Who is in charge? : tracing structural power in the global digital infrastructure : a case study of the Dutch digital infrastructure

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Student: Helena Eggink - 5965098 Supervisor: Dr. Jeffrey Harrod Second Reader: Dr. Brian Burgoon June 2015

Master Thesis Political Science - International Relations Research Project - Global Politics of Investment and Trade

University of Amsterdam

Who is in Charge? Tracing structural

power in the global digital

infrastructure.

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1

Glossary and a List of (Technical) Abbreviations

AMX América Móvil

AMS-IX Amsterdam Internet Exchange

AMS-IX USA Inc. The U.S. subsidiary of AMS-IX

CERT Computer Emergency Response Team

Cookie A message, or segment of data, containing information about a user, sent by a web server to a browser and sent back to the server each time the browser requests a Web page

Cloud computing Allows application software to be operated using internet-enabled devices and is classified as public, private, and hybrid

Datafication Modern technological trend in which on a large-scale direct and indirect daily life is captured and collected and turned into computerised data and transforms this information into new forms of value

DE-CIX Deutscher Commercial Internet Exchange

Deloitte Professional services firm

Digital Infrastructure Internet Connectivity and Housing & Hosting

DINL Stichting Digitale Infrastructuur Nederland

DHPA Dutch Hosting Provider Association

E-commerce Trading in products or services using computer networks, such as the Internet

EU European Union

Euro-IX European Internet Exchange Association

Facebook Online social networking service

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4 GISS The Dutch General Intelligence and Security Service

IoT Internet of Things

IPE International Political Economy

ISP Internet service provider is an organization that provides services for accessing, using, or participating in the Internet

IT Information technology

ITU International Telecommunication Union

I&V Intelligence and Security Services

KPN A Dutch landline and mobile telecommunications company

LINX London Internet Exchange

Microsoft American multinational technology company

NCSC National Cyber Security Centre

Netflix Internet provider of on-demand Internet streaming media

NFIA Netherlands Foreign Investment Agency

NTD Notice and Take Down code of conduct

Online Ecosystem Telecom and Cable Services, Online Services, Networks, Internet Connectivity & Housing and Hosting

ONL Foundation for entrepreneurs managed by entrepreneurs

OPTA Onafhankelijke Post en Telecommunicatie Autoriteit

Phishing The attempt to acquire sensitive information from Internet users

Polder model Dutch version of consensus-based economic and social policy making

PvdA The Labour Party is a social-democratic political party in the Netherlands

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5 RIPE-70 A five day event where ISP’s, network operators and other interested parties from around the world gather to discuss issues of interest to the Internet community.

Spotify Commercial music streaming service

TMT Governmental framework of Technology, Media and Telecom

Twitter Online social networking service that enables users to send and read messages called "tweets"

VVD A conservative-liberal political party in the Netherlands

UPC United Pan-European Communications

USA United States of America

WhatsApp Instant messaging app for smartphones

Wikipedia A free-access, free-content Internet encyclopedia, supported and hosted by the non-profit Wikimedia Foundation

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Chapter 1. Introduction

1. Introduction of the subject

The internet industry of the Netherlands can be classified as one of the most prominent in the world as it facilitates more than twenty percent of all e-commerce in Europe (The.nlyst, 2014). The constantly growing segment of professional hosting- and cloud providers makes the Netherlands an attractive ad appealing place for international e-commerce providers to locate their business (Steltman, 2013). Digital services have become an increasingly prominent part of the Dutch economy. Notwithstanding a slow economic climate, the Dutch digital economy have been growing significantly. Disruptive technologies (section 3.1.2) and developments, such as Cloud and datafication, have an immense impact on the productivity and security of a country’s welfare and largely depend on the quality and maintenance of digital infrastructure (Deloitte, 2013).

The digital infrastructure is part of the online ecosystem (figure 1) and functions as one of the drivers of the internet economy. The online ecosystem consists of telecom and cable services, online services, networks, internet connectivity & housing and hosting. Together with networks, the digital infrastructure consists of internet connectivity and housing & hosting (nlnet.nl, 2015). The actual impact of digital infrastructure lies in its growth affecting the digital economy. There is a correlation between highly developed digital infrastructure and economic development, since a superior digital infrastructure constitutes a pre-condition for the growth of a digital economy (Deloitte, 2014).

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7 figure 1: Online Ecosystem

Source: Dutch Ministry of Economic Affairs Report, A.T. Kearney Report; Deloitte analysis

Furthermore, the Dutch digital infrastructure counts as a driving force for the internet economy, as it generates higher revenues and employment within and outside the sector. It is estimated that the Dutch internet economy constitutes 5.3% of the GDP which increases with 9% each year. The digital infrastructure counts as an important boost for direct employment in e-commerce and cloud services, resulting in (in)direct jobs for at least 100,000 people (Deloitte, 2014).

These developments are partly due to the increased interest of companies and investors in the Netherlands, attracted by the strong and reliable digital infrastructure. This is evident in the cases of the US booking site Expedia which expanded its service centre in Amsterdam, and Netflix that chose to build its new European headquarters in the Netherlands. Furthermore, Google decided to build a data centre in Eemshaven, which is expected entail a 600 million Euro investment, and Microsoft has announced the building of a data centre in the North of Holland. The Netherlands Foreign Investment Agency (NFIA) expects that these investments will act as a magnet for competitors, resulting in even more companies electing the Netherlands as their basis (NFIA, 2015).

Today the World Wide Web is located in the centre of the global economy, channelling interactions for nearly 40 percent of the world’s population. Chakravorti, Tunnard &

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8 Chaturvedi (2014) argue that the emerging world is leapfrogging towards mobile phones, opening new roads towards internet adoption. Broadband subscriptions on mobile phones in 2014 have already tripled since 2008 (Chakravorti, Tunnard & Chaturvedi, 2014). As can be seen in figure 2, the International Telecommunication Union (ITU) shows that worldwide, mobile broadband penetration has reached 47 percent in 2015, a value that has increased twelve times since 2007 (ITU, 2015). Chakravorti, Tunnard & Chaturvedi (2014) further contend that the next billion internet users, logging on in an era of near universal mobile connectivity, offer promise of an ever greater economic growth and increased business opportunities (Chakravorti, Tunnard & Chaturvedi, 2014). These expectations, together with a combination of technology trends, such as Cloud Computing, Big Data and the Internet of Things, is expected to cause a significant increase in required digital infrastructure capacity (Deloitte, 2013).

