The Political Economy of Digital Ecosystems

Scenario Planning for Alternative Futures

Meelis Kitsing

• Publisher: Routledge
• Year: 2021
• ISBN:
  9781000428254
• Edition: 1
• Topic: Economics
• Subtopic: Macroeconomics
• Index: Economics

This book connects political economy perspectives with scenario planning for mapping out future trajectories of digital ecosystems. The focus is purposefully on digital ecosystems as it encompasses economic, political and social contexts on a global, national and local level. The diversity of political economy approaches allows the author to explore alternative meanings of digital ecosystem development, which is particularly useful for envisioning alternative futures.

Often visions about the future of digital ecosystems suffer from a lack of imagination and confirmation bias which is favorable to the extrapolation of current trends. A wide range of political economy perspectives applied through positivist theorizing in this book shows different interpretations of developments in digital ecosystems. Scenario planning teams around the world have applied a collective imagination to show how future trajectories can be radically different from the current trends. The book outlines meta-scenarios for alternative futures of the political economy of digital ecosystems by reviewing and synthesizing the work of foresight teams. These meta-scenarios served as insights for developing four scenarios for European digital ecosystems through the workshops with high-level executives and experts. The scenarios identified the nature of EU cooperation and the development of digital infrastructure as key drivers.

These four scenarios developed in the workshops are further operationalized in a specific context by exploring the implications for Estonia as well as for Chinese investments in European platforms. This exercise shows how scenarios of digital ecosystems can be used for stress-testing decisions and strategies. Decision-makers, students, scholars and other stakeholders in a wide range of industries ranging from academia to ride-sharing can use the scenarios for reframing different development trajectories and future-proofing their strategies. The scenarios can be further developed and modified for specific purposes and contexts as they are not written in stone.

1 Introduction

At the dawn of the global financial crisis, Her Majesty Queen Elizabeth II visited the London School of Economics and Political Science (LSE) in 2008 to inquire why no one predicted the global financial crisis. In a letter that followed many months later by LSE Professor Tim Besley and eminent historian Peter Hennessy, they wrote that it was a result of “a failure of [the] collective imagination of many bright people” (Stewart, 2009).

This book will not rely on one prediction or vision about the future of digital ecosystems. Through literature reviews of work done by many foresight organizations, this book relies on the collective imagination of many bright people around the world. This is complemented by discussions of scenarios that emerged on the basis of scenario planning workshops with high-level business executives and experts.

The key premise of the book is to emphasize the importance of thinking about the futures of digital ecosystems in the context of the global political economy by using scenario planning. This approach breaks linear logic and uses the imagination of different futures for stress-testing various what-if worlds. It suggests that it is a superior approach in a global political economy shaped by complexity, turbulence and uncertainty to linear forecasts about the future based on rational calculation by relying on past data. “It is better to be vaguely right than exactly wrong”, wrote British logician and philosopher Read (1914) a century ago.

Imagine all futures

The combination of different scenarios from many bright people helps to map out alternative futures such as digital ecosystems dominated by large private platforms, government platforms or decentralized open platforms.

If the current trend toward the dominance of large private platforms is reversed by the rise of government-dominated platforms, it will lead to the splinternet, including the emergence of a new internet protocol (IP) in China and affiliated countries. Meanwhile, the old IP is used in the US and among its allies. Reduced economies of scale and network effects may lead to digital ecosystems becoming less efficient.

The decentralized ecosystem scenario seems more desirable for open nations and organizations but navigating these waters is more complex as they are characterized by a diversity of platform ecosystems with multiple private, community, local, national and global solutions. There is also a huge divergence in the regulatory approaches. Internet regulations in the global political economy currently resemble Swiss cheese with overlapping authorities and gaps that offer opportunities for regulatory arbitrage.

If we let our collective imagination go wild, it is not difficult to foresee a scenario where small nations risk becoming “digital rose islands”, particularly if they fail to consider alternative futures and stress-test their digital strategies. The original Rose Island was built as a platform by young Italian engineers in the Adriatic Sea in 1968 and was later blown up by the Italian navy. They had a vision that embodied the old Silicon Valley belief – before it was stated by Alan Kay from Xerox Parc in 1971 – that “the best way to predict the future is to invent it” (Kay, 1989).

