In this edition of Author Talks, McKinsey Global Publishing’s Raju Narisetti chats with Anu Bradford, the Henry L. Moses Professor of Law and International Organization at Columbia University School of Law, about her new book, Digital Empires: The Global Battle to Regulate Technology (Oxford University Press, September 2023). Bradford emphasizes the need for regulation in today’s digital economy and explains how the leading technology powers could partner to redefine the global digital landscape. An edited version of the conversation follows.
Describe the digital economy’s ‘horizontal’ battles between the US, China, and the EU.
My book paints a picture of today’s digital world, characterized by a battle between the leading powers—the United States, China, and the EU—of the direction of the digital economy.
I’m focusing on the horizontal battle to make clear that there is increasingly a consensus around the world that technology needs to be regulated. But there’s no consensus on what the regulation ought to look like. I argue that there are three primary ways to think about a digital economy and its regulation.
We have the American market-driven model, the Chinese state-driven model, and the European rights-driven model. So the horizontal battle, then, encapsulates this set of three different models that are competing for influence in the global digital economy.
The American market-driven model is premised on this idea that we really want to maximize incentives for innovation. It relies on the idea of free market and free internet and reserves a very minimal role for the government. Instead, governance of the digital economy is in practice handed over to the tech companies. The Chinese state-driven model is rather different. It focuses on the Chinese government’s desire to make China a technological superpower.
But China also harnesses technology as a tool for censorship, surveillance, and propaganda in order to preserve social stability and entrench the political power of the communist party. The European rights-driven model is again different in that it is premised on a human-centric vision of the digital economy.
It prioritizes the protection of fundamental rights of individuals, the preservation of democratic structures of a society, and also a notion of a fairer distribution of the benefits from digital transformation. This is the idea that we must transfer some of the data power and the gains from the digital economy from these large platforms to smaller tech companies, to the users, and to the public at large. This horizontal battle is really a reflection of how these three models interact and come into conflict and contest while influencing the global digital marketplace.
You also see the US, China, and the EU simultaneously fighting what you call ‘vertical battles’ vis-à-vis tech companies.
The vertical battle really focuses on this idea that each government in its jurisdiction is seeking to then rein in the behavior of the largest tech giants. Governments are increasingly concerned about the degree of concentration of the market where we really have few powerful players exercising enormous economic control. At the same time, the governments worry about the behavior of these tech giants that have a harmful impact on individuals and societies.
So [governments] worry about breaches of data privacy. They worry about disinformation and hate speech that is really characterizing the online spaces within which conversations take place. They also worry about the increasing harms associated with the AI revolution.
In order to try to mitigate these downsides of the behavior of tech companies, the governments have engaged in what I call a “vertical battle”—attempts to regulate the tech companies in their own jurisdictions. But what is interesting is the intersecting battles: tech companies must at the same time navigate the efforts by different regulators to control their behavior, which sometimes then leads to very difficult situations in terms of their ability to comply.
Microsoft was requested by US law enforcement agencies to hand over some information that was in the company’s possession, which would have been critical for law enforcement.
But that data was hosted in the servers in Ireland, and hence subject to data privacy rules of the European Union, which then prevented that very same information from being transferred to the United States. So it’s very hard for Microsoft to comply, at the same time, with the conflicting demands of the regulators in different jurisdictions.
These battles are particularly thorny when we’re dealing with China. American tech giants have had a hard time penetrating the Chinese market because they would have had to capitulate—to acquiesce to the Chinese censorship demands and other demands of the Chinese government that often contradict their own values and that also lead to resentment and criticism in their home [US or European] market.
For instance, when Google was trying to create a China-specific-censor search engine, it created a massive backlash in the United States whereby the users, the shareholders, and also the lawmakers were accusing Google of having contributed to Chinese government censorship demands, which ultimately led Google to pull out of the Chinese market.
But you don’t foresee a full decoupling.
There have sometimes been attempts to compare the existing tech wars and conflicts to the Cold War. The parallels are rather inaccurate in the sense that China’s role in the global economy is very different from the one that the Soviet Union possessed at that time.
The Chinese economy is very intertwined with that of the United States and Europe and the rest of the world. Also, technological infrastructure and the entire tech ecosystems are very much connected to one another. The complexity of semiconductor production is one example. There is no single country that would be able to replicate this expensive and complicated semiconductor system within their own jurisdictions. So other countries are dependent on access to each other’s markets for production and operations to continue.
