Regulating the unknown

From the course “Regulation and the digital economy” I am teaching in Sciences Po

with Marion BRIATTA, PhD candidate in law and Teaching assistant in Sciences Po

Fueling total renewed business models, new technologies emerged as a disruptive element within the existing regulatory framework governing economic activities. As a decentralized network ignoring borders, enabling ultra-fast innovation and promoting self-organization, Internet has indeed revolutionized the way in which economic operators behave, making essential a renewed definition of the regulatory framework.

The course ‘Regulation & Digital Economy’ I have been teaching with the help of Marion BRIATTA aimed at giving an overview of these new challenges and opportunities faced by public authorities. It has been offered to the students of the Master Public Affairs of Sciences Po, recently created by Yann ALGAN and Nicolas COLIN.

During this course, students have been asked to write an article presenting a particular issue related to the digital economy in order to illustrate the difficulty for the classical regulatory approach to adapt itself to these new players and/or the new opportunities brought by the digital era to regulators. In this article, we will refer to the different issues brilliantly analyzed by the students to present the different challenges public authorities are dealing with in the digital economy while trying to regulate it.

Disrupting regulators

First, the classical regulatory framework is disrupted by the unprecedented speed of the innovative process led by new technologies. As a result, each attempt made by public authorities to adapt the existing framework is quickly outdated or circumvented by the versatile nature of the digital economy. In his article dedicated to online advertising, Pierre CAZENEUVE underlines for instance the inadequacies of the current regulatory framework to address the emerging digital fraud phenomenon on this market. Similarly, Kevin LOCOH-DONOU and Maximilian NOMINACHER have concluded in their article assessing the expediency of a tax on robots, that the efficiency of any new regulatory measure is often compromised by the unpredictable effect of new technologies on society. Yama DARRIET, on the other hand, has pointed out in his article dedicated to the European general data protection Regulation (GDPR) the difficulty for public authorities to protect key principles without detering innovation and weakening our continent on the Tech scene. Even if the regulatory framework could follow the innovative process, the borderless nature of the internet network is putting another constraint on States while implementing such regulations. For Tim OTTO and Lei LANG, the recent German regulation on social networks raises many concerns, but also addresses partially this problematic by the installation of a national legal point of contact for disputes arising around social networks.

Dealing with network effects

Secondly, the development of the digital economy resulted in deep market shifts driven by few powerful players able to dictate their rule to the market. At the end of the day, the decentralised nature of the internet thus turns out to not be suffiscient in itself to implement a true self-organization, leading to market failures and regulatory needs. David TORBEN and Jean-Baptiste MANENTI have for instance stressed in their article dealing with messaging standards the strategic behaviour conducted by online platforms to avoid interoperability with other platforms. In this regard, pubic authorities should avoid new players to build their market share on network effect and first-mover advantage, for instance by mandating interoperability obligations to the market. As Aline RODRIGUES FERREIRA demonstrates in her article dedicated to the regulation of transportation companies in Brazil, the network effect can sometimes result to a distortion of competition that may justify specific regulations to maintain a competitive landscape.

A new mindset for regulators

To conclude and as Robin EPPLING and Manon BERRICHE have argued in their article dedicated to the platform Heetch, the challenges that have emerged alongside with the digital economy may be addressed through a new approach of the regulation itself, under the expression “regu-preneur”. Similarly, Nicolas CONTI and Alexandre SELIER argue in their article about Le.taxi platform in France that the State could intervene as a meta-platform within the digital economy. Currently designed to impose general policies and uniform rules, public interventions could rather be driven by a collaborative approach looking at the digital as an opportunity and not a threat. But as Laure-Emilie ANGEVIN has shown in her article dealing with blockchains and the energy sector in France, such a direction would require a profound mutation of the legal framework and anyway actions to ensure a competitive environment.

Last, I would like to warmly thank, in the name of all the student of the course, the external people that have kindly accepted to participate to this course, marking it concrete by sharing their experience:

• Stéphane LHERMITTE, Arcep, Director for Economics, markets and digital affairs
• Dahlia KOWNATOR, Qualcomm France, Senior government affairs
• Philippe DEWOST, Caisse des Dépôts et Consignations, notably founder of LaBChain
• Anne YVRANDE-BILLON, Arafer (French regulation authority for railways and roads sectors), Vice-chair