Opportunities and Challenges for Digital Economy in Post- COVID-19 Era

Achim Wambach: President of the ZEW - Leibniz Centre for European Economic Research; Professor of University of Mannheim; Former Chairman of the Monopolies Commission, Germany

Feng Xiaohu: Professor and doctoral supervisor of University of International Business and Economics (UIBE); Doctoral Supervisor of Humboldt University of Berlin; President of Research Academy Chengdu, UIBE; Director of Sino-German Economic and Trade Research Center, Academy of China Open Economy Studies

Xiao Lianbing: Secretary-General of the Center for International Exchange, Cooperation and Communication, Guangming Daily

At the beginning of the crisis, we saw such a regression to unilateralism

Xiao: Dear Professor Wambach and Professor Feng, as we all know, the number of confirmed cases of COVID-19 worldwide has exceeded 100 million. One year has passed, and the pandemic has not yet ended. What’s your opinion on the situation and impact of the COVID-19 pandemic?

Wambach: As the COVID-19 pandemic has severely affected the global economy, We are experiencing the deepest economic recession since World War II. Governments around the world have quickly adopted a series of large-scale economic stabilization and stimulus measures to help us regain economic recovery, and our further measures to deal with this pandemic will determine whether the recovery is stable. Unfortunately, especially at the beginning of the crisis, we have seen certain countries regress to unilateral strategies, establish trade barriers and emphasize domestic supply. Europe has now regained a firm footing and is coordinating response to the virus, vaccinating the population and purchasing medical equipment jointly. I think politicians are learning the lessons of supply chain disruptions caused by pandemic, and what we need now is open trade borders and broader diversification, not delinking from other markets.

Feng: I was in Germany when the pandemic started. At that time, many people in Germany queried about the necessity of cutting off Wuhan from the rest of the world. Of course, they also donated a large quantity of medical supplies to China. During the entire period of the pandemic, Germany's attitude towards China was relatively friendly on the whole, and Germany did a better job in responding to the first wave of the pandemic. However, I’m appalled by the ideologization of the pandemic in American political system. While some Americans view wearing masks as a political symbol, I understood that the pandemic in the United States could no longer be controlled. Though EU countries are generally more rational, they cannot surpass themselves either. The impact of the pandemic on the economy is obvious. Bill Gates said that the economy cannot be restarted unless the pandemic is under control. However, the Trump administration denied this simple truth, and Gates has been criticized as a public enemy, which made me confused and speechless. The development of the pandemic now proves that Gates is right.

Xiao: What is your comment on the measures taken by China, Europe and the United States to prevent and control the pandemic?

Wambach: China has achieved great success in preventing the spread of the virus. One reason for Europe’s relatively difficult response is its lack of experience in dealing with large-scale pandemics. I think Europe will be better prepared next time. Furthermore, different attitudes towards individual rights also account for part of the reason. For example, data protection is highly valued in Europe, so tracking applications are not fully functional. Taking school education as another example, if there is no guarantee that student photos will not be leaked to the Internet, video teaching will not be conducted, therefore the government can only try to avoid closing schools. The German standard is that any intervention in personal life needs to meet the necessity and appropriateness. If there is doubt, it is usually not the politicians but the judges who make the final decision, and many measures of the local government will be rejected by the court.

Feng: Professor Wambach’s opinion hits the point. I think there are three main reasons why European countries have not responded well to the second wave of the pandemic. Firstly, after Europe has entered modernization, it has put more emphasis on individual rights and interests, while Asian cultures, with Chinese culture as backbone, have generally given priority to collectivism. During the pandemic, the Chinese government called on people not to go out and use big data to fight against the pandemic, and the public were very cooperative. Although most people in Europe also cooperate, a considerable number of people put personal freedom in the first place, and because their voices are too loud, they were more frequently reported in the news, thus obscuring the focus on fighting against the pandemic. Immanuel Kant’s definition of free boundary is “not to interfere with the interests of others”. However, going out without a mask when the pandemic is severe obviously deviates from this definition. Until New Year's Day of 2021, although the German government had to issue a lockdown order, it was completely incomparable with the lockdown of Wuhan. In the first wave of the pandemic, Germany also launched a personal tracking app after fierce controversy, but its use was not compulsory, and eventually it was abandoned due to low usage. Therefore, in high-tech Germany, tracking people into restaurants or cinemas relies on paper registers, which are almost useless because many people fill in false information. Secondly, frankly speaking, the systems of government and political parties in Europe and America have caused great difficulties in fighting against the pandemic. When the pandemic hit New York, President Trump (Republican) wanted to send troops into New York, but the Mayor of New York (Democrat) said this was a declaration of war on New York! Different political parties have different views on the fight against the pandemic in the US. All Republican governors supported what President Donald Trump said, while all democratic governors opposed it, creating a strong sense to us that partisan interests were overriding the fight against the pandemic. During the pandemic, many officials in China were held accountable or even removed from their positions, while few in Europe and the US were punished only because they were "popularly elected" and can only step down when their terms of office expire according to the law. Thirdly, Professor Wambach mentioned that “if there are doubts, it is usually not the politician but the judge who makes the final decision”. This is also one of the big puzzles that this pandemic has brought me. Usually Europe and America believe that their own system of separation of three powers is conducive to "closing power into a cage." However, during the severe pandemic, European and American administrative officials' anti-pandemic decisions are not only hindered by partisan disputes, but also often rejected by the judiciary. In the end, it’s as if the judge made the administrative and medical decisions, and of course the correctness of that will be called into question.

