A few months ago in India, as the sun began to set, a high school student sat beneath a large gazebo close to the boundary of a cricket ground with her family. They were there in support of her younger brother, who had recently been made wicket keeper of his school’s 2nds cricket team. She, however, was not focused on the game – she had seen her brother play many times before, after all – but was revising for an international A-level maths exam, and was being aided in doing so by the MyiMaths service, a UK based online learning and teaching resource.
She, along with many other people and businesses, enjoys access to more services, goods and information because data flows more freely across borders than ever before.
We often think of trade as the transfer of goods between places, or services rendered, but much of the world’s trade is made up of less tangible – but no less real – transfers of data, in what are known as cross border data flows. This simply refers to the transfer of information between servers across country borders. These flows enable you to have access to the information and services you need, no matter where you are.
Such flows are important because they can, for example, provide pharmaceutical researchers access to patient data, which they use when developing lifesaving drugs; and they allow an epidemiologist anywhere in the world to analyse data from outbreaks of Ebola to better understand its causes, and to contribute towards preventing future epidemics. Additionally – not as serious, but still important – they provide the means for people to entertain and inform themselves through sharing amusing memes, watching TV shows on streaming services, and looking things up on Google and Wikipedia.
Cross border flows of data are playing an increasingly important economic role, which is striking given that these flows were negligible two decades ago (compare this with the world’s trade networks which took centuries to develop). Between 2005 and 2014, for instance, cross border flows of data grew 45 times. A report by McKinsey Global Institute observed that data flows, along with flows of goods, migration and capital account for 10% of global GDP, with data flows contributing 3.3%. As the growth in trade of goods and finance flatten, the next wave of growth from globalisation will come from data and information flows.
The UK accounted for 11.5% of global cross border data flows in 2015, this is greater than its share of global GDP (3.9%) and its share of the global population (0.9%). The vast majority (75%) of these flows are with EU countries: they were generally for information, communication, search, transactions, audio and video, and data transfers within and between companies. Frontier Economics forecasts that such cross border flows are forecast to grow a further six times between 2015 and 2021.
Restrictions in the flow of data across national borders can reduce growth. The European Centre for International Political Economy found that the impact on the GDP of countries which enacted data privacy laws that discriminate against foreign suppliers of data, goods and services was substantial: China, -1.1%; EU, – 0.4%; and Korea, -0.4%.
The impact on the amount of money domestic businesses invested in their own economy (gross private domestic investment, for wonks) was also significant: Brazil, -4.2%; China, -1.8%; EU, -3.9%.
Brexit could have profound implications for cross border flows of data, with potentially adverse economic consequences. Andrew Murray, Professor of Law at the London School of Economics, argues that retaining EU data protection laws (GDPR) after leaving the EU may not be sufficient to provide for unimpeded data transfers from the UK to the EU. This is because these laws are underpinned by a right to data protection, as set out in the EU charter of fundamental rights, for which an equivalent right would have to be adopted in the UK to provide for unrestricted UK to EU data flows. Given that 75% of the UK’s cross border data flows are with EU countries, ensuring that these flows are not disrupted after Brexit should be one government’s priorities.
In a few months’ time, our high school student in India will, perhaps, have enrolled at a UK university and she will communicate regularly with her family living on the other side of the world. She will access datasets from EU countries for her research projects, she might use the Amazon marketplace to buy goods from non-UK based sellers, and she will probably spend time binge watching a series on Netflix that everyone on her course is talking about. She will be able to do all these things because of the ease at which data between the UK and other countries can be transferred. It is something we should celebrate, protect and promote.
CapX depends on the generosity of its readers. If you value what we do, please consider making a donation.