The key for the EU to win the struggle over European citizen data

Just like the previous financial crisis revealed the underlying structural issues in the euro’s architecture, the current Covid-19 crisis has highlighted another fundamental EU weakness. To tackle future health or climate challenges, the continent currently relies on the technological services and infrastructures of foreign firms. For example, earlier this year, European governments gave up on developing their own track and trace applications, acquiescing to Google and Apple’s leadership. In the summer, Latvian digital affairs advisor Ieva Ilves spoke of this sobering experience, wondering whether Europeans should simply accept that sovereign nations bow out in favour of US corporations. The Huawei affair, involving the Chinese company’s bid to rollout 5G infrastructure, generated similar unease across the continent.

It is not a problem that Brussels officials are unaware of. In the document describing her political guidelines as a European Commission President, Ursula von der Leyen stressed in 2019 the need to “achieve technological sovereignty in some critical technology areas”. Even before the Covid-19 crisis, the European Union was identified by the 2019 Unctad report as the only key advanced economic area that was falling behind the United States and China in the digital technology race. For instance, European firms only constituted 4% of market capitalisation for the top 70 digital firms (Africa and Latin America barely captured 1%). This is also reflected in research and development spending. According to Bruegel, the digital sector is the only one where the top Chinese and North American companies significantly outstrip investments by European firms. In brief, the region is dramatically underprepared to challenge this emerging duopoly.

But this is not just an economic issue. For security expert Daniel Fiott, Europe is clearly unprepared, both in its awareness and investment on digital capabilities. European governments and the EU do not know and do not spend enough in preparing the continent for the next “revolution in military affairs”. Perhaps the most glaring example is the use of US-owned clouds for the storage of sensitive military information. Future European autonomy and sovereignty, recently invoked by French president Emmanuel Macron, are at risk. The very idea of a distinctive rights-based European approach to the digital economy will not prosper in a world where the continent’s citizens and businesses are merely data providers and consumers, in platforms outside their government’s jurisdictions. There is, though, a solution, which is also remarkably European but has fallen out of favour after decades of market fundamentalism: a digital industrial policy for the continent.

From European digital governance to European digital development

There is no shortage of voices in the debate on Europe’s digital capabilities. Following issues like the Apple tax controversy in Ireland, digital competition enquiries at the Commission, and unilateral initiatives like the proposed French tax on digital services, there is unease about the EU’s position on the other side of the Atlantic. For the Washington-based Atlantic Council, European leaders are embarking on a vote-winning strategy of bashing American technological triumphs, which is only benefitting China and not doing much to help develop regional digital capabilities. Many North American business leaders and policymakers have regarded these initiatives as a smokescreen to avoid addressing the fact of EU’s relative technological decline.

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Traditionally, US voices have based this perspective on a widely held belief about the EU’s business environment: Europeans are risk-averse and their anti-business legislations are an impediment for digital leadership. For instance, a recent study by Buiatti and others argued that European underdevelopment was a result, among other reasons, of “high taxation, restrictive regulation (…) and little propensity to innovate”. Of course, it is true that operating across 27 jurisdictions does not make it easier for possible European champions to emerge through economies of scale. This is partly the motivation behind harmonizing through the Digital Single Market initiative. At the same time, this view, shared by certain local pro-market voices ignores a crucial fact: some of these rules and regulations reflect the preferences of Europeans; that is, their sovereign will.

This stark omission was clearly seen on a recent World Bank report, which argued that Europe’s lack of leading digital firms was partly due to “stringent” regulations. But some of these regulations are in place for a reason. For instance, the report accused European workers of retiring “early”; according to the Bank, pensioners should have access to lifelong training so they can professionally apply digital tools. However, what if an earlier retirement age, alongside other social provisions funded by higher taxation, is precisely what EU citizens want? What if the EU chose to pursue a different approach to digital platforms, one that protects labour, privacy, and other rights? Rather than transatlantic differences being obstacles to innovation, it is precisely these differences that could be read as constitutive of the EU’s governance of technological innovation.

