Britain must write the rules of the digital economy
The UK must answer some massive questions about the way it trades with the rest of the world. This is because we have based our trade policy on two pillars which are now collapsing.
For the last 75 years the Americans have effectively sponsored a structure of free trade through unrestricted access to the seas. They backed this promise up through investment in military might. President Trump thinks the price American citizens pay to protect this system to high. He is therefore tearing it up… but with no alternative.
The American system also gave countries self-assurance for low (or no) tariff trade – the European Union the most successful expression of this confidence. However, people are finding the democratic deficit from such trade alliances hard to swallow. Blocs centralise control through rules and regulations to ensure business is played on a level playing field. This does not leave a lot of room for democracy, and there is a reaction in the form of ‘populist’ political movements. Brexit might be the most obvious form of EU backlash, but it is one of many.
So where does this leave a Britain in the process of leaving the biggest trading bloc in the world and attached to a trade system which is being chucked in the bin?
The Chinese offer new possibilities. Like Trump, they think the security blanket offered by Uncle Sam way too expensive. They plan to become a Super Power by offering connectivity – an example of which is the ‘New Silk Road’, the $900 billion project the Chinese are developing across the Eurasian land mass. It promises to be a trade route which will connect London to Beijing via Russia and Egypt. This massive infrastructure project covers over 60 countries, representing more than 60% of the world population and a third of all global GDP.
China is going back to the imperial system of ‘owning trade routes’ – an obvious choice for a centralised authoritarian empire. It would be a mistake for the UK, which gave the world parliamentary democracy and rule of law to ally itself to a despicable, undemocratic regime. What’s more, the Chinese model is based on the carbon economy, and the UK has to look toward the digital world if it is to transform.
The US Dollar is pegged to oil, the commodity which powered the 20th century carbon economy. The digital economy is powered by data, and the Bank of England needs to make Sterling the first major trade-able data currency. The emergence of Bitcoin points to the way this could be done. London is the global centre of a financial technology (aka FinTech) revolution, which should give us the confidence that we are ideally placed to do it.
The UK should offer support structures and services for digital businesses so they trade through us. Our law courts are truly disassociated from political influence, so enterprises will have contracts and patents protected through our rule of law. We have institutions such as sophisticated insurance and stock markets which can provide businesses protection and access to finance. The government should give breaks and support institutions which need to evolve an offering for the digital world.
Lastly, the government should directly get involved in creating a digital infrastructure throughout the country. In the same way the Victorians built the railways across Britain, we should create the infrastructure which gives the UK arteries for digital trade. Regional infrastructure projects such as the Northern Power House and Cambridge to Oxford corridor should not just be about roads, rail and housing, but digital development.
The Chinese are obsessed with physical building projects powered by a carbon economy. The UK will never be able to compete with this, but we can steal a march on the rest of the world by understanding how markets might soon transform – and writing the rules for the digital economy.