For instance, Chinese tech companies need to access foreign capital, and they do often list in the United States stock market, which continues to be a very important avenue for fundraising. Despite all the [tech] conflicts, we have seen that the Chinese government has been hesitant to fully prevent the ability of Chinese companies to list in the US stock market. We have not seen full decoupling, whereby the exports would be completely discontinued between US and China. That is just the pragmatism realization of the sort of commercial necessity to continue to engage across the global marketplace.
You see a continuing conflict, an age of ‘unpeace,’ if you will.
Generally, the existing narratives describe the digital economy in very binary terms. So either we see the global internet, or we see the split internet. We see continuing globalization and cooperation, or we see decoupling. We see the US or China winning the tech race. That is not very helpful and certainly not accurate. It is still a very conflict-ridden world where the trust between the parties is very low.
Even though there is a strong commercial reason to continue to engage across the markets, we also see these growing political pressures that keep the conflict alive. So there’s still very little trust between the United States and China. The pressure toward strategic autonomy or technological sovereignty continues to exist.
Ultimately, we will see a mix of two strategies. We will see escalation and de-escalation. We’ll see rivalry, and we’ll see restraint. Partially, as we are approaching elections in the United States, nobody gets votes [to the White House] by being soft on China.
There tends to be almost a consensus in the US Congress that China is a challenge. China is a problem. The US needs to then prepare itself to protect its geopolitical interests, to protect its national security. That requires a set of measures which limits China’s access to key strategic technologies, which then consists of export controls and investment restrictions, both in terms of outbound and inbound investments. Continuing use of these restrictive measures will maintain the challenges that companies have been dealing with over the past years.
It has been a two-horse race between the US and China in technology, but you don’t see the EU as an also-ran.
It is true that if we just focus on a race of who becomes the technological superpower, it is primarily a race between the United States and China. They are the two primary developers of leading technologies. Compared with them, the EU is not a player.
At the same time, there’s also another aspect of this ongoing horizontal battle. There’s a regulatory battle, different visions for the governance of digital society. There, the EU is certainly a player. So instead of being a developer of technologies, the EU is the primary regulator of those technologies.
The EU was at the forefront of regulating data privacy with its path-breaking GDPR, the General Data Protection Regulation that was adopted back in 2016. The EU has also been the lead enforcer of antitrust laws against the tech companies.
The EU is also much more stringent than the United States has been when it comes to regulating content online. It is the EU that is now going to come up with the world’s first binding, comprehensive horizontal act on artificial intelligence.
The EU has really taken the role of the referee in the digital economy. It has the ability not only to regulate the European marketplace but also to extend those regulations to other jurisdictions. This is due to a phenomenon that I call “the Brussels effect.”
The EU is one of the largest and wealthiest consumer markets in the world. There are very few global companies that can afford not to trade in the EU. So the price of accessing the European market is that these companies need to obey European regulations.
But [global companies] often conclude that it is in their interest to extend that European regulation across a global contact or global production because they want to avoid the cost of complying with different regulatory regimes. This is why, for instance, we see that the leading US tech giants are using the GDPR as a global privacy standard.
In this way, the EU is also in a position to shape the rules that govern the technologies influencing products and services that the tech companies are offering to all of us. That also makes the EU a relevant player in the product, the global digital landscape.
Why is the American market-driven regulatory model increasingly becoming a source of global concern?
The American regulatory model really provides the foundation of the digital economy as we know it today. But in many ways, the American technology companies have overreached. The model really allowed these tech companies to become too powerful, to grow into a kind of prominence in the domestic market, but also to expand internationally.
[American technology] companies today exert enormous economic power, political power, informational power, and cultural power, and are really shaping foreign societies in addition to the domestic society, not just in beneficial ways, but also in harmful ways. These companies have repeatedly shown that they are incapable of respecting the privacy of internet users.
Companies today exert enormous economic power, political power, informational power, and cultural power, and are really shaping foreign societies in addition to the domestic society, not just in beneficial ways, but also in harmful ways.
We also see an online space that is just rampant with disinformation and hate speech, often making those online platforms very toxic places. That has really caused a kind of global backlash. Even the United States itself is now kind of rethinking the techno-libertarian foundations of the country and the merits of this market-driven model.
