Information Systems and the State

10 Feb, 2025

By Vishal Venkatesh

“We are drowning in information, while starving for wisdom. The world henceforth will be run by synthesizers, people able to put together the right information at the right time, think critically about it, and make important choices wisely." – E. O. Wilson

Reports reveal that the European Union is considering punitive tariffs on Chinese automobile manufacturers who refuse to enter into join ventures with their European counterparts, should they wish to sell in European markets and benefit from their subsidies for Electronic Vehicles. Deceleration of the green transition aside, this is a tactic that European businesses bemoaned as a forceful transfer of technological know-how. Manufacturers fear that by moving parts of the supply chain to Europe, they become vulnerable to intellectual property theft. While the TRIPS Agreement demands WTO members abide by its non-discriminatory principles, states may deploy legal maneuvers, within their jurisdiction, such as forceful joint ventures to force information transfers from export-driven economies to richer states. This brings attention to brain drain and other obscure ways most states have lost control over their information resources. This was to be expected as Information and Communication Technologies (ICTs) penetrated markets and connected the globe. Business leaders heralded the coming age of information, celebrating that knowledge was finally no longer bound by state borders, nor could it be controlled and taxed by governments. This has proven to be less true in the past decades. Authoritarian regimes have demonstrated an impressive capacity to contain information within their territories. Nevertheless, states remain in little control of technical know-how. This paper investigates what this inadvertent sharing of information means for a state’s sovereignty, the consequential entrenchment of inequities, and the role that institutions must fulfill to assert statal independence. It explores varying degrees of the idea of sovereignty, the independence of nation states in the Westphalian world order, and why multinational corporations are able to successfully exploit weak state institutions to accumulate leverage.

To understand the role of the state, we must understand its relationship with the private sector and its purpose in the global economy. Post World War II, newly decolonized independent states faced an uphill task. Anti-colonial nationalist leaders of the global south feared that, despite the international system granting all states equal sovereignty and full membership, long-standing relationships of dependence and dominance could not be easily broken. Transitioning directly into a new liberal international economic order would merely entrench their state's existing economic and political status within the global hierarchy, leaving postcolonial states vulnerable to the unchecked influence of dominant states and non-state actors. They envisioned dismantling the dependencies entrenched by colonial domination. Several states adopted an import substitution model of development in an effort determined to mobilize their abundant labor forces and generate income for sustainable industrial growth. This strategy allowed entrepreneurs to adapt foreign technologies and focus on serving local markets. However, with state institutions and support systems still in their infancy, local industries did not always succeed in establishing themselves. They failed to transition into semi-advanced or advanced sectors. When these investments failed to deliver the anticipated benefits and their economies faced the risk of insolvency, many states turned to international institutions such as the International Monetary Fund for assistance. The bailouts came with significant caveats. States were required to join the WTO and were strongly encouraged to liberalize their economies, and shift towards export-driven growth models. As technology advanced rapidly in dominant states, most others found themselves unable to compete. With the exception of a few East Asian states that were able to successfully transition into advanced manufacturing, export-driven economies struggled to gain a foothold in global markets. As states lost their Public Sector Undertakings to the pressures of liberalized trade, they were forced to offset investment and capital losses by focusing on labor force development. Efforts to escape their subordinate position in the global economic hierarchy through homegrown industries proved futile. Cash-strapped states began relying more on foreign direct investments. This approach aimed to engage labor forces and equip them with advanced skills, enabling them to provide critical services to multinational companies abroad. States came to view their role as facilitating the growth and functioning of the globalized private sector.

The systemic advantages of working for foreign entities, such as substantial pay increases, have contributed to significant brain drain and domestic talent capture. Some countries saw a considerable portion of their workforce migrate to support some of the largest information technology firms abroad, and they have sought to turn these challenges into opportunities. India is a notable example. Despite losing many skilled workers to brain drain annually, the country uses diplomatic channels to advocate for Western nations to issue more work permits for its workforce. This is driven by the critical role remittance payments and taxes sent home by overseas workers play in bolstering India’s balance of payments.

