How the Global South Can Rise to the Challenge of a Digital New Deal

Richard Kozul-Wright

The fault lines in the global economic order, exposed once again by the pandemic, is an opportune moment for long-standing advocates of transformative change to put forth new agendas for the post-Covid world. Structural challenges posed by a globally uneven playing field, and upheld by discriminatory trade policies, unidirectional flows of labor and data, and differential levels of environmental and human degradation experienced by the Global South, require an overhaul of international systems and call for a reconfiguration of domestic priorities.

Taking cognizance of this, Richard Kozul-Wright, along with University of Boston’s Kevin Gallagher, put forth the ‘Geneva Principles for a Global Green New Deal’ which envision a global realignment of development goals, conferring autonomy to states, encouraging productive spending, and accounting for climate realities.

We spoke with Richard Kozul-Wright, director of the division on globalization and development strategies at the United Nations Conference on Trade and Development (UNCTAD), about whether and how these principles can be rearticulated and reconfigured to inform a progressive and egalitarian agenda for rapidly digitalizing economies. How can we govern data, the digital, and network technologies differently? How can we forge a democratic future for digital trade? What institutional arrangements are needed for redistributive justice in a rapidly digitalizing world? And above all, how can we rise to the challenge of a Digital New Deal?

Richard Kozul-Wright

Edited Excerpts

IT for Change (ITfC): The Covid-19 pandemic has given a boost to the digitalization of economies. Across the world, we are witnessing the expansion of digital servicification and a rise in forays by US and Chinese Big Tech corporations into foreign markets. In your view, what is worrisome about this trend and what are some of the risks we should be looking out for?

Richard Kozul-Wright (RKW): Clearly, access to the digital economy has helped during the pandemic by keeping information flowing, by keeping spending going through digital payment platforms and financial technology services, and by keeping classrooms going through online education and e-learning. But there are some real worries, three in particular, that we have to pay attention to. First, these gains are obviously limited by the digital divide, both within and between countries. It seems almost certain that the emphasis on the use of and access to digital technologies during the pandemic will further exacerbate existing inequalities. In that sense, greater digital servicification will lead to further divisions. So that exaggeration of the digital divide is the first concern. The second is that the digital economy, at least as we see it, is a rent-based economy where the ‘winner takes most’, if not all. In the absence of the right kind of regulations, digital servicification will almost certainly lead to higher concentration of rents in the hands of a few big digital platforms, mainly from the US and China, that already have a clear lead in that respect. This is an obvious concern. Beyond the issue of differential access to technology, the increased income inequality that’s likely to be generated, will further political and social divisions. The third concern is related to the first two. The digital economy is based on access to data and, as a consequence of the pandemic, more data is being collected and processed by the platforms. This data is also, for all practical purposes, owned by these platforms. Most developing countries, at this moment in time, don’t have the legislatory or the physical infrastructure to be able to strengthen data sovereignty. This will pose further challenges for developing countries as the first-mover advantage becomes more and more entrenched, and the challenge around access to and ownership of data becomes more and more problematic.

ITfC: What are your thoughts on how the current multilateral trade regime is contributing to some of these problems that you mentioned?

RKW: We at UNCTAD are worried about the way in which the rules of the global economy in general, including in the trading system, are rigged in favor of certain vested interests. That’s the background against which we look at these problems. In the particular context of the digital economy, the World Trade Organization (WTO) has an existing work program on e-commerce – to have discussions on e-commerce rules, allow countries to understand what these rules can do, and how those rules might impact development processes in particular. At the same time, the Doha Development Agenda, which has not as yet ended, is being squeezed out of the discussion by attempts to shift rule-making to newer issues, including those related to the digital era. This is coming at a time when the WTO itself, as an institution, has lost a lot of trust, particularly from its development partners. That’s a real concern for us in the particular context of wider discussions of reform of the WTO. Any reforms at this time should not come at the cost of the Doha Development Agenda. That round needs to be concluded before any new issues are put on the negotiating table, including rules involving the governance of the digital economy.