According to Schneider, between China’s growing surveillance state and North American oligopolism and rentierism, the continent is pursuing a third way to digital governance, based on democratic principles and individual rights. General Data Protection Regulation, digital tax and competition enquiries, or AI ethics principles would be examples of this agenda. But is this enough? A collective report by the European Council on Foreign Relations argued that, while these regulations were certainly important, they did not necessarily contribute to developing regional technological sovereignty. The report summarised this succinctly with the expression “referees do not win the game”. Equally, empty digital demagoguery is unproductive. Ruhlig and Bjork have a point when they argue that geopolitical concerns about Huawei or other firms should not jeopardise the EU’s commitment to multilateralism. Ilves and Osula have also argued against an aggressive push towards digital protectionism in the name of technological sovereignty. Suddenly losing access to US or Chinese artificial intelligence or 5G solutions would cripple the economy. Other sovereignty-focused measures seem misguided, such as data localisation rules, which could possibly help native tech firms but seriously damage overall competitiveness in the long run.

(Este análisis forma parte del ciclo ‘Ojo al Dato’, que produce Agenda Pública para la Fundación «la Caixa»)

In short, for Bilotta a piecemeal and reactive approach to tech regulation can only generate tensions with the United States without really constituting a serious groundwork for EU technological sovereignty. Rather, it is on issues of constructive investment and development, instead of governance mechanisms like taxation or selective discrimination, where policymakers should focus their attention. But which model of digital development should the EU pursue in this era of relentless global competition?

A European Union digital industrial policy fit for European citizens

It is typical for Western observers to simplify the East-West struggle over cyberspace as a confrontation between inward-looking authoritarianism and cosmopolitan liberalism. However, Hong and Goodnight have detailed the changing cyber-sovereignty discourse in China as a reflection of the nation’s attempt to connect its developmental project with the global expansion of firms like Alibaba. The infamous Chinese Firewall was a crucial element in the country’s pursuit of international digital leadership. Alongside aggressive protectionism, Foster and Azmeh have detailed how China leapfrogged from latecomer to leader though an interventionist digital industrial policy. Today, firms like Huawei or Tencent show that interventions need not result in cyber-autarky.

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However, this division of the cyberspace between more and less ‘protectionist’ often ignores the public origin of many of the US technological infrastructures that underpin the dominance of leading firms. Yes, the Silicon Valley of today is mainly guided by private financiers and private firms. At the same time, as studied by Klingler-Vidra, the shortcomings of East Asian attempts to replicate the Silicon Valley Model have revealed two lessons. First, that policymakers tend to overlook that the private-led Silicon Valley of today was the result of decades of public-led federal initiatives by an “entrepreneurial state”. Second, that any effort to compete with North American (and, more recently, Chinese) firms will likely require ambitious levels of investment, directionality and developmental state efforts that are often missing. In other words, state-led development of digital technologies has always already been part of the story. In development studies, scholars like Robert Wade have established that the US practices industrial policy in disguise. Its “network developmental state” is constituted by governmental institutions like DARPA (inventor of the internet) and public funding of semi-public or private institutions like the University of Stanford, through agencies like the Department of Energy to National Institutes of Health. The importance of this public investment for innovation has been seen more recently during the vaccine race.

Still, researchers like Oxford’s Luciano Floridi fear that imitating the Chinese approach to stimulating digital leadership could entrench “digital statism” in Europe and elsewhere. What if this surveillance state was not a choice, but imposed from the outside? Kirste and Holtbrügge have applied dependency theory, the perspective explaining underdevelopment through Global South reliance on capital and technologies from the North, to Europe’s current relationship with China’s Huawei. Using the example of 5G, they argue the rollout of the new standard will certainly increase Beijing’s leverage over Brussels. Of course, the same could be said on Europe’s dependence on Amazon Web Services and other US-based cloud, artificial intelligence and 5G technologies. Therefore, while EU authorities might dislike what they perceive as interventionism or protectionism, the long-term consequences of inaction could be even worse. As argued by Dimitar Lilkov, the EU cannot be a mere provider of data for foreign companies if it wishes to remain politically relevant, or independent.

