Professor Dr. Thomas Straubhaar: Professor of Economics at the University of Hamburg, Germany; Member of the board of Trustees, Friedrich Naumann Stiftung
During FNF North America’s Forum on the World Economic Order study tour for intellectual property professionals, Professor Straubhaar addressed both the international members of the study tour delegation, as well as guests and partners of the Foundation with a lecture about the big economic questions and challenges we are facing today. The novelty of these questions and challenges, especially in the context of digitalization and Big Data, makes us wonder if we are living in a totally different world, disrupted from the past, or merely experiencing a new cycle of innovation. If the former would be true, we could no longer learn from the past, because analogies and conclusions of macroeconomic models cannot be sustained if the parameters are no longer accurate. And indeed, there is plenty of evidence for this disruption to be real.
One key unit of analysis for macroeconomic, but also political, models is seriously crumbling today: the nation. While even Adam Smith based his epochal work on the concept of individual nations, today’s digital dynamics question several pillars of this concept. They disobey national borders, re-shape national security, determine national interests, and even affect the identity of nations, since societies are becoming more and more heterogeneous. Another major change which shows the disruption in macroeconomic developments is the emergence of new players, companies of a novel nature. Professor Straubhaar illustrated it like this: The biggest taxi company, Uber, does not own a single car; the biggest bookstore, Amazon, does not own a single book; the biggest hotel company, Airbnb, does not own a single bed. These market-dominating companies pushed their way in from the outside, introduced new frameworks, and have disrupted the macroeconomic development of the last decades.
In times of Big Data, people readily reveal and provide their personal data in return for minor benefits, such as restaurant recommendations. However, they fail to consider just how valuable their data is, and risk becoming completely transparent at the hand of convenience. Already today, this transparency has greatly impacted our daily lives. For example, the prices of goods in online stores are increased if the expected wealth in the neighborhood of the customer sitting behind the screen is higher. Nine out of the ten most valuable companies operate in the digital economy and make huge profits with data that they can harvest all too easily. Big Data thus leads to Big Business, powerful monopolies such as Facebook and Google, which continue to grow in terms of influence, as well as economic power.
At this point in time, it should be the task of politicians to step in and curb the power of monopolies and to shape the way in which Big Data should steer macroeconomic developments. The American solution so far has been to promote big companies and protect the knowledge and intellectual property they have. Consequentially, there are several companies leading in their respective field because they created a path dependency that forces customers to rely on them, while at the same time utilizing their best capacities to learn from and improve their products. On the other end of the spectrum, the Chinese approach prevents private monopolies from making huge profits and puts them under government control instead. This approach is part of the bigger strategy of complete surveillance, which already today resembles dystopian science-fiction movies and novels.
The global economy stands on the verge of tipping towards the American or Chinese approach with regard to Big Data, both of which are not ideal from a European perspective. Therefore, Europe must stand up and promote its way of dealing with Big Data, namely in the framework of Big Markets. Europe has the potential to benefit from the digital evolution in a free and competitive market environment without losing control over the power of tech-giants. However, this requires Europe, in terms of policy as well as public debate, to zoom out to see the bigger picture and tackle the great challenges we are facing. Concretely, this entails serious commitments to reform and unify the European market, as well as to pursue a bold and unified European foreign policy to promote and preserve this approach against the others.