We are worried that the current way in which the WTO is operating will work to the advantage of the digital giants and against developing countries which lack the digital infrastructure necessary to be able to benefit from these new technologies. Digital rules at this moment in time, to borrow a slightly outdated metaphor, at least technologically speaking, would be putting the cart before the horse. We don’t think that’s very appropriate in the current context. On top of that, the big digital platforms are not only financially very powerful, but also politically very powerful. They have the political and financial clout to put pressure on governments to rig the digital rules, in exactly the same way that other powerful corporations have been able to rig the rules in other parts of the trade system. Now is not the appropriate time to try and force rule-making on digital issues, both for the developing countries as well as the WTO itself, which is going through a very difficult moment.

ITfC: As you mentioned, it’s quite apparent to outside observers as well that the multilateral rule of law and global trade systems are in crisis for a variety of reasons. In the digital governance context, this has meant a pervasive influence of multistakeholderism which has often undermined public interest because of corporations arguing for an equal seat at the table. Given the urgency to create norms for future digital economies – making digital transnational corporations (TNCs) accountable and deciding new rules on digital taxation and tariffs – we need global governance frameworks to challenge the current unequal order. How can we reinvent governance of digital TNCs within the current system?

RKW: I am not sure multistakeholderism adequately describes the evolution of global governance intention. We see this much more as a neo-capitalist world in which the interests of large corporations in developed economies are being advanced in cahoots with their own states in a way which resembles mercantilism. That poses challenges for developing countries who have much weaker states and firms than is the case for advanced economies.

The one thing that Covid-19 has obviously done is to highlight the pivotal role of the state and the public notion of economic interest. That’s clear in the context of the global health pandemic, but it is also true of other aspects of public goods and socio-economic rights. The challenge ahead is to reinvigorate the state and to get back towards a multilateral system in which the state, rather than private sector interests, sets the goals that define the common good. That’s the big challenge. This is very difficult given the way in which the rules of the system have been redesigned over the last 40 years to pander to private interests. The nature of the challenge goes back to the lack of trust in the system. And this lack of trust is reflected in the way in which the forces of the political economy are playing out, in particular, along digital lines.

Developing countries are still very much in resistance mode. They haven't yet found the positive agenda that is necessary to build the policy space they need, not only in the context of the digital economy but across a series of economic activities. They need that space if they're going to recover from this crisis in a better way than they did ten years ago.

One of the things that will be important to challenge coming out of the current crisis is the narrative, that is already being heard, of rapidly reglobalising the system in response to the pandemic, using the pandemic as a kind of bait-and-switch. The crisis is being used to say that what we need is an international solution to this problem (which we all agree is the case). However, the bait, in the form of access to international technologies and the necessary goods and services during the pandemic, is quickly being switched into code for extending the rules of the digital economy which favor existing vested interests. Resistance to this kind of bait-and-switch by developing countries and civil society organizations is the necessary first step. The more difficult challenge is whether on the back of the pandemic, on the back of the recognition that the state matters even more in protecting lives and livelihoods, the existing rules of the game – currently heavily stacked in favor of certain interests – can be rewritten to bring about the elements of social and economic justice that are clearly missing from the system. Developing countries are still very much in resistance mode. They haven’t yet found the positive agenda that is necessary to build the policy space they need, not only in the context of the digital economy but across a series of economic activities. They need that space if they’re going to recover from this crisis in a better way than they did ten years ago, and to build the kind of resilience – economic, social, and medical – that everyone is talking about as a necessary forward step out of the pandemic. That’s where the challenge lies right now.

ITfC: Typically, the governance challenge is so difficult because it demands that we come up with a vision of the kind of world we want to build. At the beginning of the pandemic, in April, you had published an article in The Tribune where you spoke about the five strategic goals for a Global Green New Deal. In your view, what may be the normative principles for a Digital New Deal that is also cognizant of the looming ecological crisis?