Xiao: While seeing the crisis brought about by the pandemic to human society, will you also discover the development opportunities arising from the response to the pandemic?

Wambach: Digitization enables us to better respond to crises. Imagine if this crisis had occurred 20 years ago, video conferencing, working from home, online shopping, etc. wouldn’t have been possible. A study conducted by our research institute showed that in the financial crisis of 2009, companies with a higher degree of digitalization were better able to cope with the crisis. I think the same is true for handling the current crisis. This crisis will also help overcome obstacles that were previously insurmountable. Telemedicine in Germany is a good example. Before the crisis, video consultation was banned in Germany, but now it is fairly common. In addition, a special advancement is that the crisis has even pushed small shops to go digital. After the lockdown of the city, no customers came to the store, and the store either offered goods online or closed.

Feng: When there is a crisis, there is an opportunity, and a huge crisis is usually accompanied by a great opportunity. The opportunity brought by this pandemic is the rapid advancement of the digital (online) economy. Among the top 10 in the “Global top 100 companies 2020” released by PwC, from second to eighth are Microsoft, Apple, Amazon, Google, Alibaba, Facebook, and Tencent, with seven companies related to the digital economy. The most impressive experience concerning digitization for me personally is online teaching. After I returned to China in February 2020, I used "Tencent Meeting" to teach remotely during home quarantine, and I became a loyal user since then. The power of China's digital life is clearly visible in this pandemic. Now almost all Chinese universities can switch from offline teaching to online teaching within a day based on the anti-pandemic situation, and the teaching experience with most courses are relatively good and satisfying. Most of my courses for the two semesters from March to December 2020 are taught online, And now many academic conferences are held online, including the launch of the Chinese version of Professor Wambach’s new book, "Uneasy Change: Market Competition and Public Welfare in the Digital Age", and received very satisfactory results. According to my experience, in terms of digital applications, Europe does lag behind China in many aspects. Now many European countries are following the United States in rejecting 5G technology and even banning 5G companies from China. As a scholar familiar with Europe, I think it is completely incomprehensible. Fortunately, Germany has kept a clear mind in this regard and has always advocated not rejecting any company to participate in the 5G construction competition on the basis of ensuring national security.

Digitalization brings huge benefits but also risks

Xiao: The Chinese version of the book "Uneasy Change: Market Competition and Public Welfare in the Digital Age" written by Professor Wambach was published in China at the end of 2020. Why is the digital economy called an uneasy change?

Wambach: Digitalization has brought huge benefits but also risks. In a very short period of time, internet giants have emerged all over the world, dominating the entire economic sector, more and more jobs are being automated, and there is a widening gap between digital beneficiaries and non-beneficiaries in society. Therefore, policymakers must actively participate in shaping the changing social structure so that everyone can keep up with the pace of digitalization. Therefore, my book is titled "Uneasy Change:Market Competition and Public Welfare in the Digital Age". Take the theme of work for example: digitalization is realizing job automation. Some studies believe that digitization will eliminate almost half of the existing work types. My research institute has specially researched and analyzed which jobs may be replaced by automation, and found that only about 10% of jobs would be automated for most tasks, and those jobs would probably disappear in the future. Some tasks in other jobs may be automated, but most won't, so those jobs will remain, but their focus will change. Therefore, digitization will only change our work, not eliminates our work. Employers must ensure that workers can accept and participate in this change. Consequently, continuing education will become more and more significant.

