Photo: iStock
Photo: iStock

Opinion | Data privacy can aid innovation

It plays a market-building function by creating trust among market participants, thereby increasing participation in the digital economy

Ever since India took unambiguous steps towards a comprehensive data protection law, many have projected that excessive focus on privacy will stall the growth of the innovation economy. Positioning privacy regulation as an impediment for data-driven innovation, however, fundamentally misinterprets the notion of privacy.

Privacy actually engenders trust, and is, therefore, key to unlocking meaningful innovation. Any thoughtful regulation that enhances trust will also redirect innovation toward privacy-protecting practices. A lot of innovation in today’s digital economy is driven by access to high-quality data. This is a trend that we see in sectors ranging from healthcare to finance, and from the gig economy to government services. For example, Uber would be unable to provide a seamless customer experience without access to customers’ location and payments data. Innovations such as Retina Risk, which helps identify risk for sight-threatening damage to the retina, relies on access to healthcare data. Companies such as Destacame and Tala use alternative sources of data (such as utility repayment rates and length of phone calls, respectively) to provide access to credit for previously excluded populations. In recognition of such potential, the Organisation for Economic Co-operation and Development (OECD) has recognized that “data-driven innovation forms a key pillar in 21st century sources of growth".

Informational privacy does not mean curtailment of access to personal data. Instead, it provides complete control to the individual about how her data is used. This means that she should know what data is collected, who holds it, how long they have it, and how it is used. Privacy also means providing her inalienable rights over her data—the rights to access, rectify, or recall information; to be forgotten, to data portability, and to object to processing, among others. Such agency can coexist with the ever-increasing volume of data processing. In particular, technology can provide the means for privacy-respecting innovations to take place. For example, some start-ups globally are creating tools such as consent dashboards and user-controlled data vaults that can increase data sharing and privacy at the same time.

In fact, data privacy is not just a principle that should be met, but is a key driver for innovation. It plays a market-building function by creating trust among market participants, thereby increasing participation in the digital economy. Quite simply, many users would only share their data if they feel confident that a business would manage it effectively. The innovation economy will be denied valuable data if it cannot gain people’s confidence. We saw this unfold in the US, when stronger privacy protections coupled with adoption subsidies led to higher adoption of health information exchanges than with subsidies alone. Similarly, researchers found that an improvement in Facebook’s privacy features in its early days made personalized advertising more effective, not less. These examples and others demonstrate how governments and businesses can create the right privacy environment for data-driven businesses to flourish.

Some will argue that privacy creates friction in the exchange of data and, therefore, slows down innovation. This can occur in some cases, especially during the early stages of adoption of a product. For example, in the US, privacy regulations that restricted a hospital’s release of patient information reduced adoption of electronic medical records by more than 24%. Electronic medical records allow healthcare providers and receivers to move their data more easily. However, because patient-centered privacy protections limited certain data from moving within the system, hospitals had less incentive to invest money in transforming their systems.

This example does not, however, weaken the case for privacy. Whether privacy regulations enhance or impede innovation ultimately depends on the specifics of the regulation. Examining how US states adopted different approaches to protecting patients’ genetic privacy, researchers saw how a policy can be designed to both promote innovation and protect privacy. In this case, they found that limiting re-disclosure without consent encourages the spread of genetic testing, whereas requiring informed consent deters it. Therefore, the regulatory environment needs to be nimble and react rapidly to advances in technology.

Technological gains should not come at the expense of privacy. Privacy is a fundamental and inalienable right. Regulation should not try to balance innovation and privacy, but instead promote appropriate innovation that is based on respect for privacy and user control. And history shows us that industry can respond well when this is the case. When the European ePrivacy Directive reduced the efficacy of online ads by 65%, the impact was much lower for ads with striking visual content or interactive features, and ads featured on specialized content websites. The best designs often depend on constraints, and privacy regulations can be an invitation to data-driven businesses to deliver the best solutions for all.

As long as we create regulation that is predictable, context-dependent, nimble and fair, there is no reason to believe that regulation will impede innovation. In fact, trust will create the right environment for greater participation in the digital economy, thus strengthening businesses and innovators.

Improvement in Facebook’s privacy features made personalized advertising more effective

Subhashish Bhadra is investment principal at Omidyar Network.

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