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Data Capital Tax within the Puzzle of (Economic) Digital Constitutionalism: Questions for a Comprehensive Research and Policy Agenda

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This blogpost is part of the research project “The principle of progressivity in the digital economy. Possibility for a “Data Capital Tax” in Italian and European constitutional law”, funded by the Ministero Università e Ricerca-MUR (Call: MUR_Montalcini 2020). I have greatly profited from conversations with Thomas Streinz, Giovanni De Gregorio, and Oren Perez. I am grateful to Julieta Lobato for her support, without which I could not have finalized this blogpost. All errors remain my own.

The liberal secularized state lives by prerequisites which it cannot guarantee itself

Böckenförde’s dilemma and its relevance to the (digital) constitutional state

The (in)famous line by Böckenförde (Böckenförde, 1976) looks at any lawyer standing at the gates of contemporary constitutional theory. At its core, it is a sobering reminder of the insufficiency of (constitutional) law in generating the preconditions for its own normativity. When god(s) cannot be invoked anymore—not directly, at least—to legitimate authority, when nationalism has generated monsters, when justice means something different to each group, political constitutions need to rely on their capacity to simultaneously preserve room for conflicts to emerge and mediate them. In that context, states’ capacity to redistribute economic value and strike delicate balances among collective actors within society is crucial. Effective, socially legitimated systems of value extraction and redistribution are not only instruments of social peace for state apparatuses whose authority remains unquestioned. Rather, and ultimately, they are essential to the capacity of political institutions to adopt consensus-based, collectively binding decisions. As instruments of social justice, tax systems touch upon both socioeconomic governance and the legitimisation of (political) authority. But why is all of this relevant to digital constitutionalism?

The digital revolution is profoundly impacting the political economy underlying modern societies. The COVID-19 pandemic has accelerated dynamics already underway, touching on the relationship between authority and freedom, state and society, politics and economy, collective and individual actors (Cohen 2012; Floridi 2015). Individuals and groups generate new forms of debate, contestation, and conflict in ways different from those presupposed at the foundational time of modern constitutionalism, and often beyond the borders of nation-states. These developments, in turn, take place within the context of political-economic globalisation and social fragmentation triggered and/or dominated by neoliberal capitalism, whereby traditional sources of legitimacy of constitutional states—especially elections and other institutions of representative democracy—are more and more eroded, to the point of often becoming empty shells (Crouch 2004).

These developments must be placed in the context of governance models typical of constitutional states. Besides the races to the bottom triggered by the competitive alignment of regulatory, fiscal, welfare, and labour protection systems, the business model of Big Tech impacts socio-political integration also by affecting the modes of extraction, circulation, and redistribution of wealth—that is, the taxation and welfare systems—presupposed by modern states. Digital economy and finance, big data analytics & economy, cryptocurrencies, smart contracts—in one phrase, “digital” or “information” capitalism (Lianos 2023; Kapczynsky 2020; Cohen 2019; Ignatow 2017)—accelerated  already-existing dynamics weakening the capacity of political institutions to effectively govern social processes through economic redistribution. Digital companies, then, not only influence individual behaviour or how people collectively (do not) reach consensus and accept power as legitimate. They also affect states’ capacity of economic governance. Digital capitalism externalities affect the ability of politics to produce socially legitimised decisions; of science to produce socially shared truth; of economy to produce value for the whole society; and so on. Unsurprisingly, world’s tax havens are increasingly becoming the data centres for the digital economy.

Filling a gap in digital constitutionalism’s research and policy agenda

By now, legal scholarship has long investigated the relationship between the digital revolution, social justice, and its surrounding political economy (see, e.g., here). By now, there is a literature on how law “codes” data, making them one of the main factor of production of digital capitalism (Pistor 2019; Sadowski 2019; Vatanparast 2021). Social justice issues have been explored especially by labour law scholars, linking the impact of digital technologies and platform economy to value-creation and -redistribution at the global level (Rogers 2020; Haidar & Keune 2021). Tax law scholars are exploring how data economy affects states’ fiscal capacities and potentially contributes to tax avoidance (Diniz Magalhães & Christians 2023; and more generally here) and how AI and digital technologies may optimize tax systems, making them more efficient (see here). However, only recently have tax law scholars started to conceptualise data as autonomously taxable wealth (e.g., Zetzsche and Anker-Sørensen 2021; Marian 2022). More generally, few authors explicitly thematise these challenges within a comprehensive constitutional-theoretical framework.

