After the Pandemic Governments Are Thinking About Digital Sovereignty

Thoughts about technology that is inclusive, trusted, and creates a more sustainable world

These posts represent my personal views on the future of the digital economy powered by the cloud and artificial intelligence. Unless otherwise indicated, they do not represent the official views of Microsoft.

As their nations embark upon a lengthy process of economic and social renewal after the COVID-19 pandemic, leaders around the world are turning their attention to issues of sovereignty. In the context of COVID-19, the most visible worry about sovereignty has arisen from critical supply chain dependencies. During the fight against the virus, nearly every government was forced to confront the disquieting reality that some portion of the essential medical supplies its healthcare system needed to treat the sick—masks, drugs, ventilators—could only be obtained from foreign trading partners, and these partners could not always be counted on to deliver sufficient quantities in due time at a fair price.

Medical supply chain issues will understandably remain top-of-mind for leaders in the post-pandemic era. But concerns over the availability of physical goods do not appear insoluble. Governments can incentivize the construction of factories to produce essential items within their own borders or stockpile imports for future emergencies. However, there is another kind of sovereignty whose importance has also grown during the pandemic and which raises challenges not so easily solved. Regular readers of the Trusted Technology blog will understand that I am referring to digital sovereignty.

The two kinds of sovereignty are clearly connected. Medical supply chains depend on digital technology in many critical ways. And the digital realm is critical to the health of every economy. As the European Council on Foreign Relations puts it in a report published in July:

“COVID-19 has revealed the critical importance of technology for economic and health resilience, making Europe’s digital transformation and sovereignty a question of existential importance.”

Spelling out just what we mean by digital sovereignty is not straightforward. But before we tackle that question, let’s review what various governments are saying about it.

A recent study by the research service of the European Parliament entitled Digital Sovereignty for Europe affirms that:

“There is growing concern that the citizens, businesses, and Member States of the European Union (EU) are gradually losing control over their data, over their capacity for innovation, and over their ability to shape and enforce legislation in the digital environment. Against this background, support has been growing for a new policy approach designed to enhance Europe's strategic autonomy in the digital field. This would require the Union to update and adapt a number of its current legal, regulatory, and financial instruments, and to promote more actively European values and principles in areas such as data protection, cybersecurity, and ethically designed artificial intelligence (AI).”

French Minister of the Economy and Finance Bruno Le Maire put it more succinctly and explicitly in June at the announcement of the Franco-German Gaia-X cloud platform:

"We are not China, we are not the United States—we are European countries with our own values and our own European interests that we want to defend.”

The United States has been equally emphatic about the importance of digital sovereignty, albeit with a more single-minded focus on China. If Europeans tend to emphasize the need for a fair and level playing field for all, US officials frequently insist on the necessity of preserving perceived US primacy. For example, this past May the White House Office of Science and Technology Policy declared that:

“As we work to ensure America remains the world leader in technology, this Administration has and will continue to embrace innovation-driven 5G and spectrum policy to ensure that our Nation will not only be first to 5G, but the American people will enjoy the greatest benefit possible from next-generation networks.”

The strategic focus of national leaders on digital sovereignty is not limited to the US and Europe. There are many similar statements from countries as diverse as Canada, Australia, Brazil, Russia, India, and of course China.

I find it useful to organize thinking about digital sovereignty around two broad questions. You can think of each question as a category that contains a number of distinct sub-questions. The choice of which category to emphasize will vary with the context and the nationality of the speaker. Below are my proposed digital sovereignty categories with some examples for each. I hope to revisit many of these examples in future posts, so think of this as a kind of to-do list I’m assigning myself.

1. Who gets to make the rules that govern the digital economy?

• Thanks to the global reach and influence of the European Union’s General Data Protection Regulation (GDPR), many have observed that Europe has become the world’s de facto regulator of online privacy. As I wrote last year, some American tech companies like Microsoft have even voluntarily extended the protection of EU privacy rules to customers in the rest of the world.
• But there are many other kinds of rules governing the digital domain besides privacy laws—in this paragraph, I list several examples where the question of who makes the rules presents challenges. Most countries have laws that determine how and when law enforcement agencies can gain access to digital data, but sometimes conflicts of law arise between nations that lead to difficult legal conundrums, as in the well-known Supreme Court search warrant case involving Microsoft. The European Commission as well as several individual EU member states would like to revise the rules that determine how and where the European operations of big US tech firms are taxed, but the US administration is resisting. The European Commission is currently engaged in several major antitrust actions against US tech firms such as Amazon, Apple, Facebook, and Google. US officials have sometimes criticized these actions, though it should be noted that the US may initiate its own antitrust actions against some of these companies.
• There is also the question of who makes the standards for foundational technologies such as the Internet and 5G—today these standards are developed by multilateral bodies with participants from many nations, such as the ISO for information technology and the 3GPP for cellular networks. But there are signs that these groups are being affected by growing tensions between technical experts from China and western nations.

2. Who reaps the benefits of digital transformation?

• Rules take on greater importance when the stakes are high. Much—perhaps most—of the intensity of the debate about whose digital rules will prevail is determined by the belief that the economic fate of nations depends on the outcome of these debates. The European Council on Foreign Relations urges this point of view quite explicitly: “The EU cannot continue to rely on its regulatory power but must become a tech superpower in its own right. Referees do not win the game.”
• While it is true that digital transformation is now critical for the economy of every nation and region in the world, we should guard against falling into the trap of zero-sum thinking. Digital transformation is what economists call a non-rival good. Unlike a slice of apple tart, you and I can consume the same good idea without loss to either one of us. Similarly, the successful digital transformation of companies or entire industries in Germany or China will not prevent the United States or Japan from reaping equivalent benefits from the digital transformation of their own companies and industries.
• While digital assets like software code come with intellectual property restrictions attached and the sales revenue generated by cloud data centers or 5G networks belong to specific companies, the broader concepts and methodologies of digital transformation belong to no one—or better, they belong to everyone. There is every reason to believe that the economic value of digital transformation to a nation is orders of magnitude greater than the combined profit and loss statements of the corporations that provide the basic technology tools used to achieve that transformation. We already have a lot of data on this topic and I’ll return to it in future posts.
• Yes, there is an old saying that the only people who got rich from the 1849 California Gold Rush were the people who sold the picks and shovels to the gold miners, not the miners themselves. If that story is true (and who really knows?), it could only be because the quantity of gold available to dig up was far less than the miners imagined. But the quantity of valuable data generated by (for instance) the European automobile industry has no practical limit other than the capacity of networked sensors to capture it and smart cloud-based AI to extract its value. As European Commissioner for the Internal Market Thierry Breton has frequently and eloquently argued, data will be a pillar of the European economy. The value of the refined product will far exceed that of the tools used to excavate and process the ore.

Ultimately there can be no stable equilibrium in which one country or company gets a disproportionate share of the benefits from digital technology or makes all the rules that govern its use. Nation-states really are sovereign and they have the power to exclude from their territory any technology providers who do not contribute more value than they take, or who refuse to play by fair and legitimate rules. Last February during a visit to India Microsoft CEO Satya Nadella made this point very clearly:

“We measure our success by local economic impact, not market capitalization. If we can create that local surplus, we will earn the permission to operate. That is true in every country—in India, the United States, the UK, everywhere.”

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