Let The Data Flow

Countries that enact barriers to data flows stifle growth and innovation, not only in their own markets, but across the global digital economy.

4Jan

Plastics.

That’s the iconic, one-word career advice given to Dustin Hoffman in the celebrated 1967 film, “The Graduate.”

If a reboot of that movie were made today, this advice would almost certainly evolve to, “data.”

Big data is a field that offers opportunities for people of all ages, with few limitations based on the industry in which they work or the country in which they live.

Data is also a fundamental element of many companies’ cross-border strategies, as the insights unlocked by the data bring new levels of efficiency to a range of critical tasks, from managing personnel to monitoring supply chains.

More broadly, global data flows enable trade, connect people and economies, and accelerate the movement of ideas and capital that drive innovation. These flows also stimulate competition and act as a natural equalizer for small and medium-sized businesses, helping them compete on a global scale.

However, at the precise moment those opportunities are about to blossom, they are threatened by the proliferation of short-sighted data “localization” policies imposed by governments throughout the world.

The policies strike at the heart of the data explosion that’s been underway in recent years, and is producing tremendous benefits for consumers around the world. The volume of global data flows has grown 45 times between 2005 and 2014, and is expected to grow another nine times by 2020. Industries from retail to financial services to hospitality are mining this avalanche of data to create new and better ways to serve their customers. They are providing better products and services at lower costs, and in more convenient ways, than ever before.

But companies throughout the world could find themselves handicapped by a looming threat: governments restricting the free flow of data across borders.

Today, 34 countries have instituted restrictions of some kind.[1] And while the countries with the most stringent data localization requirements are Russia and China, one index of data localization restrictiveness has found that the European Union is close behind those two countries.

These policies come with a high price. They have the potential to fragment the digital economy (creating a so-called “splinternet”) and, in the process, stifle its growth. And that will ultimately mean higher costs to consumers, and less productive national economies, which translates to reduced economic opportunity and fewer jobs.

According to a study by two research organizations – Chatham House and the Center for International Governance Innovation –the costs of these measures to the European Union, as well as seven other countries will fall between .4% and 1.1% of their gross domestic products.[2]

There will also be a decline in innovation, says the Information Technology & Innovation Foundation: “Countries that enact barriers to data flows make it harder and more expensive for their companies to gain exposure and to benefit from the ideas, research, technologies, and best practices that accompany data flows and the innovative new goods and services that rely on data.”[3]

Consider how global data flows are leading companies to adopt fresh thinking about what they do, and who they do it with.

A recently-announced agreement features two telecom operators (NTT Docomo of Japan and Ericsson of Sweden), an auto parts manufacturer (Denso of Japan), a technology company (Intel of the United States), and an automobile manufacturer (Toyota of Japan). This partnership, which is focused on maximizing the data-related opportunities connected to “intelligent driving,”[4] shows how data can be a catalyst for cross-border economic cooperation, as well as industrial transformation.

But data localization initiatives could snuff out these kinds of partnerships in the future.

Data is the lifeblood of the modern global economy, and the rise in cross-border data flows brings with it some very real benefits. It creates huge opportunities for countries and businesses that are ready to take advantage of it. The mix of data analytics and cross-border cooperation have the potential to be a dynamic source of job creation and economic growth.

But realizing that potential depends on policymakers around the world having the foresight not to fall prey to the siren song of data localization.

Data needs to flow to maximize value, which means policies that limit such flows across borders will reduce economic growth and social value.

If they can reverse today’s policy trends, and foster the free flow of data across borders, they will ensure that data– like plastics before it – becomes a hallmark of the 21st century economy.

Looking small

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