[The Editors' Verdict] The Pandemic Accelerates the Era of Global Digital Norms

Kim Kyung-soo, Professor Emeritus at Sungkyunkwan University

The year 2020 showcased the current state of the digital technology revolution. While the S&P 500 index rose 16.3% compared to the beginning of the year, the Nasdaq, which includes many technology companies, surged 43.6%. Within the S&P 500, the IT sector increased by 42.8%. The economically sensitive discretionary consumer sector rose 32.1%, but within this category, the internet and direct marketing retail sector, which includes Amazon, soared 68.6%, breaking through the ceiling.

The stock price surge can be attributed to the unprecedented excess liquidity historically injected by central banks worldwide in response to the pandemic. However, the energy sector within the S&P 500 plummeted 37.3%. The fact that Tesla’s market capitalization rivals that of the other six major automakers combined, and Airbnb accounts for one-third of the top 25 hotel chains, raises concerns about a bubble. Nevertheless, it is clear that the pandemic accelerated the digital technology revolution.

According to Wikipedia, among the top 10 global companies in the fourth quarter of last year, nine were technology firms. Notably, Taiwan’s semiconductor company TSMC ranked ninth, ahead of Berkshire Hathaway at tenth. Reflecting on 2009, when Apple first entered the world’s top 10 companies following Microsoft, one can feel the profound changes over time.

Another notable development was the suspension of the initial public offering (IPO) of Ant Group, the fintech affiliate of China’s Alibaba, which had attracted significant attention as the largest IPO ever. Additionally, the State Administration for Market Regulation (SAMR) launched an antitrust investigation into Alibaba’s e-commerce business. It remains to be seen what impact these measures will have on the dynamism and innovation of China’s economy.

More importantly, these events have implications for future regulations targeting giant technology companies. As symbolized by BAADD (Big, anti-competitive, addictive, and destructive to democracy), the explosive growth of these companies has raised the necessity for regulation. While some European countries imposed digital taxes during the Trump administration and trade disputes, the Biden administration has declared strong antitrust regulations as an election pledge.

Of course, it is difficult to predict whether regulations will enhance consumer welfare as originally intended. Market dominance arises from lower costs achieved by providing more and diverse digital services. Consumer welfare stems not from strict market discipline but from access to more data. Therefore, competition policies may struggle to achieve their goals and could instead reduce the value of user networks. Corporate breakups could constrain user platforms, negatively affecting users, and price regulations may have little significance given the transactional nature where users provide their information in exchange for services.

At the end of last year, the European Union (EU) unveiled a draft Digital Services Act to regulate platform companies, and around the same time, the U.S. federal government filed lawsuits against Facebook and Google for abusing their market dominance. However, stock investors seem largely unconcerned. This is because perspectives on giant technology companies differ by country, allowing these companies to benefit from regulatory arbitrage. The U.S. prioritizes the interests of its domestic companies, Europe focuses more on protecting user privacy, and China seeks centralized control over big data.

As the U.S. Democratic administration emphasizes international norms, digital global governance appears to be a matter of time. In preparation, South Korea, where digital platform companies are rapidly growing, needs to establish a regulatory framework suited to its conditions and future to secure negotiating power. Correcting the uneven playing field between fintech companies and financial institutions is just one part of this.

Kim Kyung-soo, Professor Emeritus, Sungkyunkwan University

This content was produced with the assistance of AI translation services.