The Digital Revolution and the New Social Contract

In the last two years, humans generated more data than in the past twenty thousand. Today there are over 8 Billion connected devices but that figure will jump to 40 Billion by 2025 with the coming of age of the Internet of Things. This systemic shift in how we operate, communicate, register and process data will change our economy, politics and social interactions. The implications of digital transformation are manifold and range from a changing landscape of economic power, to the redefinition of privacy, to the geopolitical implications of the emergence of data.

This process, however, also brings with it numerous challenges linked to the generation and distribution of income. The Social Contract—that in the US was centered around social mobility and in Europe around economic security—looks increasingly broken and the gap between the highly skilled and everyone else is growing. These technological and economic transformations have reshaped the relationships between education, work, opportunities and welfare, rendering our previous social contract outdated, and making it necessary to establish a new one that benefits everyone.

The understanding and governance of systemic shifts of this nature requires a new set of policies and regulations to foster innovation around data and its governance while improving social inclusion. This research program tries to support this process by analysing the transformation of the digital domain and the fracture of our social contract from a multidisciplinary perspective, and advancing new and realistic solutions for future agreements.

The Project

The project will be developed across four work packages that will run in sequence with overlaps. Each one of them will address different questions raised by the emergence of the digital revolution at the individual, company, regional, national, and European levels. They will also rely on the input of top researchers in the field from top institutions with a global approach, but also from researchers with a regional focus as well as professionals from the private sector, thus drawing lessons from the different fields to provide a holistic analysis that will serve as the basis of a fourth work package related to the new social contract, with proposals and recommendations for policy makers.

1. DRIVERS AND IMPLICATIONS OF THE DIGITAL ECONOMY

Digital technologies are reshaping the way wealth is created, shared, and measured across the global economy, opening entire new markets and opportunities across all industries. New businesses emerge every day with the chance of revolutionising entire sectors while Big Tech companies get bigger and capture the gains of technological innovation, posing new competition challenges that will require a rethink in anti-trust and market concentration. The future of work will require creating a level playing field for SMEs and incumbents to compete fairly in the digital economy and ensure that digitalization does not leave the most vulnerable unprotected.

Some of the questions this work package will address include:

– What does a regulatory framework for a vibrant and competitive data economy look like?

– How do we keep markets open to new entrants? How do we protect competition in the internet infrastructure markets?

– How can firms integrate digital transformation into a competitive strategy?

– How do we assess consumer welfare in digital markets beyond price, quantity, and profits?

– How do we include choice, quality, innovation, and the respect for fundamental human rights and consumer rights in the digital economy?

– What can states do to foster innovation at the regional, national, and European levels?

– How can we empower citizens and companies to ride the digital revolution? How can we educate and re-skill workers who are left behind due to automation?

– How useful are the multiple digitalisation indexes to improve public policies?

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2. DATA GOVERNANCE AND PRIVACY IN THE DIGITAL AGE

The digital economy runs on data, but often so without the explicit knowledge of the individuals generating it. This same data, however, has enabled companies to effectively target citizens and consumers and impact their behaviour. How privacy is defined becomes not just a central issue for the management of personal and sensitive data but also for the very definition of freedom and agency. States must figure out how to effectively govern data and privacy in the digital domain. Europe (and its potential allies) has here a special role to play vis-à-vis the “surveillance capitalism” dominant in the US and the “tecno-authoritarianism” developed in China.

Thus, some of the questions this work package will address include:

– How can data governance ensure fair competition and its use for the common good?

– What sort of global governance regime can safeguard this data? How should the EU approach data governance?

– Should we consider the availability of data as a relevant factor in assessing market power?

– How can we ensure non-discriminatory data access and interoperability between players?

– How can we give people better protection regarding the personal data they generate, control and share?

– How can Europe “own” and “protect” its own data while not falling into a protectionist spiral?

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3. POWER IN THE DIGITAL ERA

Geopolitical confrontation is shifting from the public to the private and digital space and possibly to a combination between the two. The technological race led by the US and China is impacting companies and supply chains across the world, as a new security dimension of digital sovereignty gains relevance. The issue of who “owns” the capacity to foster innovation, has or denies access to knowledge, controls data, has the necessary hard and soft infrastructure, and shapes and enforces legislation in the digital domain, will be central to the geopolitical considerations of the coming decades.

Some of the questions this work package will address include:

– What is the contour of great power conflict in the 21st century and where does Europe stand?

– How is the technological race changing the power relation between states, and between states and companies?

– What form of global/European governance is needed to mitigate these new challenges?

– How can states and companies protect themselves from cybersecurity threats?

