Navigating a new digital age means changing the global economic order
COVID-19 has accelerated the growth of the digital economy with a dramatic increase in working from home, online shopping, digital entertainment, online services, among others. Ideas such as telemigration in which people from different parts of the world work in virtual offices may have in the past seemed scandalous. Today, many are already working from home via video streaming.
A completely virtual future may be unlikely, but such changes pose a fundamental challenge to the way we organize societies. Laws and regulations governing commerce, taxation, labor, and social security, among other areas, are largely based on geographically defined states that contain and regulate our economic and social activities.
This applies to the global economic order which consists of agreements between states to manage the interactions between them. For example, an international regime regulates services based on how the service is provided, in turn determined by where the buyer and seller are located. For trade in goods, borders are used to implement rules such as tariffs and standards.
In the field of taxation, the transition from physical to digital has created a major challenge for fiscal law. Likewise, live in one country and work in another remains a bureaucratic challenge even in some of the most integrated economies in the world.
In recent years, there have been debates about how to cope with these changes amid the ongoing technological changes. At the fundamental level, we are faced with two options. Is the task ahead of us how to adapt our existing rules and regulations to adapt to these new technologies? Or should we think of completely new modes of regulation that govern our economic and social relations in a new technological age?
So far, the focus has been on the former. In commerce, for example, discussions have focused, often with little success, on issues such as deciding whether data flows are exchanges, how we impose tariffs on goods traded electronically, or whether an electronic book is a good or a service.
Alternatively, we might want to view the ongoing technological change as the start of an entirely new world. A world that needs a radical overhaul and new laws and regulations adapted to the new technological era. But what would it look like?
A digital Bretton Woods
Some commentators have called for a “digital Bretton woods”Conference to define a new regime of global governance in the digital age, including a discussion on governance of artificial intelligence, data, tax arbitration by multinationals and international standards to measure the digital and intangible economy. James Balsillie, co-founder of the Institute for New Economic Thinking, call for the International Monetary Fund (IMF) to catalyze a new Bretton Woods moment “to face these new global realities due to the unprecedented digital forces shaping our world”.
Bretton Woods was the meeting of 44 states that took place in 1944 to discuss a new economic order for the postwar period. This resulted in the creation of the World Bank and the IMF and a proposal for an international trade organization.
Among the various visions of the world economy, the Bretton Woods result was a compromise between the demands for total economic liberalization of some in the United States and the opposition of other countries. John Ruggie, Professor of Human Rights and International Affairs at the Kennedy School of Government at Harvard, called this compromise incorporated liberalism. It was an international order that maintained a degree of global harmonization that limited destructive competition between states but also allowed them to pursue goals related to employment and industry.
The Bretton Woods Compromise and the relatively weak restrictions imposed by the international economic order during parts of the twentieth century enabled some developing countries of the time, such as Korea and Singapore, to pursue trade and industrial policies to promote their economic and technological development. Over time, however, and through multiple channels, the balance of the world economic order has shifted towards global harmonization.
The great powers, including the United States and the EU, have promoted stricter rules in areas such as trade, investment and intellectual property rights. This trend has resulted in a shrinking political space for developing countries, making it more difficult for them to pursue development policies.
A compromise for the digital age?
Current discussions on governance of the digital economy resemble these earlier debates. The United States, as a world leader in the digital economy, ran a campaign remove barriers to digital commerce by promoting goals such as the free flow of data.
However, a number of developing and emerging economies such as South Africa, India and Indonesia are firmly resisting this surge, fearing its impact on national economies. As a result, there is now a stalemate within the modern World Trade Organization and a shift towards solving these problems by plurilateral, regional and bilateral avenues.
We are now facing two extreme outcomes: advanced economies overcome this resistance and create strict rules on the digital economy, leading to a highly restrictive digital economic order that limits the economic and technological development of some countries and widens the technological gap between developed and developing countries. .
Or, the inability to reach multilateral rules on the digital economy means that parts of the rapidly growing global economy remain outside the multilateral economic regime, resulting in fragmentation as states pursue their interests through other routes.
While the existing multilateral order is very flawed and biased against developing countries, fragmentation is not necessarily in the interest of those countries as power imbalances in regional and bilateral relations are often more biased towards nations. powerful. This scenario also undermines the open-world nature of the Internet, which has brought benefits such as access to information, communications and general freedoms.
Avoiding these two outcomes requires international efforts. A digital Bretton Woods could address some of these challenges and help shape thinking about the future of economic governance in the digital age. But we need to do more than just bring together state representatives. First we need a broader discussion on how to regulate economic and social activities in the digital age. We also need to understand how the restrictive international order of the past decades has limited the ability of developing countries to promote development and how any new digital economic regime can avoid a similar outcome.