Feng: This view of Professor Wambach is very important. Just because economic digitization is vital for China, its healthy development has always been a concern of the Chinese government. The new book by Professor Wambach has also received special attention in China. Karl Marx said that the essence of capital is profit. The essence of monopoly is monopoly profit, and monopoly profit must lead to stifling innovation. There are no exceptions in ancient and modern China and abroad. However, the foundation of the digital economy happens to be innovation, and the secret of China's rapid digital economy is bold innovation. From this perspective, it is undoubtedly a correct decision for Chinese regulatory authorities to stop internet giants from entering the community to sell vegetables. Adam Smith's "The Wealth of Nations" believes that monopoly is "price monopoly", that is, a company will definitely pursue the highest price after obtaining a monopoly position. This view has long been considered correct. After entering the 21st century, huge changes have taken place in economic patterns, and price monopoly has evolved into platform monopoly, with the goal of monopolizing users' personal data. The strategy of platform monopoly starts with “free" offers, but the internet does not have free products. If the product is free, then you are the product. The upgrade of platform monopoly is to monopolize all platforms. The latest form of monopoly is the attention monopoly, an upgraded version of the "eyeball economy". It can obtain users' personal data by winning their attention, and then continuously dig deep to create super value wealth. A typical example is likes in WeChat Moments. “Likes” represent social recognition, which will release dopamine from the brain and give users a sense of pleasure. It's almost "social death" not to click "like" in WeChat Moments. But what mobile phone users don’t know is that likes and reading tendencies will expose your “attention preferences”, allowing internet companies to track and evaluate your preferences, so as to target tailor-made articles and pictures. This is the “platform knows you better ". The end result may be that if you just want to travel to the Maldives, and you have not searched on your phone at all, but Maldives travel advertisements keep popping up. Some people call it the Internet of Behavior (IoB), a carnival of facial recognition, location tracking, and big data. This is the "eyeball economy 2.0". It is said that by 2025, more than half of the world's population will participate in at least one IoB program and become the prey of advanced artificial intelligence and algorithms. It can be said that if there are no restrictions, the profit goals of all companies will automatically lead to monopoly. At that time, the only things that can restrict these data giants are the law and the government. In fact, governments have already seen this. Since 2017, Google has faced 27 investigations in Europe and America, 22 in Amazon and Apple, and 13 in Facebook. The European Union has imposed antitrust penalties on Google for three consecutive years, with a cumulative amount of $9.6 billion. In November 2020, the Chinese government launched the "Guidelines for Anti-monopoly in the Field of Platform Economy (Draft for Solicitation of Comments)", which fully demonstrated the determination and courage of the Chinese government. In terms of anti-monopoly, Germany has taken the lead. Germany’s economic miracle after World War II was praised by the world, which was led by Ludwig Erhard, Minister of Economy back then and later the second chancellor of the Federal Republic of Germany. And one of the most important economic institutional legacies that Erhard left to the German economy is the Federal Cartel Office (Anti-monopoly Agency). Together with Deutsche Bank, another of Erhard’s important legacies, Deutsche Bank, this regulatory agency still guards the healthy development of the German economy. In China's new round of more ambitious reform and opening up, China and Germany are undoubtedly the two major countries in the world that should strengthen exchanges and cooperation in the field of anti-monopoly.

Xiao: Indeed, after World War II, the social market economy theory played an important guiding role in the economic and social development of Germany. In the digital economy, what are the constants and changes of social market economy theory? What measures has Germany taken in anti-monopoly in the digital economy?

Wambach: The fundamental basis of a social market economy is free competition between companies. Companies are responsible for their actions. They enjoy profits exclusively, but they also have to bear the losses. But in the initial digitalization, we saw that monopoly companies could take no responsibilities for the losses occur on their platforms, because they are "just" an "intermediary." We therefore need to formulate new rules to better identify the problems of competition in the digital economy and to better coordinate responsibilities and obligations. Politicians should act for this purpose and that’s why Germany reformed its anti-competitive laws. The European Commission recently proposed the promulgation of the "Digital Market Law" and the "Digital Services Law." Large platforms, so-called "intermediaries", will be subject to specific rules. In this regard, I can sum it up in three points. One is to formulate rules for the dominant platform. Large platforms dominate the market and play an important role in competition. Rules need to be set to guide their behavior. One of the rules is to prohibit self-interested preferences, which is of great benefit to maintaining competition. The other is to force the adoption of alternative dispute resolution procedures for illegal activities on the platform, which helps to better allocate responsibilities. The second is to standardize data acquisition. Data is the foundation of the prosperity of the digital economy. The prosperous development of big data applications and artificial intelligence is based on access to data, and new markets can be created by acquiring data. The method of obtaining data is either to allow third-party providers to access digital user accounts, or to access public data in accordance with rules. If the government allows them to access mobile data, companies can enter and provide new services, such as better control over the rental of self-driving cars and bicycles. The third is to create a competitive environment. Rules and regulations must ensure that other companies have access to the market as well. For example, companies need to cooperate in order to share data or build private platforms. However, it is not clear from the law whether such co-operation is feasible or illegal. Therefore, we need to answer new legal questions raised by new types of cooperation between companies in the digital field.