Alexander Hamilton, the first Treasury Secretary of another nascent federation observing the first industrial revolution, famously connected the survival of the American project to economic self-reliance in manufactures. In modern terms, digital industrial policies and technological sovereignty are also essential to guarantee the survival of a distinctive European project. As recently explained by Birch and Minuesa, the contemporary economy relies less on things or commodities and more on assets. That is, something that can be managed, traded, and capitalised based on its capacity for generating a regular extraction of value, or rent. And digital technologies, with their tendency towards servicification, are the preferred vehicle for turning activities like agriculture or manufacturing into assets. Gereffi and others have observed the increased relevance of non-physical asset-owning firms in global value chains, which will gradually accrue more of the value to firms owning the key intellectual property. This spells trouble for those regions of the world which do not host leading technological firms.

Europe cannot afford to lose this race. Rather than insisting on being the referee and trying to lead through governance, the EU must focus on the development of sovereign digital capabilities. These are currently spread out thin. A recent study commissioned by the European Parliament denounced how resources for AI research in Europe are large but working too independently and without considering real-life applications. Even though the acceleration of digitisation is an obvious consequence of the pandemic, Revoltella has noted how almost forty per cent of EU firms are barely using these technologies. At least 15% attribute this to the lack of infrastructure. As a result, civil society actors are already mobilising around a shared digital industrial policy agenda. For example, the German business association, BDI, is leading the way in advocating for a common European industrial policy. This is a view shared by the Italian Confindustria and the other relevant business organisations. But support for this digital industrial policy should also consider the bottom-up wishes of citizens, as it does in digital governance. In Barcelona, as described by Calzada, citizens are not mere data providers but active decision-makers in local governance of issues like mobility, housing or health. This concern for universal social rights is what makes Europe different; sacrificing it, as seen in the years of austerity, will only contribute to a race to the bottom.

Indeed, a digital industrial policy without an agenda to address EU inequalities would of course be ineffectual. According to a study by Kuruczleki and others, the divide between a core of high-investing, innovative countries and a growing periphery of Southern and Eastern European nations is the biggest obstacle for the deployment of Industry 4.0 technologies. From a Spanish viewpoint, Braña has argued against the risk that these industrial policies will exacerbate ongoing trends towards domestic inequality, particularly in Southern European States. Mario Pianta, an economist who has for a long time proposed an active continental industrial policy, has warned against the risks of promoting a digitisation that does not address geographical as well as class inequalities. On the other hand, a digital industrial policy provides the perfect opportunity to bridge these gaps.

If EU authorities are willing to move from mere governance to active development of digital leadership through industrial policy, they could start by focusing on some of the continent’s successes. For example, Timmers has highlighted cybersecurity as largely a success story for EU-wide industrial policy. Most developed economies have resorted to one or another form of intervention in the sphere of cybersecurity. Some of the relevant policies from the perspective of market failures, as discussed by Aggarwal and Reddie, include market creation through public procurement in France, market facilitation through tax credits in Japan, market modification through consumer regulations as in the European Union, market proscriptions such as the UK’s export control over cybersurveillance applications, and market substitution such as the US’s In-Q-Tel direct investment in various technologies.

If commentators defined debt mutualisation in the EU earlier this year as a Hamiltonian moment, a second Hamiltonian moment could perhaps be constituted by the collective shaping of a digital industrial policy that protects and expands European citizen rights. Inspired by perspectives like Mariana Mazzucato’s mission-oriented approach, EU leaders can also protect and expand the continent’s autonomy by defining the direction of future digital technologies.

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