Figure 2: Fifteen years of ICT growth

*Estimation

Source: ITU ICT Facts and Figures – The World in 2015

This growth within the digital sector could be explained by the evolutionary character of the development of digital technology. Due to the emergence of technology that serves plural purposes the technological development is becoming increasingly generative, meaning that

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9 one technology consequently produces another technology (Arthur, 2009). As a result, new technologies evolve out of the digital infrastructure which functions as its basis.

Furthermore, the digital infrastructure is significant for the Dutch economy and counts as the foundation for a dynamic and expanding online services sector driving the Dutch economy. This process has also been noticed by other cities and states in Europe and the world, resulting in global competitiveness. Within Europe the Digital Infrastructure hot spots like London, Frankfurt, Paris and Amsterdam are magnets for high-tech web centred companies (Deloitte, 2013). Other rivalry comes from Sweden, a country that carries out an active policy towards attracting large new datacentres. Sweden has positioned itself as a top choice for companies that are considering international expansion in large-scale, strategic datacentres. Sweden motivates this favourable choice by offering favourable conditions such as a robust electricity network with low and reliable prices, outstanding communication infrastructure, a relatively cold climate that provides free cooling for the hardware and high skilled IT and engineering employees. Moreover, Sweden provides for a stable and secure economy and political climate. Facebook has already chosen to build its data centre on the edge of the Arctic Circle in Luleå, so as to profit from the cold Nordic air to cool servers (Deloitte, 2013). From this investment in Sweden new technologies arise, such as Sweden’s new rapid deployment data centre concept in which the construction of a data centre changed from a construction project into a manufactured product, a method similar to the basic principle of Swedish furniture multinational Ikea (Cohen, 2014).

Similar to Sweden, the Dutch government is making a serious effort to adopt a stimulating policy to attract established IT companies to the Netherlands, in the hope that others will follow. As eleven out of fifteen sea cables connect North and South America to Europe through the Netherlands, and the Dutch digital infrastructure counts as one of the strongest of Europe, it could be contended that the Netherlands is already leading in Europe. However, the report from ITU (2014) has revealed that the digital landscape of the Netherlands is rapidly losing ground since the Great Recession in 2008. This is measured with the Digital Evolution Index (DEI), which analyses the main underlying drivers and obstacles that have steered a country’s evolution into a digital economy between 2008 and 2013. These key drivers are demand, supply, institutional environment and innovation. This analysis yields an insight into what the digital marketplace of the future potentially looks like, by recognizing patterns and understanding the evolving global digital landscape.

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10 On issues like government and the digital ecosystem the Netherlands score well in the sense, that they promoted competition and innovation and made many governmental services available online. However, figure 3 shows that the Netherlands find itself in the trajectory zone of Stall Out. The main reason for this is that the Netherlands has lost its focus on innovation. Innovation determines the quality of the environment for establishing startups and a competitive landscape overall . This means that the Netherlands has realized a high level of evolution in the past, but risks to fall behind, because it is now losing momentum. ITU (2014) suggests the Netherlands to make a jumpstart in their recovery by taking advantage of enlarged regional integration. More specifically, the Netherlands is advised to sell goods across its national borders to the 500+ million consumers worldwide.

Figure 3: Trajectory chart

Source: IBGC & The Fletcher School at Tufts University; Digital Planet: Readying for the Rise of the e-Consumer, A report on the state and trajectory of global digital evolution (September 2014)

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11 The geographical location of the Netherlands contributes to the positioning of the Netherlands as a gateway to Europe. This gate functions as an important asset of the country and attracts international trade, foreign investments and IT business. Therefore the Dutch Ministry of Economic Affairs has formulated a strategic plan called “Digital Gateway to Europe” (Agentschap NL, 2013). In order to achieve the reports’ objectives, targeted strategic acquisitions are necessary. The main idea behind this strategy is that by strengthening the IT clusters in the Netherlands, innovative solutions, expertise and knowledge will be provided for the economical top sectors (Agentschap NL, 2013). Therefore, IT counts as one of the driving forces of economic growth as the digital landscape is increasingly intertwined with processes regarding the business and economic sectors (SDIN, 2014). The primary purpose of this strategic plan is to attract, maintain and expand foreign investments in IT companies in the Netherlands, in order to strengthen the Dutch IT sector and the economic key sectors both qualitatively, in knowledge and skills, and quantitatively, in turnover, employment and numbers of companies. Consequently, this strategic plan should lead to the attraction and establishment of at least 20 foreign companies in the Netherlands in four years’ time (Deloitte 2013). Ultimately, according to ONL, with sufficient and substantial governmental support, the Netherlands could become Europe’s Silicon Valley if the most attractive business climate for startups of Europe is offered. Startups are believed to provide economic and technological innovation. Moreover employment is created and it stimulate the young segment of the Dutch population gain entrepreneurial skills (ONL, 2014).

The Netherlands is positioning itself as the gateway through Europe via the Port of Rotterdam and Schiphol Airport, however a third international port or gateway has occurred: the digital gateway (SDIN, 2014). Finally, the Netherlands also attempt to position themselves as a frontrunner within Europe with regards to its potential for economic growth and innovation (Steltman & Meijer, 2014).

