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Digital regulators and the digital economy

ifm-analysis-digital-regulators-and-the-digital-economy
Currently, most digital platforms enjoy unregulated freedom of expression and economic benefits with very less social responsibility, but how long will this trend last?

About a decade earlier, when digital platforms started gaining popularity, both the regulators and the public took it for granted that its promise to remove bottlenecks and intermediaries is going to come with added benefits like new economic opportunities to the population, especially the ones who have been shut down by the already existing incumbents. Currently, only a few companies are there that control the massive portions of the world’s economic activity and investment capital. With the rise of social media taking place around the same time, it brought about a new era of journalism and pro-democracy movements around the globe. Currently, we see the same platforms being used to spread conspiracy theories, fake news and hate speech to undermine democracies and tragedies that have taken place, which, in turn, sows distrust in fundamental government institutions.

Seeing the panic and the level of distrust increasing among the public, a sense of urgency, bordering on panic, has set in among the national and global regulators. Very quickly, we have changed our decisions to keep these digital platforms unregulated to demanding that digital regulators control these unchecked platforms from abusing their unlimited power by either breaking them down into smaller groups or by strictly regulating their content and services provided by these digital platforms. Recently, the European Parliament passed a law saying that digital platforms have to take down ‘terrorist content’ within an hour of being notified. Similarly, the US has also called for breaking up digital platforms into separate retail and platform-hosting businesses.

But there will always be others who will continue to push the status quo. Their argument is that whatever harm is being done on the digital platforms are outweighed by the benefits they offer. They believe that imposing strict governmental regulations on digital platforms will deprive us of the possible future benefits these platforms promise. A large amount of the world’s commerce and communications take place on these digital platforms.

Therefore, according to them, a radical change in the already existing regulatory framework will only result in more disruption and harm compared to all the negative aspects identified by the regulators. Additionally, they have also argued that the cost of regulation is going to cement the position of already existing market power and won’t let anyone new enter that space. They maintain that the efforts of blocking fake news and hate speech will hamper and dampen the free exchange of ideas, which is the backbone of a free and democratic society.

Both the parties in this debate accuse the other of bad faith and believing in dystopian and over-the-top rhetoric. Both groups have provided a seemingly endless supply of real-world examples, like the manipulation of the 2020 US Presidential election, the manipulation of Facebook by the Myanmar government to promote ethnic cleansing. In contrast, there have also been examples like documenting police brutality and gun violence with the help of digital platforms like Facebook and Reddit. The ones who support deregulation point towards the independent businesses that are enabled by these platforms. The ones who support economic regulation highlight the ability of these companies to crush their competitors and decide the rules of international commerce that favour them.

New avenues in today’s economy
Emerging technologies like artificial intelligence (AI), machine learning, big data analytics, blockchain technology and the internet of things (IoT) are coming up with new ways for consumers to interact and they are disrupting the existing business models. We are living in an era where machines are self-taught, autonomous vehicles communicate with one other and the transportation infrastructure; and smart devices respond to and anticipate consumer needs. Keeping these developments in mind, regulatory leaders are faced with one key challenge; how do they make sure that they keep the best interest of the citizens, ensure a fair market and enforce regulations while allowing new and emerging technologies to flourish. The idea that regulations can be crafted slowly and methodically and then stay unchanged for a long period of time cannot be further from the truth currently. As more and more new business models and technologies like ridesharing services and initial coin offerings come into existence, government bodies are challenged with creating or modifying regulations, enforcing them, and communicating them to the public at a pace they have previously not dreamed of.

As we have seen and learned from the early automobile regulation, the restrictions on motor vehicles, thrones that were made keeping in mind the safety of pedestrians, horse-drawn carriages and even cattle have hindered the growth of automobile development by decades. Currently, regulators are facing a similar challenge. They must find a middle ground where they can look after the interests of citizens while resisting the urge to overregulate.

Challenges faced by traditional regulation
Experts have identified various challenges that new and emerging technologies pose towards traditional regulations. Some of these challenges are coordination problems to regulatory silos, and of course, the massive volume of outdated rules. Current regulators face questions like can they keep up with fintech? Drone regulators struggle to keep up with the rapidly growing technology. “Regulatory scramble to stay ahead of self-driving cars. Digital health dilemma. So on and so forth. The existing regulatory structures are often slow to adapt to the ever-changing societal and economic circumstances, and therefore, they come with their own set of hurdles that are difficult to overcome. Experts have mentioned that if the volume and pace of digital transformation remain the same the way it is currently, the existing approach will cease to work. The gap between technological advancements and the mechanisms intended to regulate them are known as ‘pacing problems’ and it is only growing wider with time. It has also been observed that there is a disconnect between the speed, development and ubiquitous of digital health technologies and the existing regulatory structures and processes. According to a bigger consensus, the present regulatory approach is not well-suited at all to support fast-paced development.