This has really led to some rethinking within the US. The public opinion is turning against these companies, asking for more regulation. We see numerous bills being proposed by US lawmakers seeking to overturn the status quo that has really put its fate in the markets and in the self-regulation of these tech companies.
Why is the China digital regulatory model seemingly in favor in a lot of other countries?
It is interesting that when we see this decline of the American digital empire, we now also see greater demand for the European and the Chinese regulatory models. Democratic countries are increasingly coalescing behind the European rights-driven model.
But the authoritarian and authoritarian-leaning countries are finding the Chinese model much more conducive for their societies and for their needs. There are a couple of reasons for that: one is that the world is turning more authoritarian.
Democracy is in decline in many parts of the world. The kind of digital society that many governments want today is not centered around the European rights-driven model. Rather, it is seeking to establish control the way that China has exercised control over its society.
For example, one reason why it is challenging for the United States to persuade countries to abandon the Chinese model is that it can no longer present these countries with the choice to say that, “You either choose freedom, which is your path to innovation, or you choose control, which then will compromise your economic growth.”
China has shown the world that freedom is not necessary for innovation, which is something that is very difficult for Americans and their allies, who are trusting in the benefits of the liberal democracy, to admit. So now these [other] countries look at China and say, “Look, we can actually have both. We can have political control. And we can have thriving innovation and very robust economic growth.” So that’s one advantage that China can also offer. There’s also difficulty, in many ways, for the US and the EU to replicate the benefits that China is giving.
The Chinese economy is very intertwined with that of the United States and Europe and the rest of the world. Also, technological infrastructure and the entire tech ecosystems are very much connected to one another.
China is providing many countries around the world a path to digital development. It is exporting digital infrastructures, 5G networks, data centers, “safe city” surveillance and undersea cables, a path to digital development that is essential for many other countries.
The Chinese infrastructure is good, and it is affordable. If the United States and the EU cannot replicate that offer, it is no wonder that other countries are not turning down China’s offer to give them that benefit.
The effort to tell these countries that they ought to be aligning themselves with the US is also a very hard case when the US itself is turning more inward. The US is pursuing increasingly protectionist policies, which makes it difficult for these countries to trust that, “If we don’t trade as much with China and don’t align ourselves politically with China, can we then trust the US market to remain open for us?” These countries can no longer be sure that that is the case.
Why do you say the US must align with the EU rights-driven regulatory model?
I see both internal and external reasons that provide a rationale for the US to abandon its commitment to the markets and then move closer to the European rights-driven model. Here are some of those internal reasons.
First, public opinion is shifting in the United States. People no longer trust the tech companies, and they want more regulation. So, it would only be consistent with the shifting ethos of the country and the values of Americans themselves. The second is that right now, it is the Europeans who are regulating American tech companies.
The Brussels effect is the primary way to keep the American tech companies in check. The US can either continue to outsource that task to the Europeans, or it could try to do that together with the Europeans. I think the latter is more desirable for Americans.
The external reason is that the Chinese digital authoritarian model is doing very well. So the way to try to counter that model really requires a concerted effort by the US, the EU, and the other techo-democratic allies to consolidate the democratic front, and then collaborate in ways that offer an alternative to China.
That is a very compelling reason that the US and the EU can put aside their differences and ultimately conclude that we share our commitment to liberal democracy. That is the foundation for our digital societies. We need to figure out the way to make that model work.
Ultimately, the most important battle—the real soul of the digital economy—is this battle over whether liberal democracy remains an effective governance model in today’s tech society.
Americans have a hard time legislating in this area. The Europeans don’t have a hard time legislating, but they are often struggling to enforce their tech regulations. At the same time, China doesn’t have the difficulty of legislating. When the Chinese government decides that it is time to crack down on the big tech companies, it is able to enforce its regulations.
Ultimately, the most important battle—the real soul of the digital economy—is this battle over whether liberal democracy remains an effective governance model in today’s tech society.
So this leads us to a very uncomfortable conclusion. Unless the US and the EU can overcome those hurdles that they are facing, they’ll need to conclude that digital economies are either governed by authoritarians, or that the digital economy is governed by tech companies—that the tech companies are the only way to govern in the democratic societies. That would suggest that the true digital empires are either the authoritarians or the tech companies. That is a really uncomfortable conclusion for anybody who believes in liberal democracy as a foundation for our digital society and human engagement.
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