However, governmental support is not solely directed at stimulating the digital infrastructure sector, it is also concerned with managing national security. The downside of the fact that transferring data can be managed so efficiently is that it attracts cybercrime (NFIA, 2014). In order to deal with cybercrime and to safeguard the safety of people, the government needs to intervene in the network. However, intervening in the network reduces trust of companies using the network. Furthermore, the way in which the Dutch General Intelligence and Security Service (GISS) handles cybercrime has been heavily criticised. The GISS has been accused by several IT organisations of being unclear about their requirements as to why and

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12 to what extend they investigate. This uncertainty results in distrust of foreign companies that are either willing to invest or are already investing in the Netherlands. Due to the fact that the competition worldwide and within Europe is growing, a lack of trust in governmental institutions will evidently lead to a decrease in foreign investments in the Netherlands. Ultimately, companies will relocate to other countries where their trust in the network is stronger (Steltman, 2014).

The above paragraphs have outlined the general problems surrounding the digital infrastructure sector of the Netherlands. This thesis will further elaborate on these problems and lay down the main structures within the sector in order to examine the power structures in this rather new and rapidly changing sector. Therefore, the main research question of this thesis is: What are the dynamics of power within the digital infrastructure sector and what

is the nature of that power? More specifically, this research seeks to address the three

following questions. Firstly, to what extent did changes in the four structures of power occur in the digital infrastructure sector? Secondly, to what extent do these changes in the four structures of power influence the sector? Finally, to what extend do these changes influence the relationship between the digital infrastructure sector and the government? The questions above indicate that this thesis assesses the four structures of power to the digital infrastructure sector, and pays attention to the influence of change on these power structures.

1.1 Motivation

The motivation of this research is threefold. First of all, the digital infrastructure is rapidly becoming a key determinant of influence in the fields of economics, politics and society. In recent years, the use of IT has increased enormously. In order to have a solid basis through which this IT flows, a solid digital infrastructure is crucial for the functioning of a state. Similarly, the dependence on IT is expected to increase, which will result in a remaining and important facet for decades to come. Secondly, the sector of digital infrastructure is vague, unknown and unclear for people who are not directly involved in the sector. Therefore, more transparency is needed to examine how the sector operates and to show the importance of the maintenance and development of this sector for a country’s functioning and welfare. Thirdly, from an International Economic Political (IPE) perspective, it is interesting to perform a research on the digital infrastructure sector, by identifying the actors that are involved in the sector and to detect the dynamics of power and interests within this sector. As the use of IT

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13 will only increase in the future, society’s dependency on IT will likely also increase. To have more insight in the motivations and positions of actors involved in the sector, is a requirement for decent decision-making and cooperation between the actors.

1.2 Methodology

In order to provide more insight into the way that powers are interrelated within the sector, this research is based on a combination of deductive and inductive reasoning (Bryman, 2012, p. 26), in which inductive reasoning has the upper hand, and the focus lies on qualitative research. The research has an inductive character because a case study is used, observations are done, a pattern and regularities are detected and evidence has been collected to formulate tentative hypotheses that can be explored. Lastly, this research finishes with some general conclusions. The findings on how the government and the market relate and understand one another can be generalized in more cases that are dealing with a similar situation. A minor part of the research is based on deductive reasoning, as the research started out and is built upon a theory about the topic of interest: power relations.

The conclusion and findings of this research mainly stem from qualitative research and a number of secondary sources. The basis of this research is shaped by interviews and literature studies. Qualitative information and primary sources have been gained on the experiences and views of experts who are dealing with the sector on a daily basis, in semi-structured interviews. These interviews complement and enrich the findings from other sources. The experts have been carefully chosen, and all represent a different side in the discussion. Other primary research has been conducted using sources such as governmental reports, policy documents, annual reports, foundational reports, IT related websites and news reports. By using several forms of data collection the research will be enriched.

1.3 Case Selection

As it is not possible to research the global digital infrastructure sector as a whole, this research is a case study on the Dutch digital infrastructure sector. As the sector is obliged to deal with issues and discussions concerning the influence of the sector in both economic and political fields, these discussions might be generalizable to a larger number of cases that are in a similar situation and have a comparable context. Moreover, studying the case of the Dutch digital infrastructure from a IPE perspective contributes to the understanding of the underlying power relations within the sector. Therefore this IPE perspective provides insights on the interests and the power relation between the actors involved, such as corporations,

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14 institutions and governments. In comparison to other subjects such as cybercrime and cyberspace, the digital infrastructure has been studied to a lesser extent. The digital infrastructure and its relation to the government and civil society is the emphasis of this research, as the government will increasingly be confronted and has to deal with transnational influences of cyberspace and with legislation coming from the EU in its domestic legislation.

1.4 Research Overview

The overall structure of this thesis consists of seven chapters, including this introductory chapter. Chapter two begins with the theoretical framework of the research, and looks at how power can be analysed and understood in theoretical terms. The digital infrastructure sector does not fit easily into existing theories of international trade, especially in comparison to other sectors as it is a rather new sector and constantly under construction. That is why Susan Strange’s notion of structural power is used, which helps to identify the key decision makers and to assess they have (partial) structural power. This is done by first focusing on the concept of power followed by the approach of structural power by Susan Strange (1988). By looking at the concept of structural power the location of where the actual power resides in the global political economy will be made visible. It will also be possible to understand where power actually resides in the quickly changing digital infrastructure sector. Within the digital infrastructure there are roughly three main players that depend on one another: the government, the market and civil society. Changes within the structures influence the strategies and policies of states, firms and market conditions (Strange, 1988).

The analytical part of this thesis is divided into four chapters, each representing the analysis of one primary structure of power. The third chapter is concerned with the production structure. The fourth chapter deals with the security structure. The fifth chapter is focussed on the financial structure. Eventually, the last chapter of the analytical part of the thesis deals with the knowledge structure. Finally, in the conclusion the main research question is answered.

For the purpose of this thesis, it is important to note that the digital infrastructure is responsible for the transport of data, therefore throughout this thesis it is seen as the basis upon which the digital world thrives. Unless stated or shown otherwise, other words that are used in this thesis such as ‘the internet’ and ‘the network’ are related to the digital infrastructure, because both words entail the transportation of data via the digital infrastructure. Therefore, what concerns the internet and the network, does (in)directly

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15 concern the digital infrastructure sector as well. Another word that is often used in this thesis is ‘government’, which refers to the Dutch authorities controlling the Dutch state or community, except where otherwise specified.

