As internet evolves, governments' role must also do so

Andrew Sheng says protecting privacy and ensuring level playing field should be priorities

PUBLISHED : Friday, 20 December, 2013, 6:57pm
UPDATED : Wednesday, 28 September, 2016, 8:44am

As the year comes to a close, we need to reflect on what are the most important things that have affected our lives in the recent past. In my view, the internet continues to change our world. The most significant internet event this year was not the listing of Facebook, which was priced at US$104 billion, but the revelation by Edward Snowden of the surveillance of the internet in June, which showed that Big Brother, friend or foe, is really watching.

On the plus side, Singles' Day - November 11 - garnered 35 billion yuan (HK$44.7 billion) in online sales in China. Since China already accounts for one-third of the smartphones in the world, and the country can make and sell smartphones at one-third the price of iPhones or Samsung, it is not surprising that e-commerce in China is set to overtake the US in volume, probably next year.

Online business is here to stay.

What the combination of the internet and smartphone means is that a person in the remotest part of Indonesia can sell his or her craft to buyers worldwide, and collect the payment over the smartphone.

I am amazed at the apps that are downloaded to maximise personal efficiency, and being able to share interesting news through WeChat. Free internet services are rising so fast that mobile phone company revenue from SMS text messages is slowing down.

In all of this, what is the proper role of the government?

Nobel laureate economist Joseph Stiglitz was one of the first to write about The Role of Government in a Digital Age, the title of a report he authored with Peter and Jonathan Orszag in 2000. They recommended 12 principles for the government's role. The first three concern what the government should do: provide public data and information, improve services and support basic research.

The next six principles are areas where the government should exercise caution, including adding specialised value to public data and ensuring that mechanisms exist to protect privacy, security and consumer rights online.

The "red light" areas for governments include entering markets in which private-sector firms are active.

The Stiglitz-Orszag report was written for the US market, but the general principles are useful guides for other governments. Snowden showed that the US government may not have followed some of these guidelines. We do know that governments are more intrusive and becoming more so over the internet, and such behaviour inhibits competition and innovation.

Because the internet is evolving very fast, the appropriate role of the government must also evolve. Businesses are becoming even more service- and information-oriented, and more will be digital and in the cloud. This means that governments will be struggling with three major issues - protecting people's privacy; ensuring a level playing field for competition; and figuring out how to tax online activities.

Governments must also sort out jurisdictional duties and powers, because the cloud, the ability to run a programme or application on many connected computers at the same time, is global, and taxation and regulation are not only national, but also departmental.

It is as if each small part of the bureaucracy is trying to regulate the cloud. We can all touch and feel its power, but there is no overall central authority that can control the cloud.

The problem with trying to protect privacy is that hacking is a real threat, and the biggest hacker is not some nerd or weirdo, but big government everywhere.

If Google has maps and it can monitor everything I do through my smartphone, does that information belong to Google or me? If it belongs to the large platforms, does that not confer tremendous informational advantage to them?

How can governments ensure that there is a level playing field between these humongous online platforms and the small businesses that have no such information or may have to pay the platform to obtain it?

The third area is taxation. Online commerce has not been taxed because it was an innovation. But bricks and mortar shops have rents, create jobs and pay value-added taxes. If everything moves online, the government loses the ability to tax. Retail shops complain that they are losing out to larger and larger platforms. Bookshops around the world started closing when everyone could order through Amazon.

There are no easy answers to these tough questions. The interdependent and interconnected nature of the internet means that regulatory action in one part of the world could affect the system as a whole.

What we do need is better transparency, better education, wider access and also some key principles of fair competition that should be enforced for online business to innovate.

Year-end reminder: when you make a phone call in the toilet, someone (not Snowden) can hear you flush.

Andrew Sheng is president of the Fung Global Institute