Michelle Hennessey

March 14, 2023

Enacting internet regulation to promote digital innovation is core to global economic development, even if the Canadian government continues to avoid the implementation of a comprehensive digital innovation strategy. Forward-looking internet regulation that respects the innovative nature of the digital sphere must be adopted using a multistakeholder approach focused on inclusivity, safety, and fair competition.

This can be achieved by enacting policies to bridge the digital divide, building the technological capacity of organizations like small and medium-sized businesses (SMEs), requiring safety and privacy-by-design, and reforming current competition laws.

Innovation has historically been the key driver of economic growth: it has raised global living standards by improving organizational productivity and boosting economic output. The Internet Society projects impressive global economic growth as the use of Internet of Things devices expands, and WIPO forecasts a rise in innovation-driven global productivity as the diffusion of new technologies grows. This already underway diffusion will lead to a global digital transformation that will facilitate the increased adoption of advanced technologies such as artificial intelligence. In turn, the widespread adoption of advanced technologies is expected to enable a new wave of “deep science” innovations in life sciences, agriculture, technology, and energy sectors. These breakthroughs are expected to not only improve not only productivity, but global welfare as well.

Such digital innovations rely in large part upon the internet economy, which is populated primarily by start-ups and scaleups who leverage the internet’s affordance for permissionless innovation. In their 2022 Report, the Internet Economy Foundation found that opportunities facilitated by internet connectivity have an enormous potential to contribute to growth in the labour market and economy and that such growth has been accelerated by the social and economic transformations brought about by the pandemic (e.g., remote work, offline meetings, etc.).

In both the US and Europe, the technology sector’s year-over-year gross value added is outpacing that of the overall economy. Job recruitment is increasingly taking place online, as is project funding. Kickstarter, the digital crowd-funding platform, has been used by over 200 thousand start-ups to raise nearly USD 7 billion in funding to produce innovative new ideas.

…digital innovations rely in large part upon the internet economy, which is populated primarily by start-ups and scaleups who leverage the internet’s affordance for permissionless innovation.

While there is little doubt that the internet contributes to global innovation, individuals’ equal inclusion in this productivity boost is not assured. The digital divide persists both in Canada and worldwide, often reproducing existing inequalities based on gender, age, income, and geographic location. According to the International Telecommunication Union, thirty-seven percent of the world’s population still had no internet access in 2021. Stated another way, roughly 2.9 billion people were completely excluded from accessing the information and economic opportunities offered online in 2021.

Even for those who can access the internet and have the literacy to leverage digital tools, their safety and privacy are often precarious. The real-time data collection and transfer facilitated by the web has improved organizational efficiency and created new markets. However, this interconnectivity has also left businesses and individuals vulnerable to malware and cyber-attacks. And, even when data is collected and stored securely and with users’ permission, there are underlying risks to deliberative democracy when large corporations have access to massive amounts of user data and the capability to understand and leverage that data for commercial gain.

Because telecommunications networks have historically exhibited naturally monopolistic tendencies, large internet mega-corporations also pose an anti-competitive threat to digital innovation. Canada is a country of SMEs: Global Affairs reported that nearly 90 percent of private-sector workers in Canada were employed by an SME in 2017. However, the world’s largest technology firms (Google, Apple, Meta, and Amazon) are all American. These firms leverage consumer data not only to increase profits but also to identify emerging SME competitors and quickly purchase or extinguish them. Such oligopolistic market conditions, paired with high entry costs and data asymmetry, places SMEs entering the internet economy at a stark disadvantage, impairing their ability to compete and threatening both innovation and market stability.

Despite the economic growth forecast due to the digital transformation, the barriers to inclusion faced by those who already experience inequalities, the public safety concerns raised by novel technologies, and the threats posed by SMEs’ inability to compete in the internet economy, the Canadian government does not have a coherent digital innovation policy strategy. While the last federal budget introduced several new innovation-related investments, there is no long-term plan to incorporate these investments into more comprehensive policy initiatives.

A comprehensive, forward-looking approach that seeks to foster digital innovation by adopting a multistakeholder approach to regulating the internet economy is needed if Canada wishes to solidify an inclusive, safe, and competitive digital transformation. Framing internet regulation as the enemy of innovation mischaracterizes the playing field: balanced and thought-out regulation should act as an equalizer, not an opponent. When enacted properly, policies set the rules of the game. Policies that foster investment in innovation, bridge the digital divide, mandate comprehensive security features and privacy-by-design, and promote fair competition will allow players at all levels to participate in and profit from the digital transformation. Conversely, a lack of policy will stifle the development of new talent and lead to a shootout between the most privileged and well-established players.

This forward-looking approach must be grounded in the internet’s history: it must acknowledge the web’s roots as a collaborative, horizontally structured network. “The internet” is not one apparatus and cannot be regulated as though it has a central control point. It is instead a stack of technological layers, each building off the layer before it. A bottom-up multistakeholder approach is necessary to preserve these layers’ integrity and ensure the connectivity of the system remains intact. It does so by engaging developers and engineers at all levels of the stack in the internet regulation process. Policymakers are not engineers; this consultation with technical experts is necessary to achieve sustainable, functioning regulation.

Framing internet regulation as the enemy of innovation mischaracterizes the playing field: balanced and thought-out regulation should act as an equalizer, not an opponent.

Using a multistakeholder approach, policymakers should focus on the four following policy goals to foster future inclusive, safe, and competitive digital innovation:

First, internet regulation should encourage global economic growth by bridging the digital divide. Worldwide internet connectivity is needed to enable market transactions and diffuse technological advances so that the benefits of digital transformation are not confined to only the most prosperous. Canada should  follow the recommendation of experts like Deanna Horton from the Munk School of Global Affairs and collaborate with like-minded nations to commit to improving digital infrastructure both domestically and abroad.

Second, internet regulation should focus on building organizational capacities to adopt and leverage new technologies so that further innovation can occur. Global Affairs found that innovation is the fastest way for Canadian SMEs to increase their productivity and growth. Therefore, ensuring that start-ups and scaleups have the resources necessary to understand and use advancements like big data and artificial intelligence is crucial to driving growth and capitalizing on past technological advancements.

Third, safety and privacy-by-design must underpin overarching internet policies. Personal data currently crosses geographic borders with little oversight, and malicious actors have unprecedented access to the lives of billions of internet users. Controls on data collection and storage, and mandated safeguards to protect users, are needed to ensure public safety.

Finally, as many other public policy academics and students have urged, competition policy must be reformed to ensure the internet economy remains competitive and viable. Currently, the oligopoly in the digital market threatens SMEs’ ability to profit. Internet policy that does not address these unfair market conditions will fail to ensure long-term market stability and continued innovation.

Michelle Hennessey is a joint law student (Juris Doctor) at the University of Ottawa and Master’s student at Carleton University’s Norman Paterson School of International Affairs. She holds a Master’s of Arts in Communication from the University of Ottawa and focuses on issues of technology law and policy.