Through state borders, payments are taxed, goods must be declared at customs, and production is incentivized. Yet, knowledge production escapes such oversight. In liberal economies, state efforts to scrutinize and prevent foreign entities from acquiring promising startups face inherent limitations due to a lack of capital controls. Beyond a trade perspective, it is worth asking: to what extent can state institutions influence or restrict the transfer of knowledge? Have states been able to assert their sovereignty in shaping these outcomes, or have they been outpaced by the rapid evolution of ICTs? What disadvantages does this pose to the state?

Sovereign states face a big hurdle in achieving industrial and economic growth: to transition into an export-driven economy with greater negotiating power, states need to upskill to advanced manufacturing. When the labor force develops specialized skills, they become harder for multinational corporations to replace by moving manufacturing to other countries with less stringent demands. To achieve this, states must first focus on developing their domestic markets. Subsequently, by building information mechanisms to identify which industries show the greatest potential to produce output at scale, states and private entrepreneurs can then channel investments into these thriving sectors. Fostering specialized technologies will then enable these firms to compete in foreign markets. Making such strategic decisions requires access to critical information—not just broad indicators like GDP and sectoral shares of the economy but also granular, market and product-specific data. These insights distinguish the design and service strategies of market-leading products from less successful ones. This is where ICTs accrue indispensable leverage in driving economic growth.

The primary challenge to state sovereignty today is finding ways to obtain information without being influenced by the methods used to acquire it. Product-specific data is notoriously difficult to obtain and even harder to interpret. Russell Ackoff’s Data-Information-Knowledge-Wisdom (DIKW) pyramid offers a useful framework for understanding the stages of knowledge creation. The immense complexity of data collection often goes unstated. Beyond the logistical challenges of collecting data from a sufficiently inclusive and representative sample, a key difficulty lies in determining the right type of data to gather and ensuring its alignment with the information being sought. Data does not simply exist in some raw form; rather, it must be collected with the goal of uncovering answers to specific questions, thereby transforming it into meaningful information. Achieving this requires a clear understanding of the knowledge being pursued, which depends on expertise in goods and services—making the entire process resource-intensive. As states have painfully discovered through their experiments with import-substitution economic models, they often lack the requisite resources to undertake such efforts effectively.

Once again, this leaves states—particularly poorer, decolonized ones—dependent on foreign entities that possess the specialized tools needed to collect such information through advanced ICTs and entertainment systems. Many states welcomed digital ecosystem giants like Meta and Alphabet into their territories without fully understanding the economic and political implications of ceding control to profit-driven private corporations. The state's actions reflected a desperate effort to compensate for the absence of credible and robust information sources essential for driving investment and business development. Unfortunately, states lacked the capacity to deliberate over the consequences of such decisions. Industrial internet technologies have undeniably had a profound impact on the growth of industries, particularly in the developing world. Digital technologies are credited with boosting global productivity by as much as 1.5 percent between 2002 and 2012. The phrase “Just Google it” has become a household expression—and for good reason. While it may seem exaggerated, Google’s staggering \$81 billion annual revenue from micro-targeted advertising suggests it might just have answers to almost everything. Although seemingly innocuous, relinquishing control without establishing stringent policies for data ownership—simply for the sake of convenience—has left many unsuspecting states with the short end of the stick. These enterprises are lauded for investing in expensive data collection efforts, and they are handsomely rewarded for it. They are often granted complete ownership over private citizens' data simply because they taught the world how to reap it first. Do the services they provide justify the complete lack of user agency over their personal information and how it is utilized?