Similarly, small nations may be successful in building up their own digital platforms only to see them to be wiped off by great power competition in technology wars. However, a strong vision is necessary for digital solutions to take off, but they are not sufficient in the current turbulent global environment. The liberal multilateral world that emerged after the collapse of the Soviet Union is being reshaped by technology wars between China and the US. The COVID-19 pandemic is adding complexity and uncertainty for future digital developments.

Platformization of digital ecosystems

The shifts in the global political economy interact with digital ecosystems that are increasingly structuring our economic, political and social life. The number of people using the internet has increased to over 4 billion globally from slightly less than 2 billion 10 years ago. Digital platforms have re-organized many economic sectors such as shopping and entertainment and have wide-reaching macroeconomic impacts as well as the ability to challenge the essence of democratic politics.

Fifteen years ago, the “internet”, “online” and “virtual” were separate from “real life”. This distinction has increasingly blurred with the introduction of the smartphone in 2007 and particularly in the new context of physical distancing. Digital tools have become so embedded in our daily life that it is difficult to go on with daily activities or even imagine life without them.

This is so particularly in the case of large digital platforms such as Google, Amazon, Facebook, Apple and Microsoft, which is sometimes referred to as GAFAM. Seven out of the ten most valuable public companies in the world by market capitalization were digital platforms on April 30, 2020. Five of them – Microsoft, Apple, Amazon, Alphabet and Facebook – are US companies and two are Chinese – Alibaba and Tencent (Statista, 2021). Ten years ago, Apple and Microsoft made it to the top ten. Twenty years ago, only Microsoft made it to the list of top ten companies by market capitalization.

The rise of large digital platforms and growing technological stand-off between China and the US contradicts the old perspective where the internet is perceived as a global borderless technology that is not limited by politics, morality and geography. Technolibertarians used to argue that some governments may try to stop its use or regulate some aspects of its use, but even these governments often face an uphill battle. In the early days of the internet, internet activist John Perry Barlow published a “Declaration of the Independence of Cyberspace”, where he argued that governments do not have sovereignty in cyberspace (Barlow, 1996). He said to “Governments of the industrial world” that “Cyberspace does not lie within your borders” (Barlow, 1996).

This was not just talk but taken seriously by many entrepreneurs. Following the true spirit of early internet pioneers, for example, Estonian computer programmers teamed up with Danish and Swedish entrepreneurs and created Kazaa in 2001. Kazaa facilitated peer-to-peer online file-sharing, which soon became the most downloaded computer app in the world in the early 2000s. However, they soon discovered that there are clear borders in cyberspace. According to the Hollywood-based entertainment industry, Kazaa had violated some of these borders. The US imposed its extraterritorial sovereignty in cyberspace and Kazaa’s founders became fugitives of the US justice system. The case over the different perception of borders was finally settled for 100 million dollars in 2006. Fortunately, Kazaa’s founders had just sold their other digital-border-testing venture, called Skype, to eBay for 2.6 billion dollars (Kitsing, 2015).

The internet clearly is not a borderless technology. The nature of its use and diffusion is clearly limited by geography, state sovereignty, economics, politics and numerous other factors. China has built a wall around its borders where many American platforms such as Google and Facebook cannot access. Large US platforms have built up gated communities over the last decades where they are effectively rule-makers and enforcers of the rules. This platformization runs clearly opposite to the vision laid out by Barlow in 1996, but it is not always governments that may limit the freedoms of individuals in cyberspace but also large private platforms.

Heterogeneous digital ecosystems

If the world was flat and the internet borderless, we would expect the internet to be diffused evenly and its use to be uniform. Yet within the borders of developed countries, digital ecosystems are more advanced than those of developing countries. In addition, among different countries of the industrial world, digital ecosystems vary considerably.

This is quite revealing for at least two reasons. First, it clearly indicates that the internet is a global technology, but digital ecosystems are not aspatial but spatial. As digital ecosystems develop differently over time, they are not ahistorical but historical. In other words, history matters for how digital ecosystems develop over time with different extensity and intensity in different locations. Second, if digital ecosystems are dependent on historical, geographical, political, social and other factors, then it is important to understand how these factors enable and constrain the development of digital ecosystems in the context of the global political economy.