Feng: In China, internet platforms infringe on the privacy of customer data abound. Capital invasion of privacy is unavoidable, because profit-seeking is its nature. The excuse of these internet platforms in the past was "Chinese people are willing to trade privacy for convenience." The unethical behavior of these internet platforms was rampant for a while since the laws and regulations did not clarify the boundaries of the platforms’ collection and use of customer data in a timely manner. At present, the Chinese government has implemented drastic rectifications on platforms that infringe on users’ data privacy. In the era of digital economy, not only China, but also European and American countries are all anti-monopoly, because this is an important measure of national governance now.

The issue of competition in the digital economy is not just one country’s issue

Xiao: The digital economy is booming all over the world. How do you look at the internationalization of the digital economy and its subsequent impact?

Wambach: The competition issue of the digital economy does not only affect a certain country, but affects all economies in the world. All parts of the world are actively taking measures to address these problems. Nevertheless, there are still many problems have not been resolved. For example, when internet giants acquire start-up companies, when is it harmful and when is it harmless? The so-called "killer acquisition" refers to the fact that a dominant company acquires a small company to close it down and eliminate competitors. How often does this happen? What kind of problems will arise? Perhaps the "killer acquisitions" will prompt entrepreneurs to prioritize doing business well. When the business is booming, they may not sell to large companies but compete. For example, for data access, which data involves trade secrets and should be kept secret by the company? What data should be made available to everyone? I think China and Germany can learn a lot from each other, such as how the market works, which regulatory measures are purpose-oriented, and so on.

Feng: The greater danger of monopoly on the digital economy comes from internationalization. The criticism caused by Amazon in Germany is a very direct example. Economic digitization has made cross-border acquisitions and operations of large companies more convenient. While promoting economic development, it has increased the impulse and speed of international speculative capital to evade regulation and chase excessive profits. Faced with such potential threats, a single country, especially a country with a relatively open economic and financial system, may not be able to withstand the impact of large multinational companies. Therefore, international anti-monopoly cooperation is particularly important. I think that the governments of the world's major powers will recognize that international anti-monopoly cooperation in the digital economy is necessary. At the end of 2020, the main content of the "China-EU Investment Agreement" negotiated between China and the EU is related to international cooperation on global anti-monopoly.

Xiao: What is the prospect of China-EU digital economy cooperation?

Wambach: Both China and the European Union have benefited a lot from economic cooperation, but there have been some twists and turns in recent years, partly because of the differences in economic models between the two sides. The European single market is based on competition between companies, with China's state-owned enterprises playing an even heavier role. For further cooperation, the signing of investment and trade agreements between the two parties should be favorably received, as these agreements will help to clarify the conditions for state intervention and the areas in which companies can compete.

Feng: Professor Wambach has talked about the basic rule of the German social market economy: the government is only the watchman of the national economy. It intervenes only when the market is on fire. When the fire is extinguished, it automatically exits and cannot operate in the market as a market entity. But there may be more than one correct view in economic research. Judging from the corporate activities I have participated in in recent years, Chinese state-owned enterprises usually do not put profit first, and their more important task is to ensure market stability and labor stability. An example I know: an international insurance company established a company to operate agricultural insurance in a southern province of China. Later, a large-scale natural disaster occurred. The company really couldn’t afford it and filed for bankruptcy with the local government. The government did not allow it: you have to pay, or you will have no chance to do any business in this province henceforth. In the end, the company had to transfer funds from the headquarters to compensate and suffered huge losses that year. Some people would say it’s an operation against the laws of the market economy, but if we ask those farmers, they will definitely support the government 100%. The German government is actually doing the same thing. Lufthansa was hit hard by the pandemic. The German government did not let it go bankrupt, but invested heavily in rescue. The Chinese fully understand this. What the Chinese cannot understand is that the German opposition party has been criticizing the German government for paying huge sums of money in exchange for the corresponding holdings to "nationalize" Lufthansa. At this special moment of the global pandemic, it may be more necessary to put ideology aside and let everyone have work and food. Needless to say, the Chinese government did a better job in this regard during the entire pandemic than any other country in the world, and the vast majority of Chinese people are also genuinely satisfied. Just after New Year's Day of 2021, a BBC reporter visited a small shop in Beijing and asked: "How is China recovering now?" The shopkeeper replied, "It must be better than your country." This is the voice of ordinary Chinese people.

(Translation: XIA Luran, Central Univeristy of Finance and Economics

Proofreading: WANG Xiaomeng, Academic Assistant of Research Academy Chengdu, UIBE)