National champions do not help to win the race for digital industrialisation
Updated on 15 September 2022
From a governmental perspective, national champions are usually private-led companies seen as vital to promoting the interests of the nation. Often, this recognition translates into governmental policies that support or favour these enterprises in the domestic market or abroad. The link between private companies and the promotion of national interest is not new, but perceptions about the role that these champions can play in the context of the digital economy have largely been influenced by the rapid growth of champions in China.
The dragon and the eagle
In a matter of a few decades, China has successfully managed to nurture first league national champions, capable of rivaling those in the United States. Leading digital platforms from China, such as Alibaba, Baidu and Tencent, have experienced a remarkable 78% increase in profits in 2020 if compared to 2019. This rapid growth lured many governments in the West into believing that champions can function as the locomotives of a high speed train, capable of pulling national digital development forward.
The comparison with China needs to be seen with caution. The country has difficult-to-mimic political and economic conditions that have facilitated the emergence of digital champions, including the capacity to shield them from foreign competition in their nascent years. Moreover, China is also recognising the downsides of overgrown champions that start to monopolise the market and stifle competition. The ongoing crackdown on technological companies indicates that the government has felt the need to intervene, to ensure that companies benefit society and fit into the long term goals of ‘common prosperity’, an idea that captures a myriad of policies, including measures related to the digital economy, in areas such as data protection, competition, algorithms and online gaming.
The United States presents an example of a different policy recipe that has led to the growth of champions. Abundance of capital and openness to experiment were essential ingredients for the growth of Silicon Valley. It is possible to unpack this openness into two principles. The first is ‘permissionless innovation’, which means that innovators do not need to seek the approval of any authority before they develop and deploy new devices and services, and are free to experiment with new technologies and business models. The second is ‘permission to fail’, which removes the burden from innovators and start-ups to prove themselves and succeed in their first attempt. When it comes to digital innovation, failures can be seen as stepping stones to future success.
These principles resonate well with the culture, values and professional ethos of the actors that ‘created’ the Internet and developed the business models adopted by most champions of today. The Internet technical community functions based on ‘rough consensus and running code’, which could be understood as ‘may the best piece of code, protocol or technical argument win’. In this scenario, ‘there are no permanent favorites’ – another principle that is very dear to the Internet technical community. The Internet offers similar opportunities to all and the leaders of today could be the followers of tomorrow. Choosing national champions is choosing favourites. This choice goes against the logic that underpinned the development of the digital economy.
Selecting national champions could also bring some legal and strategic hurdles. From a legal standpoint, favouritism forces the country to walk a thin line when it comes to conforming to trade norms, in particular the principles of non-discrimination, national treatment, and to marker access. From a strategic standpoint, the choice of champions may become an obstacle to adopting the more holistic approach of choosing sectors on which to invest. A sectoral approach could allow developing countries to select the specific areas that resonate with their economic profile, readiness, and competitive advantages.
Beyond national champions
If the ‘national champion’ approach is not considered the best course of action, developing countries could put in practice a few points to expand the scope of their participation in value creation in the digital economy. The first is to conduct an assessment of their national strengths and weaknesses in the digital context, and of the external challenges and opportunities posed by digital technology development. This assessment would help them identify low hanging fruits and priority sectors in which to invest. At the same time, it would help them anticipate trends and be better prepared to take advantage of the next wave of economic opportunities. For example, many business opportunities lie in the monetisation of non-personal and industrial data.
A second point is to develop data strategies at the regional level in order to benefit from the opportunities and economies of scale of larger markets, and to strengthen influence over international negotiations. Developing countries are more powerful when they act as a block. The celebration of the African Continental Free Trade Area (AfCFTA) provides an opportunity for sowing the seeds of a regional approach to data in Africa, for example.
A third point is to focus on devising voluntary or mandatory mechanisms for accessing data. Data localisation norms that require the storage and/or processing of data in national jurisdictions means little from an economic perspective if data continues to be locked in the private vault of transnational corporations under the mantle of intellectual property protection. Developing country players need to find acceptable mechanisms to tap into relevant data and extract value and intelligence from it. Trustworthy mechanisms for accessing data are more important than where data centres physically reside.
Access to data: a common problem
Finally, it is important to identify points of convergence between the interests of developing countries and some developed countries that are also seeking to boost their data economies and use data as a way to achieve meaningful policy objectives. The Swiss government, for example, is championing the idea of digital self-determination. It has launched a report on ‘Promotion of trustworthy data spaces and digital self-determination’, which proposes some reflections on how to unlock the social value of data. Points of common interest between the Global North and the Global South could be identified on specific issues, such as mechanisms for accessing data. This convergence could bring the landing zone of trade negotiations on data flows a step closer to the development-oriented priorities of the Global South.