Defending Digital Globalization

Let the Data Flow

A construction worker uses a laptop inside his dormitory in Hefei, China, August 2014. Jianan Yu / Reuters

Over the last 25 years, the Internet has become a conduit for trillions of dollars in commerce, transforming industries, national economies, and the nature of globalization itself. Today, as global trade in goods and services has plateaued and global financial flows have declined dramatically, cross-border data flows are exploding in volume. Data flows in and out of the United States alone are estimated at 80 terabytes per minute—eight times the size of the entire print content of the Library of Congress. Since 2005, they have increased by a factor of 80, from just 5 terabits per second to an estimated 400 per second.

International data flows take many forms. Individuals generate them through e-mails, Skype calls, e-commerce transactions, social media posts, and Internet searches, as well as through the consumption of digital goods from around the world. By 2020, consumers are expected to spend $1 trillion on cross-border e-commerce. But these flows are more than just consumer transactions and social media posts. They are an integral part of the way companies now operate. According to research we conducted at the McKinsey Global Institute (MGI), cross-border data flows already make a larger contribution to global GDP than the goods trade. We term this rapid increase in both the size and the value of cross-border data flows “digital globalization.”

Like traditional globalization, however, digital globalization is threatened by a number of barriers and protectionist policies, such as data localization requirements, online censorship, market restrictions on digital content providers, and conflicting and overlapping rules on data privacy and protection. Although these policies are often adopted to address legitimate underlying concerns, they threaten to disrupt the flow of data around the world, imposing significant costs to companies and harm to consumers.

Just as nations have negotiated agreements establishing the terms of global trade in goods and services, they now need to confront digital protectionism by setting out detailed frameworks to govern cross-border electronic commerce and data flows. The world needs international norms and protocols to ensure the free flow of data and

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