For inclusive growth, leaders must embrace a global and open economic future

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Today, you can get on a plane and fly from one continent to the next. You can pick up your cell phone in Davos and call somebody in Buenos Aires or Toronto or Singapore as if they were across the street. You can use a UK-issued payment card to buy coffee or lunch in Sydney and know your data is protected.

Global, open, interoperable networks make all of this happen, with minimum friction — and can deliver inclusive growth worth trillions for developing countries.

The digital transformation of the economy is a force for uplifting economies and democratising access to capabilities that were once limited to the largest companies and institutions. In theory, there is no company today that is too small to participate in cross-border trade — but unfortunately, not all can.

Democratising access to cross-border trade

Beyond the modern conveniences we as consumers encounter in our day-to-day lives, behind the scenes, every industry — from agriculture to manufacturing — relies on similarly open digital tools to not just function, but to grow in size, value and efficiency.

Democratising access to technologies like digital payments gives small businesses worldwide access to a truly global market, expanding their potential customer pool from a few neighborhoods to an entire network, fuelling inclusive growth. This makes for stronger, more resilient and more inclusive economies.

In a very real way, networks open the world, making the global economy more accessible and inclusive in the process.

Although much progress has been made, many are still left out of the digital transformation. 29% of adults in the developing world remain outside the formal financial system, and 43% of adults in developing economies still transact entirely in cash.

As the digital transformation of the past decade continues into the next, and as protectionist impulses arise in pockets around the globe, openness as a foundational principle becomes even more critical for uplifting economies, businesses and individuals around the world.

Resisting the protectionist impulse

When times get tough, there’s an understandable impulse to shelter, to close off from the world and batten down the hatches in the hopes of riding out the storm. But economic history is littered with cautionary tales of how restricting cross-border commerce can deepen recessions, slow innovation and drive up consumer prices. In the digital age, economies require connectivity, collaboration and constant innovation to prosper and grow inclusively. When cut off from the outside, economies stagnate, even regress, particularly in the most challenging of economic environments.

The World Economic Forum estimates that up to 70% of the new value to be created in the global economy over the next decade will be based on productivity gains from digital technology adoption — technology that has the most to give in an open ecosystem. The World Bank’s 2020 World Development Report showed that removing restrictive data policies would gain countries on average 4.5% in productivity. On the flip side, other research suggests that just a 1% increase in data restrictiveness can cut a country’s gross trade output 7% and decrease productivity by 2.9%.

Despite the clear benefits of greater openness, political pressure to turn inward and restrict digital trade tends to spike in times of economic deceleration.

For instance, in 1930, US policymakers exacerbated the Great Depression by implementing tariffs that precipitated a 40% decline in the volume of imports, kicking off a damaging trade war. In the digital age, it is essential that political leaders resist calls for protectionism. In an interconnected digital economy, restricting data flows deprives small businesses of access to international markets and deprives startups of the data-powered tools they need to compete in an increasingly open and digital world.

Localisation also makes consumer data less secure. The idea that localisation and security go hand in hand may be well-intentioned but is ultimately misguided. Localisation fragments data, introduces potential vulnerabilities and requires local but less robust resources in-country — none of which occur on the kind of network that is otherwise redundant many times over, with sophisticated Artificial Intelligence and an army of full-time security personnel interrogating network activity around the clock.

Inclusive growth and open policies require trust

As important as access to the digital economy is, a lack of trust in it can keep digital newcomers from taking full advantage, thus preventing inclusive growth. That is why it is imperative that public authorities and business leaders prioritise digital trust. In business and finance, trust is earned by being reliable, consistent and keeping people and institutions safe from malicious actors. It is up to both business and government leaders to address the lack of digital trust that gives rise to data localisation, regulatory fragmentation, and harmful trade protectionism.

In 2019, Japan called upon the G20 to build a more open digital economy by embracing the concept of Data Free Flow with Trust (DFFT). Now more than ever, we must embrace and expand upon this concept to build a more equitable and inclusive digital economy. There’s much to gain if we do, and far too much to lose if we do not.

With the potential to increase the GDP of developing countries by $3.7 trillion between now and 2025, maintaining open financial access will bring prosperity and inclusive growth to those who need it most and build a more inclusive world economy overall.

Source: We Forum