The World is Facing a Period of Digital Disorder
“Geopolitical competition and government regulations are poised to remake the digital economy,” notes the global consulting firm A.T Kearney in Competing in an Age of Digital Disorder - a recent research report. “The global technological landscape is currently being reconstructed, subjecting the once-free and unfettered transfer of data across borders to new and greater digital walls. Terms such as the ‘splinternet’ and a ‘digital cold war’ are becoming ubiquitous, forcing companies everywhere to shift strategies on everything from procurement to customer engagement.” Or, in a nutshell, the world is in a period of digital disorder.
According to the report, the first stage of the world’s digital transformation started in the early 1990s, with the advent of the commercial Internet and the World Wide Web. Over the next 25 year, advances in digital technologies, big data and a wide variety of applications have led to sweeping economic and societal transitions. Over 50% of the world’s population, almost 4 billion people, had Internet access by 2018, a nearly fourfold increase since 2001.
This initial period of explosive growth, light government regulation, and what the report calls digital order, was followed around 2016 by a period of digital disorder. Governments are now intensifying their regulatory activities in an attempt to maximize the upsides of the digital economy while mitigating its downsides. At the same time, governments are pursuing national policies and escalating global competition to take the lead in emerging digital technologies, particularly in AI and 5G wireless networks. “As a result, a global battle for technological supremacy in the 21st-century digital economy is heating up, raising the risk of competing technological standards and creating the potential for an ‘islandized’ digital environment. Altogether, these actions are creating a digital disorder that is becoming more difficult for companies to navigate.”
In particular, firms are now facing a growing backlash against the increasing digitalization of the economy and society. In the past, the technology industry was largely seen as a positive societal force, enabling billions around the world to rise out of poverty and lead more productive lives. Today, by contrast, Big Tech is being challenged on a host of issues, including the dissemination of false and damaging information, the rising inequality between the digital haves and have-nots, and the growing number of cyberattacks, theft of personal data and identity fraud. “In the United States alone, identity fraud increased 8 percent in 2017, victimizing 16.7 million people and resulting in theft from consumers of $16.8 billion.”
“The world now stands at a digital inflection point. As the wide-ranging impacts of this digital transformation are better understood, governments around the world are intensifying their efforts to govern and regulate digital activity… These actions are motivated not only by the sweeping societal transformations that digital has brought, but also by governments’ desire to maintain international competitiveness in the 21st-century digital economy… The stakes could not be higher, as the winner of this escalating global competition will have an edge politically, economically, and even militarily for years to come… The result of these emerging government actions both to manage and promote digital technologies is the creation of an increasingly uncertain environment in which companies must operate.”
The report argues that this period of digital disorder will likely last 10 to 15 years, followed by the emergence of a highly uncertain digital environment around 2030. To help envision this uncertain future, the report developed four alternative scenarios based on two key forces of change:
- Regulatory activity, strong or weak. The extent to which government around the world impose new regulations on technology companies and on the use of digital technologies.
- Digital environment, globalized or fragmented. The extent to which the digital economy emerges as a globalized whole or fragments into different national or regional blocs.
Techlash to Renaissance - strong regulations, globalized environment. In this scenario, government and the tech sector have reached an understanding in which national policies and regulations impose norms and restraints on the use of digital technologies. This understanding leads to global cooperation in establishing a more unified digital landscape and an effective cross-border digital governance based on best practices and standards. “Global economic growth is steady, supported by new innovations, geopolitical stability, and high levels of consumer confidence.”
Digital Crackdown - strong regulations, fragmented environment. This second scenario is characterized by high levels of nationalism and strict government control of digital platforms. State capitalism and mercantilism are on the rise. Governments support national champions for their domestic digital services and infrastructure. The global economy is weak, as is the global digital environment which is dominated by incompatible national champions. “Governments around the world mandate that digital platforms share user data with the government, which they use to monitor citizens as well as oversee and shape platform content… Nationalism fuels distrust of foreign goods and services, and governments construct digital walls through stringent domestic standards and localization requirements.”
Fake News Devolution, weak regulations, fragmented environment. This is a kind of digital Wild West scenario. The Internet is full of fake news, leading to increased divisions and fading trust in governments, business and just about all other institutions. Around the world, consumers particularly distrust foreign technologies and companies, forcing digital platforms to stick primarily to their home markets and fragmenting the overall global digital environment. “The global economy is stuck in a low-growth environment as cross-border investment dries up and rising levels of economic inequality stifle consumer spending.”
Surveillance Capitalism, weak regulations, globalized environment. In this final scenario, global technology giants, primarily US and Chinese companies, have supplanted governments as the most powerful institutions in the world. Strategic partnerships among these companies lead to a unified global digital environment. By influencing decision-makers around the world, the digital giants are able to crush regulatory efforts to reign in their market power. “Popular backlash against these technology giants is limited, however, as global economic growth is strong, and households feel increasingly flush. The global digital platforms also help to usher in a generally cooperative and stable geopolitical environment, marked by greater levels of cross-border economic flows.”
The shape of this future digital order remains unclear because the forces shaping the environment will vary considerably across markets, industries and nations. “Across all four scenarios, though, two things are clear about the future digital order. The first is that digital technologies will continue to proliferate and will play a more central role in the 21st-century economy. The second is that we are on the cusp of radical change in the operation of the digital economy. Companies across all industries must therefore act now to both manage the volatility and uncertainty associated with digital disorder and simultaneously prepare for the digital order that will emerge.”
First appeared November 11, here.