Firms in the global south have been unable to build software applications like internet browsers or cloud services that are widely adopted in the digital economy. Their inability to break into global markets and challenge big tech's monopolistic surveillance capitalism may appear to be merely a failure to outcompete larger players—seemingly abstract issues disconnected from everyday livelihoods. However, we lack the tools to uncover all the ways these dynamics truly impact people's lives. While there are rare instances where glimpses into data usage have prompted judicial interventions and led to more equitable outcomes, we cannot fully gauge how much more competitive local business landscapes could become if a nation’s data were made accessible to its people. Similarly, we lack a complete understanding of how quality of life in the Global South could improve if local entrepreneurs—intimately familiar with their regions—had access to such critical business information. Monopolistic data practices by big tech companies significantly hinder smaller firms from building competitive ICT solutions. The concentration of vast data resources grants dominant companies an unfair advantage, stifling the emergence of competitive alternatives from other states. This imbalance discourages the dominant states from addressing monopolistic practices, as they benefit from the comparative advantage these firms provide. Consequently, states in the Global South cannot rely on these dominant nations to self-regulate. To address concerns about data misuse, they must create their own legal frameworks to secure data ownership or, at the very least, grant individuals greater control over their personal data and its usage.

In the United States, where many of these corporations are based, the Privacy Act of 1974 (5 U.S.C. 552a) governs the protection of personally identifiable information. However, it provides statutory privacy rights only to U.S. citizens and Legal Permanent Residents, excluding non-U.S. citizens. Agencies are authorized to intercept foreign data transmitted via transatlantic cables and collect information from U.S. cloud providers. Similarly, countries like China, Russia, and India grant their authorities comparable interception powers. Once your personal data enters a corporation’s cloud servers, it can potentially be used for any undisclosed purpose, leaving individuals powerless unless their state can enforce robust protections. Today, vast troves of unprotected data are becoming a decisive advantage for countries developing leading Large Language Models (LLMs), further cementing their technological dominance in the global hierarchy. As nationalists like Kwame Nkrumah feared, domination does not have to take the form of direct control alone.

Nkrumah described neocolonialism as the exploitation of economic dependence that persisted beyond the end of colonial rule. Echoing the republican critique of freedom as noninterference, he maintained that the absence of direct political control alone was not enough to ensure true postcolonial freedom. Dependence on external powers allowed these actors to arbitrarily interfere in the affairs of postcolonial states. As a result, instead of reflecting the democratic will of their citizens, these states often operated under the influence of their "neocolonialist masters.” This is especially true in the information age. Beyond its impact on economic growth, our information ecosystems have been exploited for nefarious political purposes. Romania’s abrupt cancellation of its 2024 national elections, just two days before they were set to occur, due to alleged foreign interference via social media, underscores the political risks of digital manipulation. Similarly, the impact of Cambridge Analytica firm on the Brexit referendum, the extent of which we still do not know, highlights how data misuse can undermine democratic processes. These examples illustrate how, by infiltrating markets with ICTs and digital applications, and separating sovereign political authority from globalized economic markets, dominant states can influence the territorial affairs of others without taking on the burden and resentment of direct alien rule. Anthony Anghie argues that this is not a recent development. Unequal integration has long been a fundamental aspect of colonization, where the inclusion of non-European societies into the law of nations and the use of treaties to seize resources and undermine sovereignty persisted well into the twentieth century. He concluded “the native is granted personality in order to be bound.” Today’s dominant players infiltrate markets by offering algorithmic digital services in exchange for user’s activity and personal information. This information is cross-referenced across multiple platforms to create detailed consumer profiles, subjecting people to a global market that disadvantages them.

Just as the globalization of financial services sparked a race to the bottom for tax havens in the Global South—despite these states’ need for stable tax revenue—so too has the globalization of technological services led to a race to the bottom for deregulation. As states consider their next move, they are aware that they are vying for these multinational corporations investments and jobs. In this context, actions that appeared to be the free legislative decisions of an independent state were in fact the result of dependence on other states, private actors, or international organizations. Even when a relatively dominant state like the UK opened an investigation into Microsoft’s anticompetitive cloud business practices in 2023, Microsoft responded by announcing a £2.5 billion investment in technological infrastructure in the UK. Critics viewed this as a brazen attempt to deter any actions that could threaten its business.

