In this blog post, Thorsten Jelinek draws inspiration from his latest book, The Digital Sovereignty Trap: Avoiding the Return of Silos and a Divided World.
The imperative to regulate artificial intelligence (AI) is evident, but it's not without its challenges and debates. However, the AI governance debate represents just one aspect of a broader, intricate regulatory landscape prompting major governments to emphasise and protect their nation's digital sovereignty.*
Digital sovereignty, while still a new political concept, finds its foundation in the U.N. Charter's principles of self-determination and independence. It empowers nations to govern their digital landscapes in line with their unique values and objectives. The demand for control goes beyond mere legislation; making independent policy and technology choices also requires technological expertise and standards, complemented by a vibrant domestic technology industry and robust innovation capabilities. The heightened demand for digital sovereignty is, in part, also a reaction to the previous era of globalisation that was marred by financial-market excesses and fossil-fuel dependencies. Today's push seeks to sidestep another "Golden straitjacket" era, where previously sovereignty and domestic policies were constrained by global market forces. This time the challenge stems from the intricacies of ubiquitous digital transformation, including intense global competition, market concentration, as well as increasing privacy and security risks.
Yet, instead of assessing the benefits and drawbacks of digital transformation, the pursuit of sovereignty is veering into protectionism and coercion. The competition between the United States, Europe, and China underscores this shift, emphasising narratives of "systemic rivalry", “autonomy”, “like-mindedness”, “de-risking”, or “self-reliance”. Consequently, the global information and communication technology (ICT) innovation ecosystem, which emerged from the Internet revolution and rise of liberal values of the 1980s and 1990s, now confronts challenges that threaten global growth and development. Growing ideological and technological divides further weaken multilateralism, curbing global innovation and hindering economic development in the Global South. At this critical juncture, delving into the history of the ICT industry can shed light on the current stalemate in global governance.
Telecoms: A Brief History of a Regulated Sector
To recall, Josep Borrell, the High Representative of the European Union for Foreign Affairs and Security Policy, apologised for his misplaced “garden-jungle” metaphor: “The wall will never be high enough in order to protect the garden”. Yet, while today’s walls have gotten taller and more forbidding, similar barriers existed for much of the 20th century—not only in geopolitical and military terms, but also in economic and technological terms. It bears looking at the telecommunications sector – the forebear and abiding enabler of today's digital transformation – for explanations regarding today's deadlock in global collaboration and coordination in AI.
For much of the 20th century, state monopolies controlled postal, telegraph, and telephone (PTT) services. Governments believed that only monopolies could recoup the costs of building and maintaining national telecommunication networks. For these governments, working with a single PTT agency also simplified policy execution. In the early 20th century US, competition was even deemed “inefficient”. The dominant Western companies—AT&T, British Telecom, Deutsche Telekom, France Telecom, and Nippon Telegraph and Telephone—became known as the “Big Five”. This monopolistic system persisted for over a century, largely due to favouritism and rent-seeking arrangements between operators and governments. The domestic markets were well-guarded, leaving global competition to the “Big Five”. They led in R&D, controlled supply chains, and exported their proprietary technologies to nations that embraced this monopolistic model. Prices domestically were set by administrative decisions rather than market dynamics. The profits from long-distance calls, which were unregulated, subsidised the rates for local calls, ensuring they remained affordable. The combination of economies of scale and protective measures like licenses and regional consolidations raised barriers to market entry.
For a span of 120 years (1865-1980s), this system was not merely regulated nationally but was also legitimised and strengthened on the international stage, primarily through the International Telecommunication Union (ITU). Until the 1980s, the ITU backed the monopoly structure, focusing primarily on technical aspects, frequency allocation, and the oversight of international connectivity services. This framework fostered one of the most economically and technologically influential cartels in history. It effectively barred operators, especially in smaller and underdeveloped economies, from gaining the expertise necessary to develop their indigenous tech industries. These economies faced hurdles: local revenues were limited, there was a scarcity of unregulated high-margin long-distance calls to finance domestic developments, and the ITU did not facilitate bargaining or technology transfer. Moreover, the minimal budgets allocated by the “Big Five” nations were inadequate to meet these needs.
Deregulation and Power Shift in Global Telecoms
From the 1970s onward a shift towards market liberalisation took hold, accelerated by the Internet's promise of efficiency and liberal values championed by figures like Ronald Reagan and Margaret Thatcher. US deregulation began in the 1960s, culminating in action against AT&T – the country’s own creation – in 1974. By the mid-1980s, the U.K. and Japan dismantled their state monopolies. France and Germany followed a decade later, and by 1998, the Full Competition Directive eradicated EU telecommunications monopolies. The ITU too, moved away from supporting national monopolies. This era of deregulation introduced domestic competition, innovative business models, and new market entrants. Private investment surged, leading to growth, global innovation in telecommunications, and the emergence of a vibrant ICT industry. Collaborations with equipment providers resulted in standardised technologies and a cohesive global innovation ecosystem.