2. Theoretical Framework

This theoretical framework focuses on the concept of power and structural power in political economy. There are not many approaches to the analysis of power in global sectors, which is the task of this thesis. The digital infrastructure as a rapidly growing sector in global governance, is becoming a private authority within global politics. The sector already represents a cluster of organisations and actors around a product or service at the global level. Most approaches, theories and studies that are within economics claim that there is no meaning to power (Strange, 1974). Whereas within international relations the concept of power is central, a broader approach is needed. Rather than identifying the concentration of economic power, it is important with sectorial research to understand the dynamics of power and the actors involved. The approach that is most used for sector analysis is Susan Strange’s (1988) structural power analyses. This approach has been used for instance in the energy and oil sector where a structural characteristic of global governance is shown (Tayfur, 2003). Performing a sectorial analysis by using the Dutch digital infrastructure as a case study is important, because the underlying powers and how these powers influence one another within the digital infrastructural sector have never been looked at, due to the fact that it is a relatively new sector and subject to quick changes. Furthermore, the sector has been neglected by the government for a long time. Therefore studying the digital infrastructure is not conventional. Although a great deal of information on the sector is available, this information lacks an IPE scientific view.

The first paragraph elaborates on the concept of power, followed by the second paragraph that presents Susan Strange’s (1988) approach on structural power. This approach eventually identifies where the power rests in the global political economy and shows the key decision makers in the digital infrastructure sector. The third paragraph deals with the four structures of power in the international political economy. The fourth section of this chapter elaborates on the secondary structures of power. Since not all structural power categories may be equally relevant to this thesis, it is necessary to describe this approach briefly and note the critiques about it. The last paragraph of the theoretical framework deals with the critiques and limitations to Strange’s notion of structural power.

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16 2.1 The concept of power in IPE

Susan Strange (1923 – 1998) was a well-known professor of International Relations who was working at the London School of Economics among other places. She introduced in her book

States and Markets, an Introduction to International Political Economy (1988) the theory of

IPE. The concept of political economy was introduced at the end of the eighteenth century. With this concept politics were described in relation to the state’s prosperity and its economic businesses. Furthermore, an attempt was made to describe the connection between wealth of a nation and the power of a state. The author constructed a political economic theory that analyses the influence of states on markets and on one another (Strange, 1988).

As mentioned in the introduction of the Theoretical Framework, the most important facet in studying IPE is to analyse the influence of power in economics, because it determines the relation between the state and the market. A useful example of the influence of power in economics is the difference between a private company in a market economy and a state-owned company located in a planned economy. Here power is not solely determined by the differences in freedom of authority, it is also influenced by the context in which a market functions. It is not only the direct power of authority on the market that plays an important role in determining how a market functions, the indirect effect of authority on the context and related conditions within which a market functions, plays an important role as well (Strange, 1988). For example, a company can tie itself down to strict standards of quality, which can be taken over by other companies and adopted as legislation. In this example the context is the strict standards of quality.

Another context-dependent aspect which influences power are human relations. The study of IPE dealt with problems originating from the economic relations between states and governments and overlooked the human part. Strange (1988) was surprised by the fact that the majority of the literature on IPE was focussed on the political side of the international economic relations and that it ignored the involvement of human relations. She explains this by arguing that political, economic and social relations influence the global system of production, distribution and exchange. These relations are the result of human decisions that were taken by institutions also made by people.

As the digital infrastructure is full of with influences from outside a country, it is important to look at the transnational character of globalization. Globalization as a phenomenon has been one of the first focus research fields of IPE. Therefore an important facet in IPE is the

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17 transnational character of globalization and transnational relations involved (Strange, 1988). Transnational relations are considered to be relations between social and political groups as well as the relationships between economic organisations and national governments that exceed national borders. Within these transnational relations, some actors have a greater influence on the political economy than others. Other theories of political economy do not research why this influences is different and what the underlying sources of power are. Strange (1988) was fascinated by these differences in influence and wanted to know what the underlying sources of these powers were and where they were located.

In order to find out where these powers actually resides in the global political economy, Strange (1988) used the concept of structural power, which is a method of analysing the power within the international political economy. Structural power has more influence than relational power, because structural power is more decisive and influential than relational or bargaining power in a competitive environment. Relational or bargaining power explains itself in the power of an actor, individual, group or state, to make another actor act in a way it would not otherwise do (May, 1996). Structural power entails the power that shapes frameworks within which individuals, groups and states are interrelated, it determines the structures within which these actors have to operate (Strange, 1988).

Especially in periods of large scale historical and structural change in specific social, economic, and political domains, the allocation of power between actors in all those structural fields, too, is open to change (May, 1996). Change in Strange’s words involves:

“shuffling and reshuffling the cards for the actors, redistributing such bargaining power as they had in dealing with each other and changing the degree and nature of their vulnerability to the system” (Susan Strange, 1988: 36).

This means that different from political or economic power, structural power becomes the underlying organising device of its structural domain for the long term, which indicates that structural power becomes more decisive than the outcome of relational power, because the actor’s choices are determined by the structure, that is restricted to a social, political and economic context. The structures of the international political economy are already determined by the range of options in the bargaining process accessible to actors (Strange, 1988).

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18 The purpose of this paragraph was to explain the broader concept of power which is used in the study of IPE. It highlights the beginning of the study of structural power suggested by Susan Strange (1988). Having defined what is meant by power, this chapter will move on to describe structural power, followed by the illustration of the four main structures.

2.2 Structural power

Strange (1988) describes structural power as the power “to decide how things shall be done, the power to shape frameworks within which states relate to each other, relate to people, or relate to corporate enterprises” (Strange 1988: 25). This approach of power connects the capacity of a state with the operations of private institutions and the inter-state system. It delivers a structural analysis that suggests the location of power and where it is in fact resided within the global political economy. All that is required for an actor to actually exercise its structural power is the readiness to act politically in a way that corresponds with its underlying power capacities. Understood in this way, such structural power can belong, as a property, to an actor throughout the entire period of supposed and visible decline of power (Germain, 2014). This is evident in the case of the Second World War, where Strange (1988) argues that structural power belonged to the United States after its victory over Nazi Germany. Because of this victory the security structure obviously was on the side of the USA. Moreover, the USA also exercised its power through the manner of production and the financial structure, for the Bretton Wood system was established and Coca Cola was spread around the world. This power was even increasing, because of the widespread belief that the USA was working towards creating a better world (Strange, 1988).