For their part, scholars using constitutionalist frameworks generally focus on issues such as access to the Internet; free speech online; privacy; procedural guarantees such as transparency, participation, fairness; digital administration and justice; and, more generally, the application of constitutional law standards to private powers. However, most works take the regulatory capacities of states for granted. More generally, few analyses combine the impact of digital technologies on the legitimation of political institutions with their capacity to pursue social justice, also at the global level (for an exception, Gurumurthy & Chami 2021). Moreover, constitutional lawyers hardly thematise the dangers coming from the excessive datafication of social relations—the object of inquiry of so-called “critical data studies” (Iliadis & Russo 2016; Johns 2021)— as a self-standing problem, that needs to be tackled through the instruments of (constitutional) law.

But the relationship between digital technologies and constitutional law goes beyond the protection of the integrity of the “free marketplace of ideas”, the guarantee of rights online or, more generally, in the public sphere. It touches upon the very sources of social integration/legitimation of constitutional states. An ambitious, authentically normative digital constitutionalist agenda will frame issues of social justice and excessive datafication tendencies as part of a single project concerning the relationship between digital capitalism and constitutional law, especially if it does not want to reproduce and reinforce artificial distinctions among different “generations” of rights. In both analytical and normative terms, it is a necessary piece of a broader puzzle within any digital constitutionalism (Celeste 2022; De Gregorio 2022) aiming to live up to its aspirations. Digital constitutionalism, in other words, needs to take up on more explicitly issues traditionally related to so-called “economic constitutionalism”.

In particular, scholars and policymakers need to address as part of a single research and policy agenda at least four macro-questions: 1) the negative impact of excessive, profit-driven datafication on modern societies; 2) the appropriate legal conceptualization of data for the purposes of the extraction and redistribution of its value; 3) the appropriate design of taxes targeting data; 4) the interaction of data taxation proposals with other legal regimes and entitlements (e.g., international trade law) and issues of social justice at the global level. In the remainder of this post, I do not aim to offer any ready-to-go solution but rather point to some interrelated questions, as building blocks of a comprehensive (economic) digital constitutionalism.

From critical data studies to (economic) digital constitutionalism: the building blocks of a work in progress

Critical data studies. Big data is not only a means for received models of governance of populations and subjects. The amassing, analysis, and mobilization of hybrid data repositories and real-time data flows—driven by the profit-maximization compulsion typical of information capitalism—opens up to new forms of governance, affecting or manipulating how individuals and groups perceive themselves and act in society (Johns 2021; Jongepier & Klenk 2022). At this analytical level, it is crucial to reflect on ways to reduce profit-driven, attention-maximization data collection and analysis without demonizing the Internet and the opportunities for authentic inclusion, participation, and emancipation brought about by the digital ecosystem, as well as the economic opportunities brought by safe data technology. This approach leads to the question of how to reduce the internal economic incentives to the excessive datafication of society and to related forms of manipulation. However, before thinking about the concrete regulatory solutions and tax design, legal scholarship needs to shape a concept of data that fits the need to target it as an autonomous economic asset. In other words, appropriate data pricing needs legal scholarship to “code” data as autonomous economic asset. In this way, critical data studies as starting point leads to topics investigated by institutional economics and ‘law & political economy’ scholarship.