The shift from monopoly to market required the active dismantling of national monopolies and the reversal of state-private sector relations. This transformation was not merely a spontaneous market-driven process, but realised through strategic negotiations and both political and economic pressures. The US government started utilising its competitive advantage, now mobilising its private sector and transnational corporations to drive international growth and determine telecommunication and Internet standards.
The transition was further propelled and legitimised by the rise of US-led multilateral frameworks (e.g., GATT/WTO, G20) and multistakeholder initiatives (e.g., IETF, IEEE, ICANN, GSM, 3GPP). ICANN, overseeing the Internet, initially acted as a soft extension of US hegemony, reshaping the power dynamic between the state and private sector. This paved the way for US tech firms in global markets, establishing Internet technology as the de-facto standard. Only in 2016 did ICANN's contract with the US government conclude. On the coercion front, the US pressed Japan to liberalise its telecom market, using export sanctions as leverage. The 1985 US Plaza Accord depreciated the US dollar against the yen, thrusting Japan into economic stagnation. Broadly, the West, especially the US, aimed to sustain its tech leadership within a more open, competitive landscape.
Enter the Dragon
Market mechanisms alone rarely elevate countries from poverty to prosperity. Instead, successful transformation involves state intervention, encompassing human capital development, institution building, and industry modernisation. Often, a phase of domestic market protection is necessary. Many low-income countries, even with a “late-mover advantage”, have not achieved convergence, resulting in a power imbalance favouring developed nations. An exception in the telecom sector is China, which shattered the West's monopoly to lead in mobile communications. In 1978, China had less than 2 million telephones. Recognising telecommunications as vital for economic growth, the 1978 reforms prioritised this sector. To bridge the technological chasm, Beijing adopted a three-fold approach:
- National R&D Programme: Beginning in the early 1980s, a national programme (akin to the US Strategic Defense Program, Europe’s EUREKA, or Japan’s Human Frontier) fostered a new generation of scientists and engineers, while enhancing R&D in both state-owned (SOEs) and private sectors.
- Technology Import and Joint Ventures: China reduced import tariffs and financed Western technologies via World Bank and Asian Development Bank loans. To prevent over-reliance, Western companies were mandated to transfer technologies to SOEs, establish joint ventures, and create manufacturing plants in China. Early entrants included Siemens and Alcatel, followed by other multinational technology companies like Cisco and Ericsson.
- Domestic Competition: In the 1980s, ZTE, Julong, and Huawei emerged. Datang joined in 1998. Among them, only Huawei was private. These companies, competing intensely among themselves and with foreign entities, began to reshape the market landscape by the mid-90s. Though initially reliant on licensing unavailable domestic technology, accusations arose against Chinese manufacturers for emulating or outright copying Western technology. Yet, their swift ascent was more rooted in China’s holistic three-fold development strategy.
As mobile networks transitioned from 3G to 4G, China eclipsed the West's technology dominance, emerging as a global frontrunner. Today, China is at the forefront of 5G advancements and leads the charge towards 6G. This rise in mobile communications has intensified the West-China rivalry, spotlighting the significance of digital sovereignty.
The Return of Sovereignty
Reflecting on the telecom sector's evolution, today's push for digital sovereignty symbolises a “return of sovereignty” or a “grand re-regulation”. This follows an initial era of regulated monopolies in the early 20th century and a subsequent deregulation wave in the 1980s and 1990s. While past state interventions were rooted in aspirations of economic development and growth, today's drive for sovereignty is predominantly steered by global rivalry, national security, and risk mitigation. Yet, a persistent power disparity has limited technological progress in many developing regions. China's technological rise has sparked intense rivalry with the United States, with the US deploying strategies reminiscent of the monopoly era to preserve its global technological leadership. This culminated in a strategic US effort, starting with President Trump and escalating under President Biden, to contain China's rise. Reacting, China redoubled its drive for technological self-reliance. Europe, hesitant to fully ban Chinese 5G tech, saw EU Commissioner Thierry Breton emphasise the risks of dependency: “we can't afford critical dependencies that could be weaponised against us”. Concurrently, the US perceives the EU's digital policies, promoting privacy and cybersecurity, as protectionist moves against US big technology firms.
Essentially, the urge for digital sovereignty reflects and intensifies the ongoing crisis in multilateralism. While a healthy global order is anchored in healthy national economies and societies, only through multilateralism can the West and China address disparities using strategic diplomacy. This includes fostering a fair partnership between the West and the countries of the Global South, which demand their own digital sovereignty. The growing shift towards bilateralism and plurilateral alliances risks exacerbating the current crisis and falling short of harnessing technology for broader societal good. A profound overhaul of the multilateral institutions is necessary.
Please refer to Thorsten Jelinek's book The Digital Sovereignty Trap: Avoiding the Return of Silos and a Divided World by Springer Nature for information on the sources.
Teaser photo by David Arrowsmith on Unsplash.