RKW: This was part of some work we were doing jointly with the Boston University to develop a general set of principles that we think are necessary to revive the multilateral system across a whole swathe of areas of economic life, and not just the trading system, where the rules and norms have been diverted by neoliberalism and the rise of unchecked corporate power. It’s a problem with respect to finance, intellectual property, and so on across that system. It’s not a system that’s capable, despite all the talk, of delivering fairer outcomes. It doesn’t produce the kind of caring economy that can protect the most vulnerable populations and promote a wider sense of economic rights. It doesn’t lead to a kind of participatory politics that can counteract the capture of policymaking by powerful interest groups. Ultimately, that’s the biggest concern. What is currently offered doesn’t lend itself to a sustainable future in which the environment is not being constantly ravaged and defiled for narrow private interests. The idea behind our work was the need for a different set of principles on which to deliver these kinds of broad strategic goals. They’re very general in nature, but they apply as much to the digital economy, or the evolving digital economy, as they do to the analog economy. The goal should not be liberalization, privatization, deregulation – these may or may not be useful instruments to achieve the larger goals of environmental sustainability and shared prosperity. Rather, we need to ensure that the basic principles around which we structure our aims and policies are such that the instruments don’t pre-empt or distort the overriding goal, but are calibrated to deliver those goals.

Obviously, common but differentiated responsibility in any multilateral context remains a basic principle for us, particularly where global public goods and the global commons are concerned. That notion applies, in particular, to the digital economy through the commitment to special and differential treatment in trading rules. Policy space – within the interdependent world we inhabit – should be extended to allow for the pursuit of national development strategies in line with a country’s particular capabilities and historical legacies. This has to be central to any kind of global rules. The need for proper participation on equal terms, accountability, and full membership in the process of designing multilateral rules systems has to be central. These are among the set of principles we have tried to outline and that we think have a broad resonance when it comes to the design of any sort of international interaction across states. The necessity of these principles is even more true for the digital economy where the dangers of corporate capture, rent seeking, polarization are arguably more intense than many other areas of economic life. Trying to take those general principles and applying them to the specifics of the digital economy is a challenge, and should be a necessary part of a Digital New Deal that we are trying to articulate for a more sustainable and inclusive multilateral system.

ITfC: How do you think countries in the Global South could forge their pathways to development in the digital economic order? There is a dual challenge here: to not replicate the growth model of neoliberalism which is predicated on data extractivism and to not be reduced to mere data mines for companies of the Global North.

RKW: This is very much an industrial policy challenge. The digital is the latest wave of industrial ‘progress’. It’s the newest path towards the industrial frontier. The challenges can only be met with active policy engagement by governments. It can’t be left to markets for all kinds of reasons including inherent problems of the digital economies – scale economies, externalities, asymmetries – that are hardwired into these activities. These have to be addressed by governments. Thinking about industrial policy in this digital context is the necessary first step.

When advanced economies talk about WTO reform, as they are doing now, they are thinking about ways to make it all the more difficult for developing countries to use the kinds of policy tools that they themselves used to build up capacity in this area.

One thing that developing countries shouldn’t be shy of is pointing out continuously that the lead of the advanced economies themselves, despite their rhetoric, is because of their use of industrial policy in this area, often linked to the military-industrial complex. The endless use of subsidies, financial support, tariffs to build up assets and capabilities in the area is what advanced economies have been doing over the course of the last 50 years or more to gain this dominant position. Thinking in industrial policy terms is critical for the Global South to get a handle on this challenge. This speaks to the need to rethink the rules of the international trading system that has done its utmost to prevent active industrial policy from being part of the toolkit for developing countries over the last 20-30 years. Certainly, when advanced economies talk about WTO reform, as they are doing now, they are thinking about ways to make it all the more difficult for developing countries to use the kinds of policy tools that they themselves used to build up capacity in this area. That’s the first set of challenges that developing countries need to focus on.