This property of structural power is about the ability to decide agendas and therefore not in a straight line related to the capacity of A to oblige B to undertake a specific course of action; rather, it is connected to the context of agency, which consists of two levels. The first level is the capacity of A to convince B that its set of choices involves X, Y and Z and nothing else. The second level consists of the capacity of A to influence this set in two ways. This can be either directly, through its own ability to force the acceptance of the set of choices, or indirectly, where most of the elements of the set remain in a dependent relation to A. This means that the exercise of such power could be either active or passive (Strange, 1986).

It is important to mention that the former only deals with one aspect of structural power, that is to design the international regimes of rules and customs or to set the agenda of discussion that are assumed to govern international economic relations. The other aspect of structural

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19 power is the power to determine and shape the structures of the global political economy within which other states, their scientists, their economic enterprises and their political institutions, and other qualified people have to work, operate and engage. Structural power provides the power to decide how processes and activities should be carried out. Furthermore, it is the power to shape frameworks within which states can relate to each other, to corporate enterprises and its sectors, or relate to civil society (Strange, 1988).

The framework that Strange (1988) offers concerning power, is not exclusively based upon one structural source. According to the author, power derives from and is found in a number of structural fields that overlap and are interrelated, as well as work independently from each other. This means that the actors that are able to control one of those structures, can also exercise power in the other structures. The power of actors increases when they are able to control surrounding structures as well. For example, a state can be the dominant controller in one or more of the power structures, however not in the other structures (Tayfur, 2012). Strange (1988) underlines the importance of the assumption that all structures are equal. However, according to Tayfur (2012) control over one or more structures does provide opportunities and advantages for some actors. He argues that in the end the result of where the power lies is not independent of the actor’s use of relational power in its strategies towards dealing with other actors in the international political economy.

So far this chapter has focussed on explaining how structural power works. The following section will discuss the four structures of power.

2.2.1 The four structures of power

According to Strange (1988) structural power consist of four different, but related structures: security structure, production structure, finance structure and knowledge structure. Changes in these four structures effect the policy of states, firms and market conditions significantly. Simultaneously changes in the structures influence the triangular power balance between states, companies and markets (May, 1996). Therefore it is important to mention that the four structures are equally important, one structure is not more important than the other. Every empirical phenomenon can be related to these four dimensions of structural power and their mutual interrelatedness is involved in the empirical analysis (May, 1996).

Before proceeding to the examination of the four structures of power, it is interesting to mention that Strange (1988) visualize the structures as a pyramid with four sides (see figure 1); every side representing one of the four structures. The figure shows that the sides are in

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20 contact with each other, which makes interaction possible. Furthermore, they keep one another standing (Strange, 1988).

Figure 4:

2.2.2 Security Structure

The first structure is the security structure. In this structure power can be exercised by those in charge of security is provided by one group for another. It is in the hands of those who are in a position to control people’s security, in a preserving or threatening way, particularly by the use of violence. This way of judging security and power looks similar to a Realist view on relations between states. However Strange differs in her analysis of the security structure because it is based on the balance of power and more importantly within her analysis the security structure does not take priority automatically. Within the security structure power is seldom measured by its use of force, as conflicts between actors do not always result in the use of force. Therefore, power within this structure is subject to pressures from the other

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21 three structures and it is not the conditioning structure of international political economy. Instead it is only a special situation (May, 1996).

2.2.3 Production Structure

The production structure belongs to those able to control and decide the manner or mode of production of services and goods, which creates the wealth in the international political economy. This structure is visible in a society where arrangements are made in order to decide what is produced for whom and by whom, on what terms and by what method. Changes in the international production structure may have caused changes in the roles of states and firms. Additionally, changes in the international production structure have potentially influenced the way in which the allocation of profits that arises from production have moved. A change in the production structure already results in a change in the very nature of a state, because its capabilities are linked to its responsibilities (Strange, 1988).

Moreover, changes in the production structure led to a turnaround of interests in competition between states and firms. This competition becomes stronger because of growing mutual interdependence of and rivalry between governments and firms for a secure place in the world economy (Strange, Stopford and Henley, 1991). Furthermore, the allocation of benefits arising from production have also been shifted as a consequence of a change in the international production structure (May, 1996). For instance competition between states have changed from the need for means to dominate more or defend territory to the need for means to create wealth within its own territory in order to maintain internal order and social cohesion. Moreover, previously competition among states caused maximalization of power as it was a means towards wealth. Recently, this has turned to a competition for more wealth as a means towards power.

Besides, a new trend is visible in what the primary influences are on how resources are allocated (Strange, Stopford and Henley, 1991), meaning that defence or foreign policy are starting to get overruled by national choices of industrial policy and efficiency in economic management. This is exemplified in the changes in the production structure. Due to market trends and state policies, changing technology and transnational management strategies, the significance of the aspects over which countries have most control, as opposite to those aspects over which transnational corporations have most control have changed. States are responsible for controlling and managing access to the national labour force and territorial

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22 resources, whereby firms considerably increased their access and control of capital and technologies (May, 1996).

When determining factors adding up to competiveness, the importance of labour and raw materials originating from land, has decreased dramatically, contrary to the importance of capital and technology in global competitiveness (Strange, Stopford and Henley, 1991). As a result, mutual interdependence of states and firms throughout the world increases, where states can no longer merely negotiate among themselves. A state now a days, must negotiate, if not as a supplicant but rather as a suitor looking for a marriage settlement, with foreign firms. Firms on the other hand, are seeking for permanent, partial or temporary corporate alliance, in order to compete for more market shares by enhancing their combined capacities (Strange, Stopford and Henley, 1991). Firms become more aware of their imposed involvement with the government and the government in its turn is forced to recognise its expanded dependence on the scarce resources that are managed and controlled by firms (May, 1996). These changes call for new measures of management that challenge the old order (Strange, Stopford and Henley, 1991).

