Expert Speak Digital Frontiers
Published on Apr 22, 2021
The Fourth Industrial Revolution has created complexity in the international power model of state sovereignty.
De facto shared sovereignty and the rise of non-state statecraft: Imperatives for nation-states This article is part of the series — Raisina Files 2021.

State sovereignty has been a foundational pillar of international law dating back to the Peace of Westphalia in 1648. It has played a critical role in the rules-based order the world has come to operate under and determines how nation-states interact with each other in times of peace or in conflict. Our modern understanding of state sovereignty can be traced back to the Charter of the United Nations (UN) from 1945, which stated: “nothing <...> shall authorise the United Nations to intervene in matters which are essentially within the domestic jurisdiction of any state.” This was an important moment, with nation-states rallying together to support the principles of state sovereignty and human rights. In 2021, both these ideas have been challenged in ways that the UN and countries have not adequately addressed using their sovereign authority.

Nation-states retain their sovereign authority to legislate and conduct statecraft in the interest of their citizenry.

Over the first two decades of the twenty-first century, state sovereignty in the digital space has been shared with technology companies as they maintain digital sovereignty in their platforms across borders by providing critical digital infrastructure to citizens and businesses. Additionally, the non-state portion of digital sovereignty, where technology companies arbitrate the rules, requires a reimagined and more nuanced revision of the Universal Declaration of Human Rights.

Nation-states retain their sovereign authority to legislate and conduct statecraft in the interest of their citizenry. However, this authority needs to be wielded with more urgency and in a co-creative manner involving the sovereign state, its citizens and technology companies. Sovereign states can work with technology companies to shape a stable future with equity for all by:

• Building equitable, transparent and accountable smart infrastructure; and

• Mitigating and managing technological unemployment and industry disruption

The traditional legislation format (complex bureaucratic processes and lengthy deliberations) is not suitable for the pace with which technologies rapidly reach critical mass and transform industries. The traditional understanding of “foreign” or “state” affairs as one that involves other nation-states is outdated when big technology companies like Microsoft, Facebook and Google serve billions of people.

The traditional legislation format (complex bureaucratic processes and lengthy deliberations) is not suitable for the pace with which technologies rapidly reach critical mass and transform industries.

When social media services can de-platform a democratically elected sitting leader without consulting elected representatives and when the world’s biggest search engine can refuse to pay journalists who are being defended by their sovereign political representatives, the pre-twenty-first century concepts of sovereign borders and authorities are unequivocally challenged. Nation-states will need to establish offices of non-state affairs to directly handle state relations with big technology companies, and politicians will need to more urgently deliberate and reflect on the responsibility, duty and authority of the sovereign in digital territories that have economic, social, political and health ramifications within the nation’s territorial sovereignty.

In this de facto shared digital sovereignty space, nation-states must revisit what statecraft — particularly non-state statecraft — should look like in what is expected to be a decade of the most accelerated growth in human history, and one that will have implications for centuries to come. 

Building equitable, transparent and accountable smart infrastructure

Many of the most successful and prominent cities owe a large degree of their success to the infrastructure that was naturally available to mobilise people, goods and services. Coastal cities flourished quicker, and the trade of goods, ideas and tools accelerated their advancement. Urban spaces with the ability to develop physical infrastructure thrived amid the previous industrial revolutions. The Fourth Industrial Revolution, on the other hand, is dependent on digital infrastructure. The digital revolution builds on existing internet infrastructure and will realise its potential with the convergence of several technologies — artificial intelligence (AI), sensors, internet of things (IoT), bioinformatics, robotics and quantum computing. The competitive advantage lies in harnessing digital infrastructure to create value at scale, more efficiently and at lower costs. However, unlike previous industrial revolutions that were grounded in physical reality and space, the digital revolution is, for the most part, ubiquitous and in the cloud, operating on proprietary corporate algorithms and software. Big Tech companies such as Google, Amazon, Microsoft and Apple and social media giants have created digital infrastructure that has become a public utility and a corporate necessity. As such, they have become sovereigns of a large part of digital territory operating across state borders. The sovereignty over digital territory by private companies will only expand as smart infrastructure becomes prevalent in smart cities, smart ports and smart agriculture.

