The Open Internet on the Brink: Economic and Social Costs of Restrictions

As the internet has disrupted the global economy, many governments are increasingly responding via national regulatory responses. While this country-level approach may be in their narrow, short-term interests, they risk fragmenting the internet into national and ideological segments. This fragmentation could exacerbate the domestic issues that national regulation seeks to address, interfere with international intelligence and response mechanisms, and undermine international commerce and communication enabled by a fundamentally open, borderless internet.

How Restrictions Create Costs

The cost of fragmentation to innovation is especially high. Companies facing divergent compliance duties face significant market entry and exit barriers, while the option of federating across different jurisdictions involves costs that favour the largest incumbents in those markets.

To operate globally, companies may need to structure themselves akin to Amazon’s regional companies. However, while trade tariffs and the logistical challenges of fast-moving consumer goods result in unavoidable frictions that may warrant local subsidiaries, divergence in internet regulations may create avoidable barriers to start-ups seeking to innovate globally. This further concentrates digital power and reduces economic opportunity for everyone else.

Demonstrating the economic dividend of internet openness is challenging. Openness is necessarily subjective and hard to isolate quantitatively. China provides a counter-example of a fast-growing emerging economy with extensive internet restrictions – though its large domestic market means it may be an exceptional case. Furthermore, projecting the future potential of internet openness, in contrast to a more restrictive model that might otherwise preclude some economic gains, is difficult.

Mapping Freedom House’s Freedom on the Net index against the Network Readiness Index’s Economy Impact score – which indicates the financial impact of a country’s participation in the network economy – can provide an initial illustration to complement qualitative case studies. While not a perfect measure, this analysis at least provides a snapshot of the economic dividend from internet openness at a macro level. The countries that maximise the internet’s economic benefits are generally those with the strongest internet freedoms. Notably, the top-left quadrant is empty, indicating that internet freedoms may be a necessary, albeit not comprehensive, condition of a successful internet economy.^[_][_]

Even in China, where a large domestic market has allowed its internet economy to grow significantly despite restrictions, recent crackdowns on major tech companies such as Alibaba and Didi may have serious future implications for investor confidence in the Chinese tech ecosystem. Indeed, since March, there has been an extraordinary pattern of resignations among founders of some of China’s largest companies, including JD.com, Bytedance (TikTok’s parent company) and Pinduoduo. Similarly, a sell-off of Chinese tech stocks between February and July 2021 including Tencent, Alibaba, Meituan, Pinduoduo, Kuaishou Technology, JD.com, Baidu and Xiaomi resulted in over $800 billion in lost value. Further upstream, lower investor confidence may also have contributed to the apparent drop-off in unicorn start-ups in China.

Given this analysis, it is unfortunate that internet shutdowns, which exemplify some of the most extreme restrictions available, have become a costly, go-to lever for many developing countries to assert control.

Figure 3

Internet shutdowns by country as of September 2021

While typically associated with the total blackout of the internet, the term internet shutdown encompasses a much wider breadth of service disruptions with tremendous social and economic impact. Internet shutdowns include generalised network disruptions (full shutdowns), denial of access to specific websites (for example, social media), and throttling (slowing down internet connections to limit video sharing and/or disrupt communications, for instance).

Recent data on social-media censorship illuminates a worrying global trend on internet shutdowns. Of 180 countries analysed since 2015, 66 have blocked or heavily restricted social media during this period. Many of these are in Africa: 31 of 54 African countries (57%) have blocked access to social media to some degree since 2015.

Governments cite various reasons for shutting down the internet. According to an analysis by Access Now, the most commonly cited cause for shutdowns in 2020 was political instability, and their use most often justified as a “precautionary measure” in response to the risk of community violence. However, other rationales exist. Algeria and Iraq have cited exam cheating, and Nigeria and India have argued for shutdowns on the basis of access to hate speech and fake news.

While some shutdowns are overtly repressive, as with politically motivated interventions in Iran and Myanmar, others are in response to “information incidents” such as elections or natural disasters, which can shape the information environment in ways that, as Full Fact states, “make it harder to tackle misinformation effectively”. In these circumstances, some leaders, without defined levers for content moderation, have turned to shutdowns or service denials, fearing community violence. This is often linked to social-media services lacking moderation capability in local languages, which means content encouraging ongoing community violence may go unchecked.

Technology companies do need to invest more in local expertise, but it is not clear that shutdowns are an effective tactic for achieving leaders’ stated aims. Research on shutdowns in India, published in 2019 by the Stanford Global Digital Policy Incubator, suggests that internet blackouts can encourage violence by “compelling participants in collective action … to substitute non-violent tactics for violent ones that are less reliant on effective communication and coordination”.

Turning to shutdowns as a policy lever restricts the growth of internet economies in the long term while also disenfranchising communities from global networks of communication and trade in the short term. This creates global costs that are routinely underappreciated. According to research by Top10VPN, since 2019, 235 major internet shutdowns in 44 countries have cost the global economy $15.5 billion.

There are foreign policy implications too. As Iran’s shutdown in November 2019 first demonstrated, these measures not only disrupt domestic communications but help censor repression internationally – delaying any potential foreign policy response. Shutdowns are therefore not just a domestic issue: they impose significant costs on the global economy and reduce the international community’s visibility and diplomatic capability.

As such, the focus should be on an international framework that provides a baseline against which to judge disproportionate responses. Even in the face of misinformation or harmful content, denying communities access to internet services comes at an immense cost to economic and social freedoms. While countries with small internet economies may see shutdowns as a small price to pay today, there are enormous costs in the long term as a result of unrealised gains.