Additionally, placing tight regulations for new, high-visibility industries brings new political and shareholder pressures. It’s one thing if regulations in place slow down the launch of new firms or industries, but it’s a different ballgame altogether if it stops the company from growing. Fintech companies are expected to attract massive amounts of investment, but again, this depends on regulations. Industry regulatory challenges are further exacerbated by the existing patchwork of regulations. A lot of national regulatory systems are complex and fragmented, with many responsible agencies having overlapping authorities.

Recent developments in the EU and the UK
The European Commission (EC) has published key legislative proposals, which is a part of its digital strategy. The Digital Services Act (DSA) sets up a common set of rules for online intermediaries where users have their place of main establishment or residence in the EU to promote a safe and accountable online environment. The other related acts talk about major gatekeeper platforms that aim to deliver fair and open digital markets. Additionally, the Data Governance Act (DGA), which is a part of the European Data Strategy proposes a voluntary framework for trustworthy data sharing for both private and public sectors.

In the UK, the planned online safety bill aims to protect users from harmful content online and put forwards a new duty for companies that provide online services. In order to prevent potential harm to businesses and consumers and worrisome market features, the UK government is also considering taking the advice of the Digital Markets Taskforce to introduce a new pre-competition regime. Additionally, the government is also preparing data used by the government and businesses for the benefit of the economy. These developments in the UL should be considered along with other initiatives related to digital strategy sustainable journalism, online advertising, and the work of the Centre for Data Ethics and Innovation (CDEI).

Emerging themes in digital regulations
One of the most popular themes in digital regulation is ensuring a fair and effective digital market with rules in place to address any harms that may arise from concentrated market power. These set new standards for operators and allow market intervention benefits competitors and business users of some platforms with access to data, greater interoperability and transparency.

Another objective observed in this space is the effort to create online spaces that respect the space for all users, especially those who are vulnerable and underage. This includes debates over what kind of content is lawful and unlawful and to which extent private conversations should be monitored, and the rules that decide when the intermediaries must take down offensive content.

Some other concerns related to the digital economy are connected to asymmetries in information and power connected to the massive concentration of data. Some of the established platforms in the market might find themselves in a fix as they might be required to grant access to their data and platforms to competitors while trying to prevent sharing data with the affiliated business.

When it comes to digital advertising, it is considered to be the key area of reform. The proposal seeks to improve fairness in the space and reduce the possibility of social harm. The primary concerns are centred around privacy, user profiling and monetisation of personal data.

There is still a long way to go before these proposals become law and it is too early to know what kind of new opportunities and responsibilities the organisations will be faced with. As organisations are forced to accelerate towards greater digitisation, it is imperative that they follow these developments, along with proposals anticipated in sectors such as data sharing and AI governance.

Technological challenges
Governments from all around the world have been struggling to regulate evolving and new industries in almost all industrial sectors, while trying to safeguard against potential risks. When it comes to technological innovation, regulation can either be cataclysmic or can become a hindrance. As emerging technology keeps evolving, digital regulators all around the globe also rethink their approach. Currently, they are adopting models that are agile and collaborative that are ready to face challenges posed by emerging and evolving technologies in the face of the fourth industrial revolution. To promote innovation, digital regulators are also moving towards creating new models and outcome-based regulation.

With the absence of a uniform global agreement on data protection, regulators around the world have different stances on these issues. Almost 30 percent of world nations don’t have data protection laws, and for those who do, their laws are often conflicting and contradictory. The EU’s General Data Protection Regulation (GDPR) talks about privacy and provides strict rules regarding cross-border data transmissions and giving citizens the right to be forgotten. According to a survey, 82 percent of Europeans say they plan to use their new rights to see, limit, or erase their data. On the contrary, the US approach focuses on sector-specific rules and state laws.

One of the emerging sectors that have been directly affected by data regulation is digital health. A major contributor in the digital health sector is the Software as a Medical Device (SaMD) which aids in diagnosing medical conditions, suggesting treatment and informing clinical management. SaMD allows patients to play a more active role in their own healthcare. Off late, regulatory agencies generally have regulated SaMD in much the same way as traditional medical devices such as heart stents. As mentioned by the FDA, this approach isn’t “well-suited for the faster, iterative design, development, and type of validation used for software-based medical technologies.” While the stent remains untouched by the device makers once it’s released in the markets, developers still possess the ability to make continuous changes to their products remotely, after release. These changes may be related to security, feature updates, or improvements based on the data collected from users.

Another key regulatory challenge in the digital arena is cybersecurity. Experts have mentioned that malicious activity all over the internet has increased and it has increasingly become more brazen, sophisticated and complicated. In several sectors such as fintech, digital health and infrastructure and intelligent transportation system, cybersecurity has massive importance. Going by the data, cybersecurity attacks in the fintech sectors rose by 51 percent since 2019.

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