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Slaughter & Rees Report: Taking the World out of the World Wide Web

Probably no technology of the past generation has been as transformative as the Internet. Starting in the mid-1990s (think Netscape Navigator) the Internet began to revolutionize, well, everything: commerce, communication, even procrastination. Its ability to link individuals and institutions across the globe nearly instantly and costlessly created an era marked by the “death of distance” (as one observer aptly described it).

But today the Internet’s global openness is under threat. A number of countries are pursuing or have already implemented national or regional walls around key elements of the Internet. The upshot? “The era of the global Internet may be passing,” according to a recent article published by the California International Law Center, which included a comprehensive survey of country-led initiatives to restrict cross-border data flows.

German Chancellor Angela Merkel has been a leading voice for de-globalizing the Internet. Prior to a February meeting with French President François Hollande, she declared, “Above all, we’ll talk about European providers that offer security for our citizens, so that one shouldn't have to send emails and other information across the Atlantic. Rather, one could build up a communication network inside Europe.”

Merkel’s desire to wall off the United States is not a total shock, given last year’s revelations that the U.S. National Security Agency had monitored her cell-phone calls (and given Germany’s dark history with surveillance). She is far from alone on this matter, however. René Obermann, CEO of Deutsche Telekom, has called for both requiring that all intra-EU electronic transmissions stay within the EU and also scrapping a U.S.-EU “safe harbor” agreement that permits U.S. companies and their partners in Europe to remain compliant with EU data-protection laws when using U.S.-based cloud data centers. The Office of the U.S. Trade Representative branded these ideas “draconian” and “protectionist” in a recent report.

There are countless other policy moves in the same spirit. Perhaps most notable was a landmark European Court of Justice ruling in May that allows European citizens to ask search engines like Google to remove information that is deemed to be “inadequate, irrelevant or no longer relevant, or excessive” (Google’s request form can be seen here).

We agree that the Internet’s global connectivity must always be wisely balanced with legitimate privacy concerns. That said, too much localizing of the Internet—leading to what some are now calling a “splinternet”—would carry large costs.

For starters, there would be large economic costs from stifling cross-border Internet traffic, which grew 18-fold between 2005 and 2012, according to a McKinsey Global Institute paper published earlier this year. The Internet enables companies and consumers to access information and technology that reduces costs and raises productivity. These gains have been large: from 2005 through 2010, reports MGI, the Internet generated more than one-fifth of the GDP growth in G-8 countries, plus China, India, Brazil, South Korea, and Sweden. What’s more, the global economy may well be on the cusp of further extraordinary gains from so-called Big Data. Cisco estimated last year that what it calls “the Internet of Everything” will create $14.4 trillion in value over the next decade. Stifle the Internet and these gains start to erode.

So, what should be done? Protectionist policies can often subject a country to the World Trade Organization’s dispute settlement system. But cross-border data traffic doesn’t make much of an appearance in global trade rules, as a recent Business Software Alliance report points out. That should change. Comprehensive trade and investment agreements currently being negotiated around the world—the Transatlantic Trade and Investment Partnership, the Trans-Pacific Partnership, and the Information Technology Agreement—would be the ideal venues for enshrining the conditions and terms for open movement of data and information across borders.

As we have previously written, however, these ambitious new agreements face a very uncertain future. More generally, many of the criticisms of a global Internet echo the protectionist arguments that have circulated for, literally, centuries (as our Dartmouth colleague, noted trade historian Doug Irwin, has written about so clearly). Seen before, too, are many of the emerging cleavages, such as the wide dispersion of the Internet’s benefits juxtaposed against its sometimes concentrated costs. Plus ça change, plus c’est la même chose. Nevertheless, here we see yet another global business topic in need of leaders to stand and be counted—for an Internet that is free, open, and global.

Articles © 2014 Matthew Slaughter and Matthew Rees. All rights reserved.
Publication © 2014 Trustees of Dartmouth College. All rights reserved.

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