The Value of Data Comes From How It’s Used

The Value of Data -Zem tour

The Value of Data Comes From How It’s Used


OVERVIEW

Data innovation  the use of data to create value has become increasingly important to economic growth, competitiveness, scientific discovery, and social progress as new technologies and methods have made it easier to collect, store, analyze, share, and use information. 

However, as policymakers around the world grapple with the challenge of leveraging digital technologies to drive development, many are being seduced by the misguided and costly fallacy that it is the location of data that matters i.e.,  that countries can best serve their economic interests byforcing firms to store data locally, a concept known as “data localization” instead of focusing on the fundamentals of information and communications technology (ICT) adoption, education, digitalinfrastructure, and data governance policies, which are necessary to maximize the economic and societal benefits of data and digital technologies.


For consumers and firms alike, digital technologies have fundamentally changed how they conduct domestic commerce and international trade. Consumers rely on data and data-driven services to search online, buy and sell goods and services on e-commerce platforms, send emails, and anynumber of other tasks, many of which can be done on increasingly powerful and affordable computers, tablets, and smartphones. Meanwhile, firms are using data and digital technologies in virtually all industries not just the “tech” sector—to streamline business practices and increaseefficiency.

 Firms rely on data to advertise and engage with customers, discern market demand and adapt products and services accordingly, operate production systems, manage global work forces, monitor supply chains, and support products in the field in real time. But to maximize the value of data, it needs to be able to flow across borders. As ITIF argues in “Cross-Border Data Flows Enable Growth in All Industries,” there is probably not a single company today with operations, suppliers, or customers in more than one nation that does not rely on moving dataacross international borders. 

Moreover, no international trade involving consumers can take placewithout collecting and sending certain personal data across borders such as names, addresses, and billing information.


For all countries developed and developing the economy can be most productive and innovative when individuals and firms can engage in digital activity and commerce without unnecessary restrictions on how they can use and transfer data. Unfortunately, many policymakers want toimpose geographical restrictions on where firms can store data in the hope of supporting digital development. Some restrict the location of data for other reasons, such as to address privacy and cyber security concerns, or to ensure that government authorities have access to data for law enforcement or national security purposes (a false premise, which ITIF addresses in other reports). 

Regardless of the rationale, data localization not only makes it harder and costlier, if not illegal, for firms to transfer data across borders, but also can raise the cost of cloud computing services. 

Just as economic nationalism can lead to lower productivity for firms and higher costs forconsumers, particularly when it is focused on capital goods, “data nationalism” policies will reduce economic growth by limiting a country’s ability to benefit from data-driven innovation and increasing the cost of ICT goods and services, which will lead to lower innovation and slower productivity growth.

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