Regulation must steer not stifle innovation, UN e-commerce event hears

Governments must strike the right balance between pushing innovation in the digital economy and regulating a sector which has lost people’s trust

The internet is a powerful tool for development, and governments must not let the dark side of the digital economy overshadow the opportunities, global thought and business leaders have told UNCTAD’s E-Commerce Week.

Protecting consumers without stifling innovation will require governments to strike a delicate balance, UNCTAD Secretary-General Mukhisa Kituyi said at the week’s main event.

“The honeymoon where there was a blind embrace of technology as a panacea of human problems is over,” Dr. Kituyi said to a packed room in the Palais des Nations, the UN’s European Headquarters.

“As we learned from our very unquestioning embrace of unequal, flawed globalization, we are at a time, it is true, when we must ask ourselves challenging questions,” he said.

“How can we find sufficient balance between incentivizing innovators, players, to continue driving inclusion while not sacrificing the responsibility of regulators to keep away illegal commercialization of confidential and personal data, abuse of privacy rules?”

“So this balancing act becomes our major challenge,” he added.

Digital platforms are the new oil rig

Data has been called the new oil because it has overtaken petrol as the most traded commodity.

And according to Nick Srnicek, a lecturer on the digital economy at King’s College in London, this makes digital platforms such as Facebook the new oil rig.

The metaphor is fitting, he said, because they’re “designed basically to siphon off as much data as possible.”

“The very nature of a platform business model is that it is an intermediary between a number of different groups,” Mr. Srnicek said.

“Facebook, for instance, positions itself as an intermediary between users, on one hand, and advertisers, developers – all sorts of different groups,” he said, adding that such a role puts it in a position to capture all the data from the interactions between those groups.

Admitting to be the bearer of bad news, he said that platforms have several key problems – the most important being their tendency to monopolize and stifle competition.

Platforms lead to monopolies, he said, because of the network effect. The more people that use a platform, the more valuable it becomes. And this leads to a winner-takes-all effect.

“You may hate what Mark Zuckerberg is doing. You may be really worried about privacy issues. But if you’re going to join a social media network, it’s going to be Facebook because all your family and friends are already on it,” he said.

“That’s the power of network effect.”

Another serious problem is the dependency such platforms create.

“You have, for instance, journalism and media organizations who have completely redesigned their businesses to orient towards the Facebook newsfeed,” he said, adding that this leads to such companies cutting investigative reporting and prioritizing video.

“And this make them reliant upon Facebook as a way to get their news out,” he said.

But for him, the really worrying aspect is that platforms are invading the non-tech world.

“Uber’s a really good example,” he said. “Ten years ago, nobody would have thought taxi driving was a fascinating industry. Suddenly Uber has turned it into this fashionable, trendy industry that’s worth billions…because they’ve turned it into a platform.”

“We’re seeing this now in agriculture, we’re seeing it in manufacturing. We’re seeing this across the entire economy,” he added.

50% more profitable

But we must find a way to address the shortcomings of the digital economy without “slaying that same phenomenon that is going to create the world that we are aspiring to,” Dr. Kituyi said, recalling that e-commerce is a key tool for creating business opportunities in developing countries, and thus for fighting poverty.

In the world’s least developed countries, just 2% of business is currently done online, compared to 70% in the European Union, for example. Getting more businesses in these countries to go digital would connect them to opportunities beyond their local marketplace, he said.

Dinesh Agarwal, founder and CEO of IndiaMART.com, India’s largest online marketplace, agreed with the UNCTAD Secretary-General, saying that e-commerce platforms played a critical development role in his country, especially for rural communities.

“Without them, rural consumers and businesses were deprived of the information, the access to goods and services that are available to them because of these digital platforms,” Mr. Agarwal said.

“These digital platforms have enabled small businesses from towns and villages across India and across the world in rural locations to market their products beyond their local bazaars,” he said, adding that a survey showed that small businesses in India that use the internet for marketing purposes are likely to grow 50% more than those who remain offline.

While he recognized the pitfalls of digital monopolies and data breaches, Mr. Agarwal said he is a firm believer that, overall, the internet has been a driver of positive change, empowering farmers, and improving health care and education.

“The internet is not about only entertainment and commerce. It has a lot more dimensions,” he said.

A clean slate

In Africa, there are tens of millions of small businesses, yet they barely contribute to gross domestic product.

Digital platforms could change that by providing access to markets and to finance, according to Omobola Johnson, former Nigerian ICT minister and a senior partner at TLcom Capital, a venture-capital firm focused on technology-enabled services.

In addition to providing the infrastructure to access markets beyond their community, digital platforms can help bring small businesses into the formal economy and get them access to much needed finance, Ms. Johnson said, providing the example of a small company that trades fruits and vegetables.

“One the companies we’ve invested in is a platform for small retail traders that trade fruits and vegetables in Kenya. It provides a platform for them to, first of all, order their vegetables [online],” she said.

“As they do this every day, what it beings to show is a financial pattern,” she said. “You’re able to use that data to create a credit score for these small retailers.”

“And by doing a credit score, you then are able to lend them money. They can then increase the size of their businesses, and you bring them into the formal economy,” she added.

Ms. Johnson said that developing countries have the advantage of being able to learn from the mistakes more advanced economies may have made while building their digital economies.

“We can do things on a clean slate,” she said.

No holding back

Learning from possible mistakes will be key in steering the digital economy in the right direction, World Trade Organization Director-General Roberto Azevêdo said, adding that e-commerce is here to stay.

“Just between 2013 and 2015, e-commerce grew by 38%. And that kind of pace is going to continue. And the degree of pervasiveness is going to increase,” Mr. Azevêdo said.

He added: “Only 10% of e-commerce is business-to-consumer. Of that 10%, only 7% – so 0.07% overall – is crossing borders. The rest is domestic.”

“So potential for growth is tremendous. And it is going to happen, and there is no holding back,” he said, adding that we have time to avoid the distortions and overcome the challenges.

“If we cross our arms, then the scenario that Nick [Srnicek] just painted is the one that is going to prevail.”

The event was moderated by Catherine Fiankan-Bokonga, correspondent at the United Nations in Geneva and vice-president of the Swiss Press Club.