Information Technology firms are all too happy to portray themselves as thriving through their technological expertise, despite states’ limitations. The truth, as we have discussed, is quite different. These firms rely on state institutions and the liberal international order to enable their pervasive digital tools, to reap information from peripheral states. They use intellectual property laws to build fences around their vast troves of monetizable consumer information—data that can now also be used to train predictive models. They exploit the desperate financial state of dependent states’ institutions to deploy their services free of regulation, while also capturing the best local talent to further entrench their dominance over global competitors.

Foreign influence in sovereign territory through ICTs may be so pervasive today that their extent and means may already be too deep to fully detect. States entrusted massive leverage to a handful of corporations in good faith, unaware of how information could be weaponized against them. There was a time when banks and balance sheets were the primary source of information to assess which businesses and sectors wielded influence over domestic markets. Today, critical intellectual assets do not appear on the bottom line of balance sheets. The most reliable information sources lie within the select few software applications on which global trade has built its foundation. For states to protect their markets from the vulnerabilities that weaponizing such information sources and intellectual property can create, they must modernize their institutions. These institutions must be equipped to exercise power in an increasingly immaterial world, where real strength lies in access to and control over sources of information, intellectual property, and supply chains that are secure from extraterritorial patent enforcement by adversaries. We must expand our understanding of assets to include intangible intellectual goods—such as data—which can be harnessed to create seemingly benign multipurpose, and potentially nefarious tools like social media algorithms and artificial intelligence systems.

Capital formation will be harder to track as it is immaterial. Tracking productivity of knowledge can be achieved by prioritizing growth metrics such as number of citations of research patents, and their applications, over legacy metrics like domestic production. States need to design new measures of value for how patents and their applications affect their state’s economic security beyond just their immediate commercial value. For example: A COVID vaccine shot may have been worth \$100 each, but its ability to curb infections and bring everybody outside again creates a multiplier effect on its value for the economy that is not reflected by its commodity value. Using such measures to identify, prioritize, and award strategically crucial intellectual property will encourage innovation of specialized goods. Institutions also need to develop measures for the leverage dominant states hold over domestic production through its dependencies on foreign intellectual property. We measure our vulnerabilities through the number of missile warheads our adversaries may have and not through the economic and social damage that say a cyberattack on our healthcare infrastructure might wreck.

By tracking measures such as domestic IP cited and foreign IP used in domestic production of goods and services, states can analyze their economics security better and devise action plans to counter extraterritorial blocking of foreign IP by dominant states – as has been the case in semiconductor and vaccine manufacturing during the COVID pandemic. Although protecting citizens’ data extraterritorially will posed a significantly harder logistical challenge than enforcing extraterritorial IP laws, the US’s enforcement of the latter has created precedent to make data protection possible. To preserve information, developing states will have to build stronger documentation mechanisms and digital protection policies. This could be as stringent as demanding all software applications in circulation be open-source in order to ensure transparency of data collection practices, or cracking down on anticompetitive practices by software giants. While the European Union’s General Data Protection Regulation (2016) and the Cybersecurity Act (2019) provide great examples of legal frameworks, storing data within European borders does just that, it still does not mean they are owned are available for European firms to train their AI models with. States will have to devise laws with AI in mind to ensure a state’s data is available to its entrepreneurs for building useful tools and is not siphoned away to dominant states.

All of these measures must be enacted with the objective of channeling investments to spur innovation in productive sectors of the economy. By cultivating specialized skills within their labor force and rewarding entrepreneurship and innovation, states can retain technical talent and nurture a thriving economy. The development of domestic information sources will further promote a competitive business environment, enabling states to hold their own against dominant states and safeguard their agency in the global order—thereby protecting their sovereignty.