12. September 2018
The concept of digital transformation is in a boom phase. Nevertheless it is vital, especially for liberal democracies, to concern themselves seriously with this concept if they are to remain a model for the world.
Liberal democracies, seen as the pinnacle of history after the end of the Cold War, have lost at least some of their appeal. For one thing, the number of democracies slightly decreased, halting the development of such governance systems since the end of the Cold War. This seems to indicate that governments that are currently not democratic feel less attracted to becoming democracies than before.
In addition, the countries that are already democratic, especially the bigger and older ones such as the European and American democracies, have some turbulent years behind and ahead of them. Financial and economic crises, populist politicians gaining power, often capitalizing on fears of immigration, and attacks on established institutions such as an independent judiciary appear to be more and more common.
The concept of digital transformation – the idea that digital technologies put into question established channels and operating models for private companies but also the state – adds further pressure to this situation, because i) mastering digital transformation is linked to productivity growth, and ii) other modes of governance might be better positioned to benefit from digital transformation in the short run.
It’s the economy, stupid
From spending on education and research to military and social security, a defining feature of liberal democracies is that they enable economic growth to finance the costs of these (public) services. Liberal democracies, defined by possibilities for political participation and a market-friendly environment with rule of law, were seen as the necessary condition for sustained economic growth. And for a long time this was true. Hence, the economic appeal of becoming democratic for national governments choosing or reforming their country’s model of governance.
However, the relationship goes both ways that is without economic growth democracies suddenly have to explain themselves. As Yascha Mounk and Roberto Stefan Foa explain in a recent Foreign Affairs article, the economic power of nations played a vital role in spreading the ideal of liberal democracy around the world. The authors highlight three economic characteristics of democratic nations in the post World War II era, what they call the democratic century: i) relative equality; ii) growing incomes for most citizens; and iii) the fact that non-democratic nations were significantly poorer. But they also highlight that all these three factors are eroding. In a rather grim outlook, the authors conclude that democracies will probably become ever less attractive for countries wondering how to govern themselves. Instead, political leaders in those countries will be looking to authoritarian rule that promises economic growth…a treat formerly associated with democratic states – but without the “hassle” of a democracy.
This is where the digital transformation comes into play. Stunned by economic growth in non-democratic countries, democratic leaders are concerned by low productivity in their own countries. Harnessing the potential of new technologies for increased productivity and hence economic growth could alleviate some of the pressure democratic countries are currently facing. No wonder then that several countries have published or are currently working on national strategies dealing with new technologies such as artificial intelligence with a focus on increasing productivity. Rather than focussing on “keeping what we have”, democracies need to embrace new technologies with a view on increased productivity. The freedoms guaranteed by liberal democracies form a great Petri dish for experiments with the new technologies, allowing for creative new ideas, something other modes of governance struggle with.
Preventing digital authoritarianism
While the technologies of digital transformation offer high potential they also create challenges for liberal democracies. Some of those are already visible today, e.g. in the sphere of competitive law. With a tendency towards monopolies, fuelled by economies of scale and network effects, digital services challenge regulators of liberal democracies that value competition within their markets. While customers enjoy the services that these de-facto monopolies offer and politicians and investors are attracted by the stellar growth in terms of share valuations and economic prowess, the tide might be turning as shown by an increasing number of investigations, regulatory fines and share devaluations, e.g. the tumbling of Facebook in late July 2018.
Moreover, a more fundamental challenge presents itself: digital authoritarianism. New technologies, such as facial and voice recognition enabled by artificial intelligence, allow social control authoritarian states dream of at a fraction of the cost or effort. As Nicholas Wright outlines, technologies like artificial intelligence “could upend the dichotomy” between poor authoritarian and rich democratic systems: “New technologies will enable high levels of social control at a reasonable cost. Governments will be able to selectively censor topics and behaviors to allow information for economically productive activities to flow freely, while curbing political discussions that might be damaging.”
Recent developments in China offer a cautionary tale: the infamous social credit system rightfully shocked many supporters of democracy. Under this scheme, citizens receive a score based on their behaviour that in turn determines various aspects of their lives, e.g. under what conditions they can buy services. The underlying idea is to incentivize “good” behaviour. However, as Sascha Lobo points out, the logic behind massive surveillance and social control through technology is not a Chinese issue but one of digital capitalism. His dystopian thesis: digital capitalism works better in authoritarian states. Fundamental rights such as privacy are easily curtailed if such moves promise more security, not just in authoritarian states but increasingly in democracies as well.
Hence, the digital transformation is a double-edged sword for liberal democracies. On one hand the technologies hold the key to productivity growth and could therefore revive the appeal of the liberal order at home and abroad. On the other hand, we need to find a way to harness this potential while upholding the ideals of our liberal democracies, from fundamental rights to competitive law.
Leadership, not just from politics but also from science, civil society and the private sector, is needed in liberal democracies to start a thorough discussion on this double-edged sword. How can tech companies remain innovative while upholding citizens’ fundamental rights? How to move institutions based on ideas from the Enlightenment into the 21st century and make them fit for the new context? How do we as a liberal society use data, public and private, to advance our interests instead of being constantly monitored by private companies or state organs? These are some of the questions for which political leaders in collaboration with civil society and the private sector need to devise strategies that can ensure shared benefits from digital transformation. The sooner we start this debate and start implementing new ideas, the better.
 Desilver, D (2017). Despite concerns about global democracy, nearly six-in-ten countries are now democratic, (http://www.pewresearch.org/fact-tank/2017/12/06/despite-concerns-about-global-democracy-nearly-six-in-ten-countries-are-now-democratic/)
 Mounk, Y. & Foa, R. (2018). The End of the Democratic Century – Autocracy’s Global Ascendance, Foreign Affairs 97:3
 For the contrarian view, the one that upholds the Democracy Dividend, see Acemoglu, D. (2018). The Democracy Dividend: Faster Growth, (https://www.bloomberg.com/view/articles/2018-06-17/the-democracy-dividend-faster-growth)
 OECD (2018). Productivity statistics, (https://www.oecd.org/sdd/productivity-stats/)
 See for example the Finnish AI strategy: Ministry of Economic Affairs and Employment (2017). Finland’s Age of Artificial Intelligence, (https://julkaisut.valtioneuvosto.fi/bitstream/handle/10024/160391/TEMrap_47_2017_verkkojulkaisu.pdf)
 Euronews (2018). Facebook sends Nasdaq tumbling, registers biggest ever daily percent drop (http://www.euronews.com/2018/07/26/facebook-profit-margins-will-plummet-for-several-years)
 Wright, N. (2018). How Artificial Intelligence will reshape the Global Order, (https://www.foreignaffairs.com/articles/world/2018-07-10/how-artificial-intelligence-will-reshape-global-order)
 Botsman, R. (2017). Big data meets Big Brother as China moves to rate its citizens, (https://www.wired.co.uk/article/chinese-government-social-credit-score-privacy-invasion)
 Lobo, S. (2018). Das autoritäre Erfolgsmodell, (http://www.spiegel.de/netzwelt/netzpolitik/china-wird-bei-der-digitalisierung-den-ton-angeben-kolumne-a-1217577.html)