We also, in the work that we have done, have tried to outline a kind of digital cooperation agenda, particularly at the regional level, for developing countries. There are a lot of opportunities in the digital context for building regional alliances and strengthening regional integration, whether its about building data economy, cloud computing infrastructure, broadband infrastructure, promoting e-commerce, use of regional digital payments – there are a lot of areas that make up the digital economy that lend themselves to a much stronger regional agenda. We have tried to articulate a kind of progressive digital cooperation agenda for developing countries. That’s an important way to go, all the more so as one suspects that regionalism will become more important coming out of this pandemic. All the talk about shortening value chains, for example, needs to take hold amongst developing countries too. That’s another important area.

The last one, in context of particularly South-South cooperation, is learning from success stories. There are success stories in the developing world. The obvious one is China (though it’s not the only one). We do have a Belt-and-Road platform at UNCTAD, where we want to try and disseminate lessons from the Chinese experience that other developing countries could usefully tap into when thinking about their own structural transformation challenge. This includes, of course, the digital economy where China has emerged as a major digital player in the course of 20-25 years. So that sharing of experiences among countries of the South, for example, countries that have been able to develop legislation on data sovereignty, is also a necessary part of the kind of strategic thinking that developing countries are going to need if they are going to benefit from what is potentially a very transformative technology but also a technology that could leave them even further behind if they don’t develop the right policy tools to harness it.

ITfC: The development finance for building the critical digital and data public infrastructures needed by developing countries is often a challenge. In your view, what is not right with the development financing in the digital sector today? How can this change? How can development finance rise to the challenge of the Digital New Deal?

RKW: That’s another key question. When we think about industrial policy, it’s not just technology issues that are at play. Development finance has a critical role in the industrial policy agenda. At UNCTAD, we have for a long time criticized the way in which footloose capital and the deregulation of financial markets along with the narrowing of central bank agendas, have distorted the financing of the development agenda and moved it away from thinking about how finance contributes to structural transformation to thinking about how you can boost stock markets and other types of short-term, often highly speculative, asset classes. That, unfortunately, remains the agenda. This is what the World Bank calls the ‘maximizing finance agenda’ that uses public funds to incentivize private investors, and this remains a dominant and highly distortionary feature of the international financial system. That’s a general problem that needs to be tackled, not only for the digital economy but for many other traditional economic activities where the Global South needs to build capacities.

We need a much more regulated financial system, both at the national and international levels. In that context, we have always insisted on the critical role of development banks – both national, regional, and, ideally, multilateral development banks – as sources of reliable, stable finance that give firms and governments in the South the necessary longer-term horizon that is essential if you are going to truly diversify and upgrade your economy with long-term investment planning. That’s a general point, but it is a central point.

In the context of the digital economy, a related but additional challenge is that the South is, inevitably, in an infant industry territory, where start-ups suffer a whole series of disadvantages that come from their lack of scale and more limited capacities. Development banks have often, even the successful and good ones, failed to find ways to effectively encourage and nurture smaller businesses which are of a more productive nature – I’m not talking here about the microfinance agenda which is part of the problem and not part of the solution. That need to find effective financing windows for potentially productive start-ups in the digital economy will be a necessary part of the financing agenda coming out of the crisis, as we try and look for ways to rebuild the interface between finance and industry in a much more constructive way than has been the case in most countries in the last few years. There again, lessons from China are very important for other developing countries in examining how to think about these challenges.

This interview was conducted by Nandini Chami and Khawla Zainab of IT for Change.

Richard Kozul-Wright is director of the globalisation and development strategies division in UNCTAD and is responsible for the UNCTAD flagship publication, The Trade and Development Report. He has worked at the United Nations in both New York and Geneva. He holds a PhD in economics from the University of Cambridge UK and has published widely on economic issues in academic journals, books and media outlets.