Understanding the relationship between digital ecosystems and the vast variety of social, political and economic factors has increasingly become a crucial issue as more and more societies rely on these ecosystems for a wide range of interactions ranging from work to leisure. While there has been an increasing number of studies on digital ecosystems and platforms that have used a variety of variables, this book connects digital ecosystems with the broader literature on international political economy, multilevel formal and informal governance and scenario planning as a method for exploring futures.

Central and Eastern European (CEE) countries are particularly illustrative in the context of heterogeneous digital ecosystems. They had socialist economic and political systems until 1991, albeit with some important differences. They all went through an economic, political and social transition in the 1990s toward democracy, freer markets and greater social openness. The most advanced of these countries joined the European Union in 2004 and 2007. However, the digital ecosystems vary considerably in these countries (Kitsing, 2015; European Commission, 2020).

Different from several CEE countries, digital interactions have become embedded in Estonia, for example. Some of these services are easily understandable, such as internet banking that Estonians have enjoyed since 1996. Others are unique to the outside world, such as internet voting, which has been available since 2005 and is used by almost half of voters. Some are invisible but fundamental for the ecosystem – such as the X-Road – which, as the backbone of digital infrastructure, facilitates data sharing among public and private organizations (Kitsing, 2015).

Digitalization in Estonia has been an evolutionary process where key decisions about the delivery of services and digital identity were already made 20 years ago. However, this process is also characterized by a high degree of heterogeneity.

The role of digital ecosystems

The role of digitalization is a challenge to measure. Some scholars have emphasized the correlation between the use of digital technologies and national wealth (Corrales and Westhoff, 2006, p. 912). This would suggest a connection with productivity, i.e., either more productive countries invest more in digitalization or digitalization generates more productivity or both. This suggest that the impact of digitalization on productivity is notoriously difficult to measure. To paraphrase a well-known saying by Robert Solow, a Nobel laureate in economics, we can see digitalization everywhere except in the productivity statistics.

National accounting has been designed for mid-20th-century economies with strong manufacturing sectors. Therefore, the contribution by digital services is not well captured and seriously underestimated by the national accounts. Clearly, digitalization cuts transaction costs, but even transaction cost economists acknowledge shortcomings in empirical attempts to measure them.

Many scholars have emphasized the connection between digital technologies and the role of institutions that are defined as the rules of the game. Most scholars focus on what are called formal rules – laws and regulations of a country (Milner, 2006). This is understandable because formal rules are easier to measure than informal rules such as social norms, expectations and culture. Some scholars have found that democracies have greater use of digital technologies than authoritarian regimes (Milner, 2006). This is not surprising because authoritarian governments often try to discourage their citizens from using digital technologies for at least certain purposes and particularly for activities that may in some ways undermine the legitimacy of the government. However, other scholars have found that much more specific rules may matter for digital technologies. Particularly, how governments regulate the telecom sector and how much competition they allow for offering various telecom services matters a great deal (Guillen and Suarez, 2005).

Nevertheless, most of the studies focusing on income or formal institutions rely on a limited set of variables to study a large number of countries. Ultimately, it means that many factors that may matter for digital ecosystems may be assumed away. However, countries with similar levels of wealth and fairly similar institutional settings may still have different digital ecosystems. For instance, EU countries are all democracies. The formal institutional framework of these countries is fairly similar as they all had to adopt the EU laws and regulations. Different institutions, i.e., formal and informal rules, their interactions, conflicts and institutional logics behind these institutions, create institutional complexity (Greenwood et al., 2011; Room, 2011; Smets et al., 2012; Thornton et al., 2012). The regulations of the European Union may conflict with domestic government regulations or they may be against informal rules based on the attitudes and expectations of people. For instance, a macroeconomic framework may conflict with government regulation on a micro level. Communities may not respect micro-level government rules because they conflict with their social norms. The ecosystem is the result of these various interactions.

This suggests that the emergence of digital ecosystems is not an issue to be explained by a small number of country-level variables, but there are impo...