Commerce, Digital Age, Economy / Finance, Politics

Today’s tech industry mirrors the pre-2008 financial industry. Have we learned our lesson?

Dec 3 2019

By Daniel M. Price* –  The Washington Post 

Data-driven innovation from the tech industry promises to improve productivity, competitiveness and growth across the global economy. But it also poses significant risks, such as hacking, data breaches, the exploitation of personal data and challenges involving artificial intelligence.

These risks are compounded by underdeveloped or conflicting legal frameworks across the globe. World leaders should act now to enhance global regulatory cooperation to address challenges in the digital economy before a crisis forces them to do so.

We’ve seen this story before. Similar warning lights were flashing in the financial system before the 2008 economic crisis: regulation lagging behind innovation; companies and governments failing to appreciate the build-up of risks; and ineffective international cooperation mechanisms among governments for assessing and addressing risks.

The financial crisis was devastating, but given the volume, speed and complexity of data-driven systems, a major digital crisis could be just as crippling. Imagine a freeze or failure of global navigation, air-traffic control or telecommunication systems. Or imagine a disruption of the computer programs operating our stock markets or defense systems. Imagine also the cost of having lifesaving medical treatments blocked if differing standards on data analytics among countries caused the same scientific test data to yield contradictory results.

As our dependence on data-intensive technologies increases, so, too, does the need for common regulatory principles and enhanced global cooperation.

The response to the financial crisis is instructive. That crisis revealed an international regulatory architecture ill-equipped to rebuild confidence and reform the global financial system. In response, President George W. Bush worked with allies to launch the first leader-level meeting of the world’s 20 largest economies.

At the first Group of 20 summit in Washington in 2008, leaders agreed on a blueprint for action to address key financial stability risk factors such as bank capital, leverage and liquidity. In 2009, the London G20 summit empowered a Financial Stability Board to address vulnerabilities in the global financial system and establish principles for regulatory reform. The FSB and its constituent representatives from central banks, finance ministries, bank supervisors and market regulators became a robust body for international cooperation.

We should not wait for a global crisis to pursue this kind of international cooperation on data and technology. Countries should look to the post-financial crisis architecture as a model and establish now a “Data and Technology Board” to anchor global cooperation.

Such a board could include national regulators responsible for privacy, cybersecurity, artificial intelligence and telecommunications, as well as law enforcement and financial regulatory and competition authorities. Like the FSB, it could seek to build consensus on high-level policy principles and standards to guide national regulatory processes. And just as the FSB coordinated the work of existing banking and securities standard-setters, this board could play a similar role for data and tech work-streams already underway.

Establishing a formal channel for global cooperation could also help address the “trust deficit” between countries regarding access to data and sensitive infrastructure. Trust will also require verification of agreed standards through independent certification or audit mechanisms.

Of course, countries should be free not to implement globally developed standards, but where they choose to do so, national regulators could negotiate mutual recognition agreements allowing cross-border market access and interoperability for companies and users. This would also accelerate the adoption of strong digital trade commitments that free-trade agreements have often lacked because of, for example, disagreement on data privacy standards.

By linking market access for data and technology business to implementation of global principles, countries can realize the promise of the digital economy with market actors and supervisory bodies they can trust. As a result, like-minded countries can address technology issues multilaterally without resorting to protectionist calls for “digital sovereignty.”

Countries hesitant to adopt such standards or permit verification will likely face pressure from their own companies to join, just as access to global capital markets has required companies to obtain independently audited financial statements consistent with a recognized international standard.

Such a data and technology board would surely face a difficult task — different from the financial crisis response — of developing globally coordinated regulatory frameworks, even though national legislatures and regulators have yet to develop rules addressing many of the issues under debate.

But unlike banks, which were born local and grew global, tech is born global. We do not have the luxury of waiting decades for nations to adopt their own regulatory regimes before beginning the task of global coordination. The great challenge, therefore, is to push forward now with cooperation at the global level even as national-level regulation and standards are still being developed. If we are agile enough to mitigate the emerging risks without stifling innovation, we might just avoid a new crisis.

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* Daniel M. Price served as international economic adviser to President George W. Bush and helped organize the first Group of 20 leaders’ summit.

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