Commentary: Creating a policy environment for innovation

The term digital transformation was around long before COVID-19. It was used mostly within the business sector to describe the need for companies to innovate and digitize their operations and policies to create an environment that allows them to serve customers better and meet growing demand.

Nowadays, digital transformation is a household term, and its application—no longer limited to a single company or sector—has broadened to the national scale. 

Indeed, over the past year, technology has played a critical role in our economy and society's continued functioning. The internet has allowed us to continue to work, study and stay connected despite the yearlong lockdown, and innovations in e-commerce, digital banking, and logistics have allowed our economy to remain active.

However, while digital transformation has outgrown its pre-pandemic scale, what remains the same is the need for an operations and policy environment where technology and innovation can flourish. In this regard, it is undeniable that government action and policy play a vital role in creating or stifling this environment at a national level.

Take the country's competition policy, for example. Back in January, Philippine Competition Commission (PCC) Chairman Arsenio Balisacan pointed out the importance of competition policy in ensuring innovation and an inclusive digital economy amidst these accelerated digital shifts.

Soon after, a very real example of this came along when the PCC reported that its Enforcement Office, the commission's investigative and prosecutorial arm, would be charging a property developer for imposing exclusive fixed-line internet services on residents abusing their dominance.

According to the PCC, residents of the Twin Oaks Place (TOP) in Mandaluyong complained that the property's developer, Greenfields Corp., violated the Philippine Competition Act when it prevented the entry of other Internet Service Providers (ISPs) into the property, thereby forcing residents to subscribe to the sole ISP allowed in TOP, Greenfields Development's own Leopard Connectivity. Adding insult to injury, it was also reported its services cost about as much as other ISPs but delivered a fraction of the speed.

According to Chairman Balisacan, "abuse of dominance cases are evaluated with the end view of dismantling exploitative and exclusionary practices in business and ultimately empowering consumer choice. Under the Philippine Competition Act, an entity found to have abused its dominance in the market could face a fine of up to P110 million."

However, despite the large fine, this is by no means an isolated case. In communities in Cerritos Heights and Lessandra Heights in Bacoor City, Planet Cable has had the market artificially cornered for years. In fact, for over a decade, residents have had no other choice but to put up with its poor services.

Indeed, these are a few but very real cases that illustrate how government action, in this case, the implementation of its competition policy, is essential to creating an environment whereby Filipinos can exercise their fundamental right to access the internet and the innovative services and tools that it offers, especially during this pandemic.

At the same time, however, we should also keep in mind that government policies can also have the opposite effect. 

Technology and policy are often described as operating at different paces. Technology and Innovation we know evolve exponentially, while policies are often left catching up or anticipating the next step in technological evolution. This usually leaves policy makers in a bind on how to craft balanced policies and regulations. 

If too specific or narrow, a policy risks quickly becoming obsolete along with the next software update or when the innovation comes along. On the other hand, if too broad, a policy risks imposing a one-size-fits-all rule that could stifle a dynamic sector.

One such example of this policy balancing act is the Internet Transactions bill approved by the House of Representatives last year and currently pending at the Philippine Senate. Given the growth of e-commerce in the country, the bill seeks to promote online transactions and safeguard the rights of consumers and merchants by creating a new "central authority" to regulate all business-to-business and business-to-consumer commercial transactions over the internet, including those related to internet retail, online travel services, digital media providers, ride-hailing services, and digital financial services.

The bill's intent to protect consumers is clear. However, with its broad coverage, policy makers must consider that the measure risks hurting the very consumers they wish to protect. 

Under the bill, online e-commerce platforms shall share solidary liability with their merchants if these platforms fail to exercise extraordinary diligence to prevent any loss or damage to the consumer; fail to publish the details of their merchants; fail to examine goods related to food, drugs, cosmetics, among others.

While it does not take too much imagination how this policy will be applied to platforms such as Lazada, Shopee and Zalora, that have a role in facilitating and releasing payment to merchants, how would this policy affect platforms such as the Facebook Marketplace and Carousell that simply serve a venue to connect merchants and customers?  The bill is unclear on how it would justify holding these platforms jointly liable for such transactions. 

Furthermore, the bill also runs the risk of just displacing rather than addressing the problem. If passed, e-commerce platforms may decide tighter regulations or impose fees. This in turn might just lead to a boom in Viber and Whatsapp stores and marketplaces, with more transactions happening in closed groups and private chats rather than out in the open. 

One cannot help but worry what impact a one-size-fits-all policy would have on the country's e-commerce and, by extension, its economic growth.
 
We often equate our digital transformation to the need for financial investment from the public and private sectors to develop the country's digital infrastructure. However, the role of policies and regulations in this transformation cannot be understated. A balanced approached and strict and consistent implementation of the rules are essential for the creation of an environment technology and innovation can flourish.

Paco Pangalangan is the executive director of think tank Stratbase ADR Institute.