Legal Challenges and Opportunities in Regulating the Digital Economy and Business Innovation in Industry 4.0

Abstract

The rapid digital transformation of the Industry 4.0 era has redefined global economic structures and challenged traditional legal frameworks. This study examines Indonesia’s legal readiness in regulating the digital economy and business innovation amid accelerated technological disruption. Employing a normative juridