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6 February 2019

In­ter­dis­ci­plinary con­fer­ence: “The fu­ture of the da­ta econ­o­my”

  • On 19 November 2018, the Federal Ministry of Finance hosted an interdisciplinary conference on “The future of the data economy”.
  • The event brought together selected experts from academia, the business community, civil society, public administration, journalism and professional associations.
  • These experts came to the Finance Ministry to engage in a comprehensive discussion on what actions need to be taken and what options are available – in terms of taxation, competition, business models, governance, data access and data use – to ensure a smoothly functioning data economy.

Why is this issue important?

Data plays a major and growing role in business strategies and market activity. Data-driven markets, platform-based business models and algorithmic systems are fundamentally altering the economy and society and pose numerous challenges to existing regulatory frameworks. In public discussions of the data economy, different business models – and questions of taxation, competition, ownership and user rights – often tend to get jumbled together.

For this reason, the Finance Ministry thought this was an opportune time to convene a selected group of experts from academia, the business community, civil society, public administration, journalism and professional associations for an interdisciplinary conference on “The future of the data economy”.The event took place in Berlin on 19 November 2018. The agenda placed a spotlight on the following policy areas and questions:

  • Taxes: What are the main challenges – at both the national and international level – when it comes to the taxation of data-driven business models?
  • Competition and business models: How can we ensure fair competition and diversified industries in the data economy?
  • Data access and data use: How do we define value, ownership and use when we are dealing with data?
  • Governance: What kind of regulatory framework does the data economy need?

The event’s aim was to provide a forum for the open exchange of ideas where experts could jointly identify (a) what actions need to be taken to address these questions effectively and (b) what options exist for carrying out these actions.

Taxation

Following opening remarks by State Secretary Rolf Bösinger, the first presentation of the day was provided by Johannes Becker, professor at the University of Münster, on the topic of “Corporate taxation in the GAFAM1 era”. Becker described the ways in which international corporate taxation may need to be reformed as the global economy goes ever more digital. He pointed out that key challenges – including the undertaxation of profits, the malfunctioning of market competition, and privacy protection – call for fitting solutions. He stated that a sharper focus needs to be placed on the “tax optimisation” practices of big tech companies and on the tax policies of individual states. In his view, a minimum effective tax rate would address problems better than a special tax on tech companies. Becker concluded by introducing the concept of “sustained user relationships” as a potential solution to the problem of ensuring effective taxation in an increasingly digital economy that lets firms engage in business activity without maintaining an actual physical presence. Numerous questions were raised in the discussion that followed: How much do the profits of large tech companies depend on local user data? Should raw data be treated as part of the value creation process? Can the production of data by individuals be regarded as adding value? Should bartering services for data be included in the taxation process? How can the taxation of tech firms be reconciled with the promotion of innovation and research?

Competition and business models

The next session was led off by Jens Prüfer, professor at Tilburg University in the Netherlands, who gave a presentation on “Competition law in data-driven markets: challenges and solutions”. Prüfer argued that competition and business models are being fundamentally changed by the process of “datafication”. More specifically, he asserted that, in business sectors where user data plays a central role in the process of innovating products and improving their quality, economic feedback effects occur that systematically reduce competition and incentives to innovate. In his view, prosperity could be boosted by introducing some form of mandatory data-sharing in markets where such effects are observed. Prüfer was followed by Andreas Wieg of the Deutscher Genossenschafts- und Raiffeisenverband (an association of German cooperatives), who focused on the question “Cooperative business models: a solution to the challenges posed by the data economy?”. Wieg started out by outlining the types of cooperative business models that are being seen in the digital economy. He also described the challenges that the digital economy poses for traditional cooperative models, along with cases where cooperative models themselves are part of the digital innovation process. He emphasised that the success of cooperative business models in general is driven by shared interests and motives and by cooperation among equals, and that these factors have an important role to play in the digital economy as well. Key questions posed during the ensuing discussion included: Are the described feedback effects really something new? How would the notion of data-sharing work under anti-trust law? How would such data-sharing be conducted in terms of institutional practice? What can be done to promote the development of cooperative models for data-based businesses?

Data access and data use

Nicola Jentzsch of Stiftung Neue Verantwortung (a Berlin-based think tank that focuses on the effects of technological change) launched the third session with a talk on “Data monetization models”. Jentzsch described how the commodification of data can be conceptualised in economic terms, and how this commodification is done in actual practice by market participants. Looking at the matter of data intermediation, she compared conventional provider-based platforms with approaches involving user-based platforms that aim to turn data subjects into “active players”. At first glance, user-based platforms would appear to enhance user sovereignty, but they also raise a number of problems, both in theory and in practice, that end up undermining these sovereignty-enhancing effects. Next, Dirk Woywod of Verimi GmbH described how “identity and data platforms” function in terms of both technology and business operations. He emphasised that the comprehensive use of digital identities by users requires harmonised regulatory frameworks and interoperability in all sectors such as e-government, banking, insurance, telecommunications, health and education. In the discussion that followed, participants raised various questions including: What is better, the centralised or the decentralised storage of user data? Does a plethora of consent options systematically overwhelm users? How do identity and data platforms affect the contractual autonomy of private citizens? How can the unwanted re-use of data be prevented?

Governance

State Secretary Wolfgang Schmidt led off the final session with a short keynote speech on “Challenges facing a social-digital market economy”. He was followed by Ingrid Schneider, professor at the University of Hamburg, who gave a talk on “Political economic governance models for the data economy”. Schneider began by pointing out that models of data access rights and data use rights are not purely economic or legal models but are always imbued with questions of power. She then outlined four prototypical models of how data access and data use can be organised in society and described their particular advantages and disadvantages. Her conclusion was that combined models – i.e. models that mix elements of the various prototypes – are the most effective and can, for example, find a happy medium between centralisation and decentralisation. In addition, she argued that it is necessary to place clear restrictions on the use of personal data, to take issues of morality into account, and to ensure that the interests of under-represented groups are heard. Key questions raised during the follow-up discussion included: Do data protection authorities and consumer protection law need to be strengthened? In which areas can private institutions provide better governance, and in which areas can public institutions provide better governance? Would it be a good idea to make public data available free of charge?

Summary and outlook

Both Finance Ministry staff and external participants benefited greatly from the exchange of ideas and expertise at the conference. The event’s integrated, interdisciplinary approach to the challenges posed by the “datafication” of the economy and society proved to be particularly constructive. Going forward, the Finance Ministry plans to organise suitable forums for the in-depth exploration of (a) selected areas where action is needed and (b) the various options for addressing these needs.

Footnotes

1
GAFAM is an acronym, particularly prevalent in Europe, that stands for Google, Apple, Facebook, Amazon and Microsoft.

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