Economic Statecraft
What Nation-States Can Do to Protect Citizens from Omnipotent Corporations

We assume countries and their citizens trust the exchange of ideas, products and services enough to gain new experiences and learn from success stories, and don’t expect to be “blown off” by multinationals. If these corporations model their behaviour to pursue the geopolitical interests of a particular state or states, then they seriously undermine the foundational principles of the connected world write Arvind Gupta, Head and Co-Founder of Digital India Foundation, and Aakash Guglani, Public Policy associate, Digital India Foundation

“I do not want my house to be walled in on all sides and my windows to be stuffed. I want the culture of all lands to be blown about my house as freely as possible. But I refuse to be blown off my feet by any”― Mahatma Gandhi

In the pursuit of globalisation and innovation, emerging economies around the world have opened their doors to new products, processes and services. Today, we search on the Internet using Google or Yandex; use Samsung, OnePlus or Apple smartphones; store our data on the Amazon or Microsoft cloud; buy and sell goods and services on eBay; connect to the global community on Facebook, Instagram or Twitter; make payments using Visa, MasterCard, or Apple Pay, and do business processes outsourcing and software development through Infosys and Tata Consultancy Services, etc. These now critical infrastructure projects are financed, built and operated by multinational corporations operating from different parts of the world. This seamless connection underscored the promise and appeal of globalisation for a brave new world after the emergence of the internet. The question that arises is: can nations weaponise this connection of geo-economics to pursue their own geopolitical interests? 

Throughout human history, we have seen a tendency amongst states to deploy means and tools to pursue their national interests. Whenever hostilities emerged between states, there were explicit and implicit mechanisms used to disrupt the supply chains of essential items of the other side. One such service is public transport. In the digital world, it is common to deploy the services of multinational private enterprises to operate the payment gateways of a state’s public transport systems, as they are efficient and professional. Now, if hostilities arise between two states and suddenly, the said corporation decides to halt the payments for commuters following an implicit nudge from its own state’s policymakers, then it can successfully manage to impose costs, which change the opposing state’s behaviour. The aggregate market capitalisation of the top five companies in the world is more than $10 trillion, which is greater than the gross domestic product (GDP) of most countries in the world. Out of these, four are technology companies. These corporations have the power to block access to their digital marketplaces, limit the social footprint of a user, inhibit vehicular traffic data for navigation, cut the supply of smartphones or remove advertising on their platforms to millions of people, and in a matter of hours. 

To add to the costs, all these companies are accountable to laws of their parent state. To make their internal processes standardised, all their worldwide subsidiaries are required to follow some versions of the model laws, which in effect imposes severe costs for other states, as these standard laws and processes don’t take into account the unique characteristics and cultural norms of different societies and regions. This process restrains the growth of small and medium-sized enterprises as these big corporations make coercive capital investments to acquire new users in the host country due to deep pockets and quash the local competition. 

To rephrase Mahatma Gandhi’s words to fit our argument, we think countries and their citizens trust the exchange of ideas, products and services to gain new experiences and learn from success stories, and don’t expect to be “blown off by them”. If these corporations behave in a way that reflects the geopolitical interests of a particular state or states, then they seriously undermine the foundational principles of the connected world. We understand that states should be expected pursue their national interests. What is dangerous, in our opinion, is the power of a handful of big corporations to act as sovereigns and disrupt the quotidian lives of common citizens in territories where they operate.

In order to offer innovative products and services, states provide a flurry of tax incentives, subsidies and grants to these corporations. The ever-increasing power of the big technology companies to disrupt ordinary life will effectively make states suspicious of them, as well as new technology. This suspicion would incentivise the states to become more insular and barriers to entry would rise. This threatens to stifle innovation, especially where we need it the most: to tackle problems that can only be solved through collective action like climate change, vaccine research and biotechnology initiatives. We have already seen the fruits of collaboration during the pandemic as the free exchange of information led to the fastest development of vaccines in human history. 

In our view, to get out of this quandary, the states can undertake two simultaneous actions: 

First, in the short term, each state should diversify their suppliers of critical products and services. No corporation should be allowed to have so much power that it can disrupt the lives of a nation’s citizens without their explicit consent through their elected governments, democratic norms and public scrutiny. At no point are we are arguing to halt business innovation or the ability of corporations to provide their services across borders. We are arguing against the unfair exploitation of monopoly market dominance for nefarious purposes. 

Second, in the long term, states should aim to develop their own digital public goods, which will give control back to their citizens and through them to their respective states. What we mean is that each state should have significant ownership, with participation from the private sector, of  digital commons like national identification cards; the payments architecture; social security disbursements; commerce and health records. Such measures wouldn’t be meant to replace big technology corporations with local corporations or government corporations, but to democratise the process of data aggregation, gatekeeping powers and algorithms development and deployment under privacy by a design framework as per the rules laid down by local governments under fair and reasonable policies. 
Consequently, we think the merging of a state’s geopolitical interests with private service delivery raises business barriers everywhere. We foresee that to safeguard their supply chain from unforeseen contingencies, states will bear the additional costs of moving the manufacturing of critical digital tools like semiconductor chips; active pharmaceutical ingredients; and telecommunications technology equipment back to their jurisdictions or deploy the services of trusted partners. 

It is important for the democratic countries to come up with detailed guidelines in a consensus-oriented manner to reign in the private actions of big corporations, especially when they are engaged in the delivery of public goods. In adverse circumstances, some critics might argue that these corporations are penalising a particular state for an alleged wrong, but we think the power of the corporations to police one perceived “offender” can lead to the abuse of many others in the long term. We should be careful about grant so much power to several corporations without demanding strict accountability.
Views expressed are of individual Members and Contributors, rather than the Club's, unless explicitly stated otherwise.