition. And to do so, governments designated “infant industry” winners in the economy by subsidizing and protecting national industrial champions.
The parallels are eerily similar. Just like with ISI, governments in Asia and elsewhere today believe that by creating a captive data market, they can then incubate national “data champions” from this vat of information, and consequently these firms will lead the march of their digital economy aspirations.
The Unfading Appeal of Protectionism
There is something profoundly inviting about the promise of protectionism. Especially during a time of unprecedented crisis when old handbooks no longer provide easy answers.
It is clean, quick, and easy. And that is why it appeals to some. It gives clarity and simplicity. There is a reason protectionism always rears its head when the world is in disarray. The Great Depression. WWII. And now. It offers a simple solution when the tense, fragile social order is furiously unravelling. Build a wall. Raise up barriers. Answers that our dormant cavemen minds readily recognize and latch on to.
Add to this the possibility of quick results: through data nationalism, a country can leapfrog to the leading edge of the data-driven digital economy. One can move directly to mobile telephones without having to go through a copper wire landline stage.
But the lure is false. The failures of ISI from the 1950s-80s are instructive. Many countries that practiced ISI became stuck in a low productivity box that hamstrung their development--some till today.
The countries that successfully leapfrogged did so by focusing on developing a high industrial base. And countries that harbour digital aspirations should similarly focus on developing a high technological base.
The notion that building a larger stockpile of “data” and denying it to other countries will give one a relative advantage is misguided. Countries implementing data nationalism in Asia are some of the most populous countries in the region/world, i.e. they already produce a large amount of data. What would be more helpful is for them to maximize their existing supply of reusable data by getting more firms to use ICT to generate, collect, and analyze data.
Having a large cache of raw, unprocessed data is itself not helpful. What is important is how that data is leveraged to generate insights and unlock value. To this end, countries should focus on how to assist local firms, MSMEs in particular, to understand how they can generate and create value from data, including information they create and collect themselves.
This should be complemented by efforts to increase data literacy among workers and improve digital infrastructure. As more firms use ICT services, more data can be generated, collected, and analyzed. This will lead to the sort of virtuous cycle of growth that countries need to propel their data aspirations.
Why Data Nationalism is Costly and Misguided
Limiting the movement of data through a variety of policies like requiring the onshoring of data and restricting cross-border data flows will only hurt countries’ digital growth aspirations.
In a hypothetical ‘data current account balance sheet,’ data flows will actually decline in relative terms under nationalist policies. Data-centric companies need large and constantly growing feeds of information. The more data they have available, the better data products they can develop. And the better the data products they develop and sell, the more data they receive as those products get used more frequently. This virtuous growth cycle is the sine qua non of all world-beating tech companies.
If offshore information flows are limited, an inability to share data with regional and global offices/affiliates, in addition to the inconvenience of having to store data on local servers, will prove a limiting factor and deterrent. At this juncture, even home-grown firms in large markets may choose to relocate their operations to where data moves more freely and may consider leaving home.
Crucially, the value of data depends on its ability to combine with other pieces of data. Data, or a single piece of information, is likely to be useless. What matters is how disparate pieces of information can be combined in the right time and configuration to derive new analysis or insights that lead to actions.
This requires positioning data policies as closely as possible to the centre of regional/global flows and patterns so that the country becomes a landing point for broad swathes of data, i.e. the focus should be on connectivity rather than directionality.
Data nationalism will lead to the opposite - it will lead to such countries being walled off from the digital economy - side-stepped instead of becoming part of a larger, networked basin.
But perhaps what is most distressing about the moves towards data nationalism is its inherent short-termism. The countries that will hold sway in the digital age are those that shape what may be called “meta-ideas” - ideas that support and enable the production and transmission of other ideas.
For instance, who will capture the majority of value from advanced data driven agri-tech operations? Or from a data enabled palladium mine? It will be countries that can connect data from anywhere to derive new insights and make improved decisions.
Meta ideas are the ideas that keep the positive feedback loop going. In fact, meta ideas may be the most important ideas of all. And in order to be part of its shaping, countries must prove themselves as collective-minded and certainly must eschew selfish, parochial policies. A lesson I learned on my first day in the Foreign Service rings to mind – “You are either at the table, or you are on it.”
This Talking Trade was written by Barath Harithas, Director, Asia Business Trade Association, Singapore. For information on becoming a member of ABTA, contact us today at firstname.lastname@example.org
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