Keeping the lights on usually ranks with national defence as a top priority for governments around the world. But recent discussions at key forums in the UK are triggering new thinking on the role of the state.
In a nutshell, the country’s top strategic think tanks have made one point clear over the past week: the ongoing digital transformation is too big to be left to the market.
For a hard-pressed government like that of the UK – which is caught in a budget crisis and is tens of billions of pounds short of its fiscal targets – this might seem too daunting to take onboard immediately. Yet the fast-evolving reality of digital transformation may not afford London the luxury of staying out. Indeed, the calls for a bigger and more direct role of the government are gaining prominence in the UK and beyond.
Globally, we are seeing a huge build-up in capacity around data processing. The most progressive states have responded to this agenda with a recognition that first-mover advantage is a huge prize. Moreover, the availability of energy is key to unlocking the biggest share of the digital build-up.
Dr Sultan Al Jaber, Adnoc’s managing director and group chief executive, on Monday said that he estimated the world needs $4 trillion invested annually in its grids and energy supplies. The push to make the energy-generation sector itself more “AI native” is only the starting point. The world’s top economies will need to come up with capital investment programmes on a scale not seen in history.
For the UK, which became wedded to the idea of privatising its utilities and infrastructure as far back as the 1980s, being directly involved in the digital transformation project would represent a paradigm shift. Because the country has been a trailblazer for unleashing the power of private capital in transforming its national networks, it hasn’t been easy for policymakers in London to recognise that times have changed.
The market has often been able to provide investment whenever it was needed. And for all its current drift, the City of London still represents one of the deepest capital pools anywhere on the planet. In any case, the scale of innovation is such that private entrepreneurs are the ones driving the global economic expansion in the face of an epic trade war and international debt crisis.
Yet in recent days, key UK-based think tanks have called for the government to be more deeply involved than it has been under previous infrastructure frameworks.
The Royal United Services Institute set out the stakes for the government in the changing energy mix, stating that it should treat energy security as a central pillar of national defence and economic policy. It called on policymakers to view energy as a foundation of national strength – not a sector that can be left to the market. Indeed, researchers believe that a security-first approach would not be a constraint on economic growth but “a foundation for sustainable investment and resilience in the face of geopolitical challenges”.
Not only is the physical infrastructure in need of greater protection from sabotage and other dangers, but there are also pitfalls in relying too much on foreign suppliers. This problem becomes more magnified when one takes clean tech-supply chain vulnerabilities into consideration. As a result, Rusi argues that a leading role for the state is “a necessary condition for sustainable investment in more resilient energy systems”.
Meanwhile Chatham House, another London-based think tank, called for the UK government to set up what it called “digital public infrastructure”, warning that countries that don’t have this advantage could find themselves increasingly uncompetitive and unable to deliver essential services. In its report, Chatham House says the state must have a role in how digital infrastructure is adopted.
The report’s authors set out five advantages that can follow from the state assuming control of the digital sphere; the first being a sovereignty issue that helps counteract foreign dependencies and dominance of digital suppliers. It also argues that such an approach can create better economic opportunities and embed security resilience measures more effectively. With the size of the state – as measured by total government spending – more than one third of the UK’s gross domestic product, the report argues for the government to be at the forefront of digital modernisation.
Importantly, when an economy the size of the UK has something to offer from its own strong infrastructure, the country becomes an attractive partner for other nations.
Taken as a whole, it is clear that some of the brightest minds in the policymaking world see the state as the most appropriate guarantor of security as the digital revolution takes shape.
But while these are all good arguments, I do worry that there isn’t enough appreciation of the importance of the private sector in this revolution. Can the government unleash sufficient capital fast enough to keep ahead of demand? It is also true that most of the big changes are being driven by innovation at a pace that few of the architects of government policy would have foreseen five years ago.
Can the government, then, lead the transformation even if it decides to do so? That is still an open question.