Data as capital. Within digital capitalism, data is the new oil (Sadowski 2019). By now, earnings and profits of business actors rely heavily on their capacity to extract, process, access, and monetize data, but the legal nature of the latter varies according to the applicable legal regime and protected interests. Moreover, data is not a “thing” but rather a proxy for a constellation of activities, notably inputting, processing, organization, abstraction, units, aggregation, and resourcing of information through digital technologies. Law plays a central role in shaping the capacity of business actors to enclose and/or monetize data (Pistor 2019). Within this context, data it is generally framed as the object of propriety-like or privacy rights (see, e.g., Scassa 2018; Hummel et al. 2021; and here). However, legal systems hardly “code” data as asset that can be autonomously taxed, and they do not appear in corporate balance sheets. In this context, the following questions arise: what kind of legal models can be applied to the purpose of shaping data as autonomously taxable asset? how does one measure and account for data Do models of private ownership, copyright, and commons fit the purpose? Or totally different models need to be created? Further, since data is economically valuable only when aggregated, one issue is: beyond which quantitative or qualitative thresholds do data become autonomously taxable wealth? Finally, how should data be accounted for? These are pressing questions that scholars and policymakers are already addressing (see, e.g., Godt 2021; Clay & Cory 2023), but answering them is a necessary precondition for addressing issues of appropriate tax design.

Tax design. The regulatory goals of a data capital tax are manifold. As seen above, they include the reduction of the compulsion to datafication, social justice, the strengthening of the welfare and redistributive capacities of constitutional states, and ultimately of the latter’s legitimation. In the light of these goals, any appropriate tax design needs to take into consideration that the tax instruments would target excessive datafication also to reduce related negative externalities, along the lines of Pigouvian or even Tobin models. Within the same context, appropriate tax design needs to address issues of progressivity (Marian 2022) as well as redistribution towards to communities from which data is extracted (Singh & Vipra 2019). Indeed, tax design choices need to consider that data economy is transnational and the decisions related to tax revenues should take this element into account, especially from the perspective of the Global North/Global South divide. These issues are unavoidable, especially if digital constitutionalism aims to preserve its “global” nature and does not want to reinforce existing power relationships (see again Gurumurthy & Chami 2021). But to address them properly, one must think about institutional infrastructures and underlying political choices/values. In other words, appropriate tax design requires addressing normative issues, ultimately shaped by value choices lying at the core of any authentic economic digital constitutionalism.

Economic digital constitutionalism. The questions recalled above highlight the need for the establishment and/or strengthening of institutions of economic governance, especially at supranational level. As data economy is intrinsically global or at least transnational, questions of appropriate tax design and governance of the digital economy need to be addressed together with those concerning the control over the infrastructures of the digital ecosystem (Fisher & Streinz 2022). In an age where individual nation-states are less and less able to effectively regulate the digital ecosystem while also profiting from it, international organizations and actors such as the EU are the most obvious candidates to adopt effective measures. But here again, a whole set of questions arises: how should institutions and legal instruments be shaped in order to effectively and legitimately pursue the goals of a data capital tax? How should normative conflicts with other institutions or legal regimes be managed (Burri 2021)? Besides these issues, precisely the political-integrative goals presupposed by a digital capital tax require a reflection on the appropriate direction of the related tax revenues: besides the overall reinvestment into welfare systems to the purposes of social legitimation and inequality-reduction, it is crucial to strengthen the social fields most affected by the privatization/monetization possibilities opened by the digital economy, especially in medicine, information/press, and science (see, e.g., Pickard 2022; Lamcheck 2022). In other words, if digital constitutionalism wants to live up to the historical aspirations of any authentic constitutionalism and address issues of economic governance, itwill have to offer a normative, political agenda concerning the redistribution of the economic value generated by the digital economy, especially in the social fields instrumental to the generation of social inclusion and socially shared consensus, knowledge, and truth. In this way, it would establish a long-awaited conversation with other discourses of economic and political governance at the global level (e.g., Piketty 2013).

Angelo Jr Golia
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Angelo Jr Golia is an Assistant Professor of Constitutional Law at the University of Trento. His research focuses on constitutional law theory, social theory and public law, digital constitutionalism, and systems theory applied to public law.

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