Maryland Smith Research / September 6, 2018

Six Alternatives to Digital Islands

New Policies Threaten to Isolate Consumers Behind Virtual Walls

Six Alternatives to Digital Islands

Trade wars historically hinge on the flow of goods across borders. But Anil K Gupta, management professor at the University of Maryland’s Robert H. Smith School of Business, says the flow of data across borders may soon matter more than anything else as every business in the global economy becomes a data business.

Unfortunately, world governments worried about consumer privacy, cybersecurity, free speech and other issues have started clamping down on data. Instead of allowing unrestricted access, they are erecting virtual walls that create a form of digital protectionism.

“Events since 2014 have pushed the pendulum to swing away from unconstrained data globalization,” Gupta and a co-author write in Harvard Business Review. Examples include a new cybersecurity law in China, the General Data Protection Regulation (GDPR) in Europe, a sweeping consumer privacy law in California, and a bill under debate in India.

The fallout could leave many people isolated. “Too much regulation will create, in effect, data islands, which will in turn prevent citizens and consumers trapped on those islands from enjoying the many benefits of tighter links to the global digital economy,” the authors write.

At the same time, they acknowledge the need for government oversight. But rather than all-or-nothing, they suggest six solutions for a more nuanced approach.

1. Calculate risks. Not all data carry the same risk of abuse. The flow of sensitive data may need to be controlled, but other types of data may be better left unfettered.

2. Use federated ecosystems. Even in cases involving sensitive data, a federated system could work to protect privacy. In this model, several databases function as one but remain separate and self-sustained. Depending on the level of access granted to an organization, data may be queried individually or in aggregate.

3. Use mirror images. “In some contexts, a multinational company may be permitted to aggregate global data in a secure manner with the condition that a mirror image of the data pertaining to a country’s residents be stored locally,” the authors write.

4. Negotiate terms. Explicit and binding language for cross-border data flows can be added to international trade agreements.

5. Take a bottom-up approach. “In contexts where digital trade agreements do not exist and are unlikely in the foreseeable future, develop nonbinding norms and principles, leaving implementation to national governments,” the authors write.

6. Use blockchain technology. Blockchain assures security, is tamper-proof and enables tracking of every transaction.

Read more:  The Dangers of Digital Protectionism, Harvard Business Review, by Anil K. Gupta, the Michael D. Dingman Chair in Strategy and Entrepreneurshipat Maryland Smith, and Ziyang Fan, head of digital trade at the World Economic Forum.

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