– How can artificial intelligence be transparent and accountable to consumers and citizens?

– Who will write the new rules of the (geopolitical) game in this digital revolution?

– Will we see the emergence of different digital ecosystems, and will they be inter-operational?

– Or are we bound to the emergence of digital blocs and geopolitical conflict?

 

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4. A NEW SOCIAL CONTRACT

The digital transformation brings with it numerous challenges linked to the generation and distribution of income. Over the past five decades the world economy has been shaped by globalisation and technology. However, productivity gains and workers’ salaries have been decoupling, making a large share of Western workers experience stagnant or falling real incomes. The rise of illiberal populism and the decreasing belief in democracy is the clearest manifestation of this social and economic crisis. How to address this fracture is perhaps one of the great questions of the digital age.

Some of the questions this work package will address include:

– How does a fair and effective regulatory and tax system look like for the digital age?

– How can the digital laggards (at the individual, company, regional and country level) catch up with the average?

– How will biotechnology shape the future citizen? How will it impact the relationship between people and their governments in a new social contract?

– How can governments and companies combat the polarisation of politics?

– How can ownership and empowerment be developed in the digital revolution?

– What role should the private sector play in a new social contract?

– How can the state maintain effectiveness and transparency?

– Is the Western model of liberal democracies able to compete with the techno-authoritarianism of China?

The New Digital Domain - Policy Report

How the Pandemic Reshaped Geopolitics, the Social Contract and Technological Sovereignty

As a spearhead effort for the research programme, this report analyses the impact of the pandemic on the key trends of the digital economy, power and social cohesion. It proposes a series of recommendations for global and economic governance and identifies opportunities to improve the Social Contract in the digital era.

The COVID-19 pandemic, besides triggering the most severe economic crisis since the Great Depression, is accelerating technological trends that were well in the making before its outbreak. When the Great Lockdown froze the global economy for several weeks, only the companies that had already invested in digital operating models could guarantee continuity to their business operations. While in the pre-crisis years most firms of a sufficient size had moved towards a digital core based on software, data, and digital networks, only some had reached sufficient digital capacity to transition to a new business model almost overnight.

The pandemic has not only exposed the wide technological divide between those who were ready for hybrid business models and those who were not, but it has also sharply accelerated the pre-existing move towards digitalization.

Today’s biggest winners are the big tech companies, who represent the lion’s share of the most valuable companies that run on data, algorithms and apps rather than physical labor, but have also managed to utilize the under-governed nature of the digital domain to avoid paying tax and social security. The societal flipside of the growing digital gaps between winners and losers has been skyrocketing inequality and the hollowing-out of the middle class—something that in the short term the pandemic is likely to exacerbate.

 

For too long, and on too many issues, the governance of technology has been left solely to those who design it. Instead, we need to think critically about how the deployment of digital technology in our society bumps up against our existing democratic laws, norms and regulations. Data governance needs to be embedded in a much broader policy agenda that includes international politics, competition policy, content moderation policies, and a host of data rights issues.

Managing the adverse effects of the dynamics of the digital domain will require holistic approaches to platform and data governance.

The recommendations and topics of exploration included in the report (global governance, economic governance and social contract) are intended to serve as a basis for further research.

RESEARCH TEAM

Miguel Otero

IE University

Oscar Jonsson

IE University

Paula Oliver

IE University

Taylor Owen

Centre for International Governance Innovation

Edoardo Campanella

IE University

Andrea Renda

Centre for European Policy Studies

Agnes Sipiczki

Centre for European Policy Studies

Alex Cobham

TaxJustice Network

Bhaskar Chakravorti

Fletcher School, Tufts University

Ravi Chaturvedi

Fletcher School, Tufts University

Alberto Alfonso

Despertadores Rurales Inteligentes

Gianluca Tomasello

Despertadores Rurales Inteligentes

Philip Meier

Humboldt Institute for Internet and Society

Sonja Koehne

Humboldt Institute for Internet and Society

Miriam Wolf

Humboldt Institute for Internet and Society

Christoph Gerling

Humboldt Institute for Internet and Society

Fabian Stephany

Oxford Internet Institute

Mark Dempsey

Centre for Digital Governance (Hertie)

Josh Entsminger

Institute for Innovation and Public Purpose, UCL

André Losekrug-Pietri

JEDI - Joint European Disruptive Initiative

ADVISORY BOARD

Helena Malikova

Chief Economist Team, European Commission

Andrés Ortega

Senior Research Fellow, Real Instituto Elcano

Joanna Bryson

Hertie School

Carlos Torrecilla

Head of Unit, Joint Research Center

Lucía Velasco

Director, ONTSI

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