2.2.4 Finance Structure

Thirdly, the power in the finance structure is in the hands of those who control the distribution and credit supply. Noticeably, Strange (1988) is not talking about money but credit which is invested in modern economies. Credit can be created and therefore it does not have to be accumulated. In this structure the power and the ability to control the economy lies with those that achieve the trust of others in their ability to create credit.

The value of credit depends on two inseparable aspects. The first aspect is the system via which credit is created. This is a power shared by the government and the banks. The second aspect involves the monetary system in which credit is denominated, which determines the exchange rates, or the relative values of the currencies. This aspect is determined by the policies of the extent in which the government allows the markets freedom, in order for it to determine the value of currencies (Strange, 1988). These two aspects are involved as a bargain between the market and authority, and reflect on the power within the finance structure (Strange, 1988).

Power in the financial structure belong to those who have the authority to control or create the making of credit in the global economy. It could be that the authority itself is not creating the credit. This does not necessarily mean that the power is decreasing, because as long as the

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23 ones in power are able to control the provision of credit and can command extra credit if needed, financial structural power is still noticeable (May, 1996).

2.2.5 Knowledge Structure

Finally, structural power lies with those who possess knowledge, it lies as much in the capacity to deny knowledge, to convey knowledge, to divide knowledge, as in the power to exclude others from knowledge. It resides with the actors that can partially or wholly limit or decide on the range of access to knowledge. This structure has been the most overlooked and underrated structure that provides power in the international political economy, because it is based on communication, which is hard to assess (Strange, 1988).

However, it is important to not overlook this knowledge structure when a sector is analysed, especially not in the digital infrastructure sector, because communication and knowledge distribution between the actors involved as explained in the introduction of this thesis troubled. The sector is influenced through this structure on two levels that differ between action informed by belief on one level, and on the other level in action informed by information (May, 1996). The first level Strange (1991) mentions exist out of "belief systems and their associated value preferences that inhabit or validate some kinds of actions rather than others". The second level she suggests that change has "a direct and sometimes quite a substantial effect on the bargaining power of actors as well as on the prioritised values of the system" (Strange, 1991, p. 7). May (1996) elaborates on these two levels by supporting Strange her claim that the knowledge structure is hard to analyse and its power influence hard to assess. He elaborates on Strange her argument by stating that the structure is based upon three suggestive aspects. The first aspects is what is known and what is perceived as given or understood. The second aspect is what is believed, and the third aspect are the channels by which these ideas, beliefs and knowledge are communicated and confined (May, 1996).

Three central changes within the knowledge structure itself are used by Strange (1988) as the base of a possible analytical framework. Analysis need to focus on: changes in how language is used also in non-verbal channels of communication; what variations are noticeable in the provision and control of information and communication systems; and finally it should look for changes in "the fundamental perceptions of and beliefs about the human condition which influence value judgements, and through them, political and economic decisions and policies" (Strange, 1988, p. 16)

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24 The power derived from knowledge mostly comes from consent, rather than coercion. Authority is acknowledged according to a socialised belief system. The status of authority is also reached when possessing the knowledge. Finally, the power derived from knowledge stems from the access and control over the means by which knowledge is communicated and stored (May, 1996).

Although it is hard to assess the knowledge structure and the structure requires more development to transcend the suggestive, Peter Ellehøj (1993) does an effort in this by suggesting that the knowledge structure becomes the foundation for the other three structures. Strange suggest that every main structure is as important and interacts on an equal base with one another. Ellehøj (1993) complements this suggestion as he argues that the structures of safety, production and finance are based upon the structure of knowledge, according to him, the knowledge structure influences the process of negotiations between the market and the government the most.

As derived from the text explained above, these four structures of power all work with the management of artificially influencing scarcity. Scarcity is measured by the availability of goods, which not primarily dependent on the number of goods available, but on the volume of goods that are actually open for exchange. In this sense, raw material can be widespread, but if the material is extracted only in fairly small amount, without the possibility to increase its amount within limited time, it becomes a limited good. This suggests that the availability of goods may be artificially limited by and due to an actor’s strategy. For example, it is possible for know-how or knowledge to be unlimitedly reproduced, but is generally spread by the owner in a limited manner (Pustovitovskij & Kremer, 2011).

The four structures are not limited in its use to analyse the power structures globally, the approach of Strange can also be used at a local level. In order to use the approach of Strange (1988) at a local level it is important to know on what assumptions and reasons policy is made by actors such as governments and companies. How the power is divided depends on the kind of interaction between the government, the market, the companies, the central banks and the commercial banks (Strange, 1988). Therefore, apart from the four main structures, Strange also describes secondary structures, that are subordinated and shaped by the four main structures and will be discussed in the next section.

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25 2.3 Secondary structures

The secondary structures are determined and subordinated to the four main structures. As in the main structures, these structures are also based upon the interaction between state and market. The difference is the international component of the worldwide market and its transnational influences on states which is taken into account in the secondary structures. Strange mentions four secondary structures: the transnational transport system, the trade system, the energy system, the transnational aid and development system. These four secondary structures are randomly chosen, other systems and structures can also be added that are of influence to the interaction between state and market on a transnational level (Strange, 1988).

For the purpose of this thesis the transnational transport system will be explained as it is an example of a secondary structure and important to the sector of digital infrastructure. The way in which persons, commodities and services are transported touches upon the political field as well as the market, since there is supply and demand of these transportations. The government needs to approve for this transportation to take place, for it crosses the national territory of a state. The way in which the governments allows companies to play a role in this transporting process, and therefor the choices it makes, influence the division of benefits and possibilities. The political economy of the international transport system is considered by Strange (1988) as the effect of the interaction between the four main structures. The main purpose of the creation of the transport system was to safeguard the security of a state and to promote the integration of people. They wanted to guarantee the safety by composing rules and laws on the international transport system, in which other states were obliged to act conform these regulations. Due to internationalisation of production, the demand in ways of transportation have increased. To comply with this request the financial structure needed to provide enough credit to purchase these ways of transportation. The knowledge structure also played an important role in the worldwide transport system, for it developed satellites that increased the safety of the transport sector and made the management of the sector more efficient (Strange, 1988).