The competitive advantage lies in harnessing digital infrastructure to create value at scale, more efficiently and at lower costs.

Nation-states have the sovereign authority to create and uphold legislation to ensure that users’ privacy and rights are respected and that digital infrastructure is designed with incentives that benefit society at large and encourage individual growth at all stages of life and opportunities for small business to flourish. For the Fourth Industrial Revolution to create opportunity and equity for all, governments must proactively co-create that future with Big Tech. There are three ways this can be done:

i. Financing the infrastructure of tomorrow: The infrastructure of the future must be built today. Our present-day economies benefit from the infrastructure that was built by previous generations who bore the costs. In her special address to the World Economic Forum (WEF) Davos Agenda Week, European Commission President Ursula von der Leyen said that “public funding alone will not be enough” to counter the climate challenges that the world is facing, and that sustainable corporate governance is needed. This is also true for developing and building next-age infrastructure.

The COVID-19 pandemic has strained economies around the world and governments have had to spend money for relief and support to citizens and small businesses and for vaccines, all large previously unanticipated expenses. In the meantime, many large technology companies have seen tremendous growth in revenue, valuations and demand for their services and products. Public funding alone will not be enough to posture the infrastructure against climate risk, nor will it be enough to build all the smart infrastructure needed for societies to reap the benefits of the advancements of technologies. Smart hospitals, smart grids, smart ports, electric vehicle charging stations, upgraded public transportation are some of the infrastructures that are needed. The private sector, particularly Big Tech, should subsidise the costs to build this infrastructure with government oversight. Just as the government acquires revenue from people’s taxes, Big Tech acquires (a significant portion of) revenue from people’s data. Part of that revenue should contribute to infrastructure-wide advancement. Governments can develop a tax programme with Big Tech to utilise tech tax revenue for the modernisation of public infrastructure.

ii. Provide legal and legislative frameworks to protect against technological violations of human rights: The Universal Declaration of Human Rights needs to be collectively reimagined in the digital age where it is impossible to engage meaningfully and gainfully in society while opting out of algorithms and smart infrastructure. Governments need to step in and work with the firms providing this infrastructure and building these algorithms to ensure that they do not invertedly exclude segments of the population or marginalise small businesses. More importantly, governments need to leverage their sovereignty into the digital space. Discussing free speech, Big Tech regulation and the role of government, Google CEO Sundar Pichai said: “There are boundaries that as a society we need to agree on.… it is important for governments to debate this and give clear guidance. The answers are going to vary. There is no one size fits all. But I think we need clear rules of the road. There are a variety of approaches governments are looking at. Ensuring that policies are transparent, positions are explained, people have a way to appeal those decisions and overall companies issuing transparency reports. Like we have done with privacy and GDPR .” Indeed, the GDPR is an excellent example of sovereign nations collectively articulating expectations, and the bounds of acceptable and non-acceptable behaviour in the digital space in relation to the data and privacy of EU citizens. Similar directive legislation is needed for urban surveillance technologies used by public municipalities, the capture and use of data derived from medical IoT at hospitals, geographic data from transportation ride hailing apps, and digital marketplaces where small businesses sell goods and services, among other areas.

iii. Aggressively work with industry to minimise, mitigate and stop cyberattacks: The digitisation of infrastructure creates a larger threat potential for cyberattacks, meaning more vulnerabilities and more attacks that in turn will further threaten critical infrastructure and the ability to provide services. In his reflection on the first year of the COVID-19 pandemic, Yuval Harari astutely pointed out that humans have never been more powerful against pathogens. Harari highlighted contemporary technological advances in gene sequencing and the rapid means to exchange information as the reason for producing vaccines in record time. Similarly, information technologies allowed for digital surveillance of the virus and the ability to contain it more effectively, and empowered economies to stay active through the lockdowns. At the same time, robotically-enabled smart and precision farming allowed for the generation of food, with a fraction of the people needed during the last pandemic in 1918.

