Blog Video

Welcome to the world of digital autarky

Cover image for Welcome to the world of digital autarky
Photo of Tim Mulligan
by Tim Mulligan

2020 has thus far proved to be a year of unexpected disruption across business and the geo-political landscape as the international order adapts to the global pandemics and rising nationalism.  The post second world war international framework which has brought unprecedented prosperity and stability to the world is now starting to fray. Nationalism among the two leading superpowers of the United States (US) and the Peoples Republic of China (PRC) is leading to direct diplomatic and economic confrontation. 

Last month’s border clash between the PRC and India shows just how serious this geo-political posturing is capable of becoming. The seemingly irrepressible force of globalisation has finally come up against the rock of nationalism, led by a resurgent PRC and a revanchist US. The implications for rest of the world will be profound. India’s decision last week to ban 59 Chinese-owned apps including global Gen-Z hit TikTok, is the first salvo in the new tech and media nationalism war.

Back to the future with a digital twist

The current move towards protectionism is nothing new; the defining ideologies of the pre-second world war era – Fascism and Communism – both preached the mantra of autarky (national economic self-sufficiency). 

Both ideologies thrived in the wake of the great depression. The wall street crash of 1929 which ushered in the great depression was itself a direct result of the dislocation in global capital and trade markets, wrought by the first world war of 1914-1918. Ironically, with hindsight, in 1913 the global economy was at the highest level of openness and interconnectedness in history – even the globalisation of the early 21st century has failed to reach the same level of openness to capital and commerce of the pre first world war era. 32 years and two world wars later the world had become divided between two mutually antagonistic power blocs which restricted the global flow of goods, capital, people and, crucially, ideas.

While autarky has historically consigned itself to the world of physical goods, capital and labour, in an era of digital autarky, the previously open digital sphere is now becoming subject to the same nationalistic constraints afflicting the physical economy. The consequences will be profound for both business and more importantly for the consumer experience.

Digital autarky means the consumer now comes second, but local comes first

While national governments should be good at providing security and revenues for their respective national territories they are naturally out of their comfort zone when managing optimal consumer experiences. Blocking access to an intrusive foreign-controlled app such as Tiktok (Tiktok has been shown to significantly exceed the user data collection of its leading social messaging rivals) may play to the patriotic feeling currently riding high in India, but it inevitably leaves Indian consumers (at least temporally) with inferior alternatives to chose from. 

While successors will rise to fill in the local Tiktok gap, reciprocal bans (which will mean a reduced global audience for new emerging tech successors) and national protectionism (all the Facebook messaging app ecosystem is currently banned in the PRC) means that local tech startups receive an indirect level of state support as they scale, allowing them to grow market share with potentially substandard services.

For global digital D2C businesses, the nascent pivot towards digital protectionism is a double-edged sword. On the one hand access to new markets is either blocked or significantly increased. On the other hand public companies are liberated from the investor mantra of having to scale globally. Uneconomic markets with low disposable incomes, limited digital payment penetration and subscale digital ad markets can be abandoned. This in turn will free up the international dampening effect of international ARPU in favour of focusing on higher-ARPU, developed and liberalised markets.

While the world is tentatively taking a step into digital autarky, the real world implications will be vast and will take years to play out.  The consequences will be felt not just in the leading nation states but among the unaligned majority of the world, which feels the increasing pressure to identify with one or other of the competing power blocs.

Stay informed with the MIDiA Weekly Briefing

Trending

Comment on this post