Does the Rise of Nationalism mean the End of Cloud?
Nobody could have missed the most significant political trend worldwide in recent years since the Brexit vote in UK. Donald Trump was elected President of the US on a protectionist mandate. Catalonia held a referendum vote on independence that the Spanish courts ruled illegal. France and Denmark have had national elections with prominent nationalist parties bringing in record levels of popular vote. The elections in Germany and Italy have been submerged in wrangling to deal with the consequences of the popular vote and the concerns of the establishment. Finally, in June, Italy agreed a government between La Lega – a nationalist party looking for partition of Italy into a federal state and more autonomous regions - and the populist, EU sceptical Five Star Movement. What does this all mean?
Nationalist or populist movements can be seen in the West influencing the political agenda in a radical way. Not all would say they are nationalist, but they are typically anti-globalisation and anti-establishment. Barriers to immigration are rising. Trade wars are beginning between longstanding allies – see President Trump’s announcements last week on tariffs over aluminium and steel imports (if trade quotas not agreed). Meanwhile, the UK government feels it’s a necessity to say it will leave the EU customs’ union. Populism and the establishment are at war.
You may be thinking, ‘alright Simon, we get it. The establishment world is falling apart – what’s your point?’
How will this affect cloud services?
The public cloud proposition of on-demand, consumption-based pricing depends on scale and multi-tenancy. The fences and borders in this world are largely virtualised. Their economics depend on the ability to redraw those virtual boundaries across the physical landscape in a fluid manner, responding to demand. The VM that was released by one company a few minutes ago is taken up somewhere else in the cloud for the next hour’s rental by another company. Rents depend on occupancy rates. Once you restrict mobility, you reduce scale and occupancy levels.
Fundamentally, cloud is a global proposition. Anti-globalisation policies affect that. Increasingly, regulation binds data residency to geo-jurisdiction. So physical, geographical divides are pushing into the virtual boundaries of the cloud through data location rules. And if nations increase their separation – particularly European withdrawal from a single market – and if nations pursue independence such as Scotland from the rest of UK or Catalonia from Spain - those physical boundaries subdivide the cloud more.
In June last year, China’s cybersecurity law came into force. It requires companies operating in China – including cloud and internet service companies - to store data within the country and requires mandatory testing and certification by the government of the computer equipment. Not only are there border controls on the data, even the computers appear to need residency visas! The motivation is to maintain the government’s ability to investigate crime and matters of national security.
In Europe this year the General Data Protection Regulation (GDPR) has had enormous prominence. It is pan-industry and applies not just to EU firms but firms dealing with EU citizens. Data must be protected by “state of the art” security measures in European Economic Area. Or if transferred outside the EEA, then it must be done under safeguarded mechanisms – which are complex and dependent on which nation it is transferred too.
Japan enacted its Personal Information Protection law in 2017 with similar restrictions on transfer of personal data out of country. Dozens of other countries are following suit. Following this trend, plus the more general protectionist agenda, then the shift from multilateralism to bilateralism and finally the assertion of nationhood from historic countries or regions - and it is one huge headache for data residency.
There’s another important area too: cloud is the playground of the digital firm. The principle for digital design for everything is centred around the customer. That doesn’t change but it does now carry a drag weight. If a transaction takes place between a customer and a company and maintains a record with the cloud provider, the jurisdiction of that transaction is based on:
- the nationality of the customer
- the national legal registration of the company and,
- the residence of the data
Design around the customer will need to take all that into account.
Finally, of course the uncertainty, that this political climate brings, stifles change and innovation. Reports last week of a Unicredit merger with SocGen say that the planning has been in progress for months but the volatile political situation in Italy has delayed and extended timescales. Why would any company even consider moving to an agile platform in those circumstances?
So, what is happening? Costs are driving upwards as legal jurisdiction runs counter to the cloud model. Further the consequences of getting it wrong are alarming whether you are a cloud company or its customer – the law generally does not allow ignorance as mitigation. Nor does investment benefit in markets where trade barriers are rising.
Virtual Clarity is seeing the market shift from a wide-eyed embrace of “cloud” when companies didn’t necessarily understand it. Now we are helping companies use a hybrid model to position and take advantage more shrewdly and carefully of what cloud has to offer. In these challenging times, it seems the most common and prudent approach.