Human life has flourished because of advances in information technology, and it is not possible to revert to a pre-information technologies economy. These technologies have cyber vulnerabilities that have existed and will continue to exist, meaning successful and unsuccessful cyberattacks will persist. As much as security can be factored in, there will constantly be risks that need to be managed and mitigated. As more infrastructure becomes smart, successful cyberattacks have the potential to be fatal (for instance, water infrastructure attacks), cause an economic collapse (for example, an attack on the SWIFT system and big banks), or starve the population (such as an attack on precision smart farming infrastructure). Sovereign states must ensure the safety and security of a nation’s infrastructure, now undeniably tied to cybersecurity. Mechanisms must be put in place to hold technology companies accountable for the defence and protection of such infrastructure. Several countries have attempted to work more closely with industry to share cyber-related information, such as with the Federal Bureau of Investigation-led InfraGard initiative or the European Cybersecurity Organisation’s Public Private Partnership programme, but deeper ties are needed to defend against malicious attacks in this growing threat landscape. Now, it is important to consolidate what constitutes infrastructure and to recognise that technology firms contribute to stability and provide digital critical infrastructure that economies depend on.

Mitigating and managing technological unemployment and industry disruption

Through the process of exponential growth (in what Singularity University Executive Founder and Director Peter Diamandis describes as the “Six Ds of Exponentials”) digital technologies become widely accessible and gain critical mass. This opens the door for new convergences of technologies and disruptive innovation from smaller companies, and new opportunities to pivot by established organisations. History is witness to waves of disruptions — what digital music aggregator platforms did to the music industry, what the digital camera did to analogue photography, what streaming on-demand movie services did to video rental stores, or what on-demand modular and just-in-time learning through free video (or Massively Open Online Courses) platforms are doing to the traditional education system. To a large degree, these disruptions could have been anticipated. Ultimately, it was not so much that technology allowed newcomers to take over established market players, but it was the lack of appreciation for change by those who were in key positions in market-leading companies. It is important not to ignore the lessons from these disruptions, as many more are on the way. In the healthcare sector, Big Tech is looking to revolutionise the medical industry and small businesses are looking to bring digital efficiency to specific segments in healthcare. Similarly, several companies are on course to revolutionise the transportation sector through autonomous vehicles, vertical lift transportation as an alternative to ride-hailing, and hyperloop transport as the alternative to passenger trains.

Ultimately, it was not so much that technology allowed newcomers to take over established market players, but it was the lack of appreciation for change by those who were in key positions in market-leading companies.

These types of first-order disruptions will be accelerated by technologies that automate parts of the value chain previously served by human expertise. For the most part, information technologies and robotics replaced or augmented “routine middle-skilled jobs such as machine operation, construction work or administrative work, they have also led to an increase in complementary, non-routine high-skilled jobs (such as managers and professionals) and in low-skilled jobs (like agriculture, cleaning and personal care services).” However, advances in AI and machine learning suggest that portions of the value chain will be taken over by technology and that there is a job-loss risk for low-skilled and even educated workers. The greater concern is that these people will not have the ability or opportunity to acquire new more marketable skills. Nation-states must proactively facilitate and encourage collaborative education options between universities, Big Tech, industry and online education platforms. Primary and secondary education must be reimagined to transform the upcoming labour force to prepare lifelong learners.

According to the UN, “the global population of 65 and over is growing faster than all other age groups.” With a relatively smaller population active in the labour force, technological unemployment compounds the tax revenue cash flow problem as there will already be fewer people in the labour market to pay income tax because of retirement. Nation-states should reconsider the modern safety net in such a situation and how it needs to meet contemporary demands with fewer participants in the labour market as more receive state benefits, considering healthcare costs and the social infrastructure needed to support larger older populations.

Ultimately, society and governments, together with big technology companies and other industries, need to collectively reimagine what work is — the amount of time that is spent doing it, its connection to an individual’s identity and what fair compensation is.

In his special address at the WEF, Indian Prime Minister Narendra Modi emphasised humanity’s role amid technological advancement. He said, “The Corona crisis has reminded us again about humanity as a value. We have to remember that Industry 4.0 is not about robots but about human beings. We have to ensure that technology becomes a tool for ease of living and not some kind of trap. For this the entire world needs to act together, we all have to act together.”

