The future is digital, and nowhere more so than in commerce. While cross-border trade in many traditional goods and services has stabilized over the past decade, trade in data, digital services, intellectual property, and even international students (despite a brief pandemic-related jump) is booming.
Between 2010 and 2019, trade flows related to almost everything related to knowledge grew twice as fast as those of traditional goods. And some areas have grown even faster during the pandemic thanks to the rise of all things digital, according to the latest count of global value chains from the McKinsey Global Institute.
This is good news: it is crucial that ideas and data cross borders. But it also presents challenges both old and new.
In the first category is the question of how to ensure that digital trade does not become a global race to the bottom as multinational companies move jobs and data to areas where the workforce is less expensive and less privacy protected. And in this last category, policymakers, labor leaders and businesses need to consider how this intangible trade is different from trade in traditional goods and services, and what this means for global and local economics and politics. .
Perhaps the most fundamental difference between trading intangibles and traditional trading is that data is not like a lump of coal or a length of steel – it can be used by many people simultaneously. In theory, this should create a win-win scenario, not just for both sides of an individual transaction, but also for the countries through which cross-border data travels.
Yet, in practice, information tends to be monopolized. The network effect – in which more begets more – has created superstars in data-rich fields such as Big Tech and Big Pharma. These larger companies tend to create much more linear supply chains because they are both efficient and profitable. According to MGI, the concentration of trade is more pronounced in knowledge-intensive and intangible-intensive global value chains. Indeed, the six most concentrated value chains today all belong to this group — think Big Tech, electronic components, pharmaceuticals, etc.
Policymakers are already tackling some of these issues, with greater antitrust efforts and new ways of thinking about the impact of barter transactions that make up a large part of digital trade flows. In other areas, such as semiconductors, efforts are underway to increase regional production, which will allow more companies and countries to enter the sector’s supply ecosystem. . But in areas like pharmaceuticals, very little progress has been made in diversifying flows (a 2021 White House supply chain review noted an extreme concentration of pharmaceutical ingredients).
Multinational companies control most digital exchanges and, like their traditional counterparts, they have an incentive to move work and data to where it suits them best and most profitably. While the majority of trade in intangibles is still concentrated in OECD countries, there is a trend to outsource more digital labor to places like the Philippines or India, where labor protection is weak. .
“If we enter into new trade agreements, like the Indo-Pacific Trade Framework, and there are not enough protections for labor or consumer data in all countries, we are going to end up in a worse situation. than before,” says Chris Shelton. , head of the Communications Workers of America, the union that represents about half a million digital workers.
These concerns are further exacerbated by the fact that while working from home has been a boon for many employees in wealthy countries, it has also shown how white-collar knowledge work can be done from anywhere – and therefore potentially outsourced. As one general manager told me a year ago, “If you can do the job in Tahoe, you can do it in Bangalore. No wonder the CWA is responding to more inquiries about union organizing in technology, health care, media and even finance.
Will digital trade flows mirror some of the problematic aspects of traditional commerce? Or will they create new geographical dynamics? This partly depends on the extent of the technological decoupling between the United States and China. It also depends on how the digital streams are connected to the material world. The Internet of Things is dramatically increasing the flow of data within and between businesses, mirroring the boom in consumer data that followed the launch of the iPhone in 2007. “Digital commerce is not separate from commerce. traditional,” says MGI director Olivia White, “but it’s not yet clear what the occasional spiers between the two are.
We need better ways to measure knowledge flows. This was the topic of a recent IMF annual meeting on intangibles. Information flows are much more opaque than those of traditional goods. This makes it difficult to account for, tax and regulate them, but it is also difficult to fully understand their effects on markets, workers and productivity.
Knowledge is something we create as human beings, but it is also something we exchange. This truth is at the heart of the digital economy. Information must be able to circulate freely, but it must not become yet another arena in which the gains of capital outweigh those of labour. If that happens, we can expect a white-collar backlash against digital commerce.
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