In early August, the UK government appointed former Obama advisor Professor Jason Furman to lead a review of data and competition in digital markets for the Treasury. Furman will lead a panel of experts to examine the impact of data-driven innovation on the competitive landscape for providers of digital products and services in the UK.
Furman’s panel will report back in early 2019, and we expect his recommendations will have a strong bearing on the government’s approach to competition policy and enforcement after Brexit.
HM Treasury has already laid the foundation for this work with its recently published discussion paper — The economic value of data — addressing the economic opportunities from data-driven innovation. Calculating the value generated by intangibles in the digital economy is a fraught topic at the moment, as tax authorities around the world look to find ways to capture some of the economic value generated through online activity in their tax structures. Indeed, HM Treasury recently held a consultation on this very topic and is currently working through the findings.
The purpose of this paper, however, is slightly different: it aims to capture not only the raw monetary value from economic activity based on data, but also some of the positive externalities which are harder to quantify, broadly defined here as ‘social value.’ Transport and health in particular are identified as sectors where opening up access to data to third parties and innovation will bring significant societal benefits, such as improved quality of life and longer life expectancy.
The essential problem — which the Treasury and Professor Furman have set out to resolve — is how to stimulate data-driven innovation across the UK economy in a way which encourages rather than stifles competition. The is no easy task. As Furman has highlighted in his academic work, market consolidation (along with declining dynamism and innovation) has become common in developed economies around the globe in recent decades, for reasons both benign (improvements in efficiency and economies of scale) and less so (anaemic antitrust enforcement and aggressive merger and acquisition activity).
When it comes to data-driven technology businesses, the problems of network effects and market consolidation are especially pronounced. Professor Furman expects that over the coming years the technology sector will come to resemble the banking sector in terms of market consolidation, with consumers forced to choose between several large incumbent operators who have a diminishing incentive to innovate and compete for new customers.
Clearly this outcome is unsatisfactory from a policy-making perspective. Should this come to pass, policy-makers and regulators will need to intervene to safeguard the interests of consumers. The Treasury discussion paper handily identifies several key challenges in areas where action can be taken to ensure a better settlement for consumers and sustain innovation:
- Addressing ownership and control of data.
- Maintaining the protection of personal data.
- Openness in public sector data.
- Driving interoperability and standards.
- Enabling safe, legal data sharing.
Underpinning each of these — and in common with Professor Furman’s earlier work — is a desire to put the user back in control of their data and for them to be able to transfer this easily between providers. Should Furman follow the pattern of his recent academic work, we can expect his review to recommend stronger ownership rights on the data of individuals as a way to lower barriers to entry in the market, stimulate competition, and compel companies to innovate more aggressively in return for users handing over their data.
Author: Matt Allison, Public Policy Manager, Access Partnership