Ultimately, society and governments, together with big technology companies and other industries, need to collectively reimagine what work is — the amount of time that is spent doing it, its connection to an individual’s identity and what fair compensation is. This requires an honest appraisal of changing times and the courage to think about imaginative solutions. Failure to do so and operate under the previous century’s paradigm will stifle progress for decades to come.

The tension that remains

The Fourth Industrial Revolution has created complexity in the international power model of state sovereignty. The tension that exists is because the pre-digital revolution power asymmetry between Big Tech and the nation-state is decreasing. The companies who own the digital platforms used by billions of people regulate those spaces with their ‘terms of service.’ For instance, Google and Apple command 100 percent of the smartphone market with their Android or iOS operating systems, and can thus decide what apps are allowed and what apps violate their corporate terms of service. Anti-trust investigations are underway in the US to assess the app monopolies and identify equitable regulatory measures. In the UK, the Supreme Court “ruled that drivers are to be recognized as workers with entitlements to the minimum wage and holiday pay.” And the success of the GDPR is an excellent example of liberal democracies uniting through a coherent strategy to protect privacy by imposing standards on data.

The tension that exists is because the pre-digital revolution power asymmetry between Big Tech and the nation-state is decreasing.

These examples tell a story of countries that are coming to terms with digital and technological value propositions and their nuanced needs for regulation. But there are many other complex issues currently (such as freedom of speech, algorithmic prominence and digital marketplace monopolies) and those that lie ahead (such as who gets access and how to life-saving medical algorithms derived from data from wearable devices or who owns digital clones).

This tension between technological human rights, marketplace equity and digital monopolies is more present in public debate now than ever before. While there have been some successes in governments championing the rights of their citizens, it is the tip of the iceberg of the regulatory challenges and needs ahead as social justice movements continue to gain momentum and economies struggle with increasing inequality and economic opportunity post-COVID-19.

As nations assert their sovereignty in the digital space, it is important to appreciate the current environment where the digital territory has been conquered and some corporate services such as Google Search, Google Maps, Facebook and Amazon have become forms of a public utility at various levels for different segments of society, challenging the sovereign. Nation-states have a place to reassert themselves. However, they must understand how the statecraft playbook is changing and how traditional forms of state power projection are not the best or most effective approach in this international digital ecosystem that operates ubiquitously across borders.

Nation-states have a place to reassert themselves. However, they must understand how the statecraft playbook is changing.

Speaking on rapid technological change and government regulation, Singapore Senior Minister Tharman Shanmugaratnam advocates for a hybrid synergy approach. Using the example of digital currency, he said:

should not try to crowd out entirely the private sector players, those private sector digital wallets, tokens or stable coins… don’t crowd them out entirely because they will be a source of great innovation, but they cannot be left on their own. The payment system is a public good, it needs to be regulated, it needs to be interoperable, it needs to be safe, including safe from cryptographic incursions and it needs to have the necessary transparency to avoid the risk of money laundering and illicit finance.

Conclusion

Statecraft is defined as the skill of governing a country and the art of conducting state affairs. However, just like our industries, workplaces, cities and societies, statecraft is also evolving. State affairs include thorny questions about DNA editing, digital human clones, algorithmic bias, robotic liability, machine derived income tax, privacy and informed digital consent, and these dilemmas are evolving at a rapid rate. In the next decade, governments and policymakers have important urgent work to do to regulate and promote technological advances simultaneously.

For nation-states to help their citizens reap the Fourth Industrial Revolution’s benefits and assist the national industrial base through disruption and technological change, they must step up as sovereigns to support and facilitate the co-development and co-creation of the future with its citizens and industry, including Big Tech. This must be done in a way where governments ensure safety and equity for all and uphold human rights inside and out of the digital spaces we inhabit.


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Lydia Kostopoulos

Lydia Kostopoulos

Lydia Kostopoulos is a strategy and innovation advisor. She speaks and writes about disruptive technology convergence innovation tech ethics and national security. In efforts to ...

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