As has been discussed in this paragraph, the influence of changes in the market on international and foreign policy is underestimated according to Strange (1988), which influences the balance between the state, the market and the companies. Technological development changes the conditions at the market, which eventually changes the composition

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26 in market share of companies and states. The cause of a change starts within the four main structures. These changes in the main structures impact the policy of states, the strategies within companies and the market conditions. Furthermore, it influences the triangle relation of power between states, markets and companies.

As has been explained above, secondary structures are subject to changes in the four main structures. This means that changes in the transport sector are caused by changes in the four main structures. Before proceeding to examine the limitations and critiques to Strange her notion of structural power, it is necessary to highlight the difference between the approach of Susan Strange (1988) and other approaches towards IPE like realism, Marxism and liberalism. When disintegrating the approach of Strange, it becomes clear that in contradiction to other approaches in the study of IPE the measurement of causality, and with this the causes and consequences of changes, are different in Strange (1988) her approach.

2.4 Critiques and limitations to Strange’s notion of structural power

As mentioned before, Strange tried to find an alternative for the state‐centric analytic trends in order to expose a far more complicated world of often powerful non‐state actors that shape global politics. Strange refused to agree on the “‐ isms” approaches of realism, Marxism and liberalism when she tried to get the analysis empirical correct. Similar to realists, she considered the concept of power seriously. Dissimilar to realists she looked at power beyond the state. As Marxists, she shares her concerns on inequity. However, she does not focus on classes like Marxists. Like liberals, she examines markets seriously. Unlike liberals, she underlines the need to understand the interaction between markets and states, and how markets can produce fundamental political dynamics (Sell, 2014).

She wanted her work to be seen as outside of the mainstream literature on institutions, international regimes, and international organizations that was dominated by American scholarship on international cooperation and international political economy and critical in its approach. She took up a critical position against the mainstream of American international political economy theories, which she considered as narrow minded and likely to get bogged down in today’s thinking (Tooze, 2000).

Strange (1996) her research shows that structural power is less concentrated between a limited amount of states. It has been moved to a wide variety of transnational actors like multinationals, international accountancy firms and transnational criminal organizations

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27 (Strange, 1996). Although it is doubtable if Strange provided the scientific world with a verifiable theory (Verbeek, 2000), she certainly offers a perspective in which the field of politic and economy can be analyzed (Colijn & Verbeek, 2000). Other critics focus on the fact that the intellectual contribution as little, because they think it is less academic. According to her colleagues it was not her main purpose to develop a full theory of IPE. She wanted rather to develop a way and a framework of and for thinking (Cohen, 2007).

Next to this limitation of Strange her approach as being solely a perspective in which IPE can be analyzed, there are also critiques and limitations to Strange her notion of power. As the world looked different in the time of Strange her writings, she based her theory on a world that was divided between the democratic West and the communist East. During that time the USA and the Soviet-Union were the two most powerful states in the world. Today, there is another reality. The influence of international organizations worldwide have been developed enormously, which increases the complexity of IPE.

The origin of Strange her approach comes from the belief that too much attention goes to importance of states in power relations. Due to globalization, states lost their prominent position of being important actors in the world politics. Scientists of the American School of the International Political Economy argue that Strange, as being the founder of the British school of IPE, wrongly estimates the state in her analysis of IPE. The American school estimates the sovereignty of the state as the most important actor in IPE, this is in contradiction to what the British school argues, because they argue that the state is as an actor as important as the other actors in IPE (Cohen, 2007). Still the division of power can be found through the approach of Strange (1988), for the four main structures of power can be applied to today’s realities. Furthermore, Susan Strange was British, which made her perspective mainly Western. This is visible by her way of illustrating her writings that consist mainly of European and American political economy examples.

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28

Analysis

Applied method on power relations

As explained in the Theoretical Framework, Susan Strange (1988) uses the concept of structural power to identify the location of power within the IPE. This can be defined as an informative method to analyse the IPE and the issues surround it Strange’s work provides an IPE framework that highlights structures of power between the government and the digital infrastructure sector. Her approach draws attention to the impact and importance of the relationship between public and private authority (May, 1996). In order to better understand where power actually resides in the rapidly changing digital infrastructure sector, this thesis uses the structural power approach of Strange by assessing the four structures of power to the sector. By using this approach, an attempt will be made to identify the power structures of the relevant actors within the digital infrastructure sector.

The analysis of this thesis is divided into four main sections, each of which presents the results of the findings relating to one of the structural powers mentioned by Susan Strange (1988). The first chapter deals with the production structure, the second examines the ‘security structure’, the third chapter describes the ‘finance structure’ and the fourth chapter discusses the ‘knowledge structure’. Each chapter commences with a brief explanation of what the structure entails, followed by the analysis derived from primary research. A summary of the key findings and suggestions that arise from this analysis are provided in the conclusive chapter 7 of this thesis .

3. Production Structure

The ‘production structure’ is relevant with regards to those actors that are able to control and decide on the manner or mode of production of services and goods. This structure is visible in the arrangements of a society where it is decided what shall be produced, for whom, by whom, on what terms and which method is used for the production (Strange, 1988). The purpose of this section is to analyse the division of power within the production structure of the digital infrastructure sector. It begins by analysing who manages and owns the digital infrastructure. It then goes on to describe how innovation is connected to an indicator, namely the mode of production, of power within the production structure of the digital infrastructure. Thereafter, special attention is given to the influence of external and internal change within the sector, by explaining the disruptive character of digital technology. The last part of this chapter describes how the Dutch digital infrastructure sector is distributing its mode of production to other countries.

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29 3.1. Owner of the Digital Infrastructure

The production structure is characterized by who owns and manages the digital infrastructure. According to Bastiaan Goslings (2015)1 the Internet is not controlled by one party, it is a diffuse network of several organizations. Tim Wu (2011) offers a possible division of power by establishing a salutary distance between horizontal layers throughout all media providers while eliminating vertical silos that usually kept them apart. Wu (2011) proposes a separation between each of the major layers or functions of the information technology economy. This comes down to a constant separation of those who own the digital infrastructure, those who develop information and those who control the tools or venues of access. Wu (2011) further contends that the role of the government within this context is to defend and support this separation by distancing itself frm the sector. Furthermore, he suggests that the government should keep itself from intervening in the market to prevent the favouring of any network monopoly, technology, or integration of the main functions of the information industry (Wu, 2011).

Correspondingly, Astrid Oosenbrug (2015), member of the house of representatives of the Dutch parliament, argues that within the framework of a public-private partnership the government constantly considers the advantages and drawbacks of collaboration with various parties for two reasons: it wants to preserve an open market and it is constantly trying to prevent the domination of one party on the market. A dominant or monopolistic position could negatively influence the governmental decision-making process in two ways. First, it could diminish the government’s freedom to act in a certain way and second, it could undermine an important task of the government, namely to guarantee a competitive market in which the existence of a monopoly is limited as much as possible. Oosenbrug (2015) explains this issue with a recent example of the telecom market. KPN, a Dutch Telecom Company, acts conforming to legislation limiting its power in the sector, because other players are free to enter. However, due to the recent merge of Ziggo, the largest cable operator in the Netherlands, and UPC Netherlands the Dutch cable market has ended up largely in the hands of foreign corporations. Ultimately, this means that money will flow out of the Netherlands. In this scenario, the government is not powerful at all, as it can only lobby or share its opinion towards the companies involved in order to influence the process (Oosenbrug, 2015).

1_{This interviewee was in the core execution position in The Amsterdam Internet Exchange (AMS-IX), but did}

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30 According to Michiel Steltman (2015) 2, director of DINL, everything is influenced by the disruption of the Internet. Therefore Digital Infrastructure Netherlands (DINL) (2015) argues that the digital infrastructure is not owned by one entity, because if that would be the case, this one entity would eventually disappear due to innovations and alternatives (DINL, 2015). According to the Dutch Minister of Foreign Affairs Bert Koenders (2015) the significance of the thought that everything is influenced by the disruptive character of the Internet has also been perceived by the Dutch government as the Dutch Internet diplomacy efforts go out to act upon the new movements and to promote an open, neutral, accessible and secure Internet environment (Koenders, 2015). Koenders (2015) specifically mentioned the importance by comparing the debate on the Internet with the debates concerning the stability of the financial system and climate change.

This section has reviewed the aspect of ownership of the digital infrastructure. It seems that ownership is preferably shared between actors. Furthermore, the disruptive character of technology can contribute to this notion of a ‘shared market’, as it prevents one single actor from being in power. However, changes within the structure do influence the range of ownership of actors within the structure. An indicator of change is innovation, so the next paragraph explains where innovation comes from in the digital infrastructure sector.

3.2. Disruptive Innovation

Innovation is an indicator of and originates from the manner of production. Due to innovation new ways of producing can be realized and therefore changes in the production structure occur. Therefore, the actor that influences innovation the most will likely have the greatest influence on the manner of production and the digital infrastructure sector itself. This paragraph elaborates on the effect of disruptive innovation and in what way disruptive innovation influences the alternation of actors in power.

Wu (2011) contends that actors responsible for innovation succeed one another in positions of power. In an innovative environment, various actors are attempting to attain some degree of control within the recently developed form of technology. Eventually, the number of competing actors decreases, ultimately resulting towards a monopoly situation. These monopolists tend to lead the innovation and have substantial control over other actors they perceive as a threat to their position of power. Whichever actor establishes technological

2_{This interviewee was in the core execution position in Digital Infrastructure of the Netherlands, but did not}

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31 dominance first will try to ensure its first-mover advantage. From this point on, innovations and alternative technologies will often emerge to challenge the monopolist (Wu, 2011). For a considerable while, the early dominant actors retain their position by adopting short-term, profit-maximizing politics in order to anticipate or eliminate threatening competitors. In order to keep the first-mover advantage, dominant players will often resist alternative yet superior, technological approaches. Moreover, if a dominant player is able to recognize the threat of competitors early enough, he can be in a position to buy out newcomers and subdue their technological breakthroughs (Wu, 2011). As a result, potentially innovative technologies may not get optimized by the monopolist, since he may be more concerned with retaining his position.

Within the relative short period of time the digital technology appears to have a generative character and arguably disrupts systems (DINL, 2015). Peter van Baalen (2015), professor of Information Management and Digital Organization at the University of Amsterdam elaborates on this generative character of the Internet and its disruptive nature. Disruptive innovation signifies an alternation of new technology to the expense of older technologies. An illustrative example of generative technology and its resulting disruptive innovation is the replacement of the Encyclopedia by the Internet-platform Wikipedia (van Baalen, 2015). Digital technology is considered generative when it is adaptive, scalable, accessible, easy to use and transferable (Zittrain, 2008, p.72-73). Zittrain (2008) suggests that the architecture of generative technology is open and layered with a minimum number of restrictions. Too much control could limit the collective innovation process and stops potential participants from participating in the platform (van Baalen, 2015).

A well-known example of generative technology and the resulting disruptive innovation is the downfall of the Encyclopedia in the shape of books by the platform Wikipedia. Wikipedia is a generative technology that eventually had a disruptive effect on the market for encyclopedia (van Baalen, 2015). Also according to technology repots coming from McKinsey (2014) recent digital innovations have a disruptive character, because technology does not only create new products or services, it also causes existing markets and frameworks to redefine itself.

According to DINL (2015) innovation within the digital infrastructure occurs due to three factors that amplify one another. Strong infrastructure leads to a plurality of use by society and companies, increasing knowledge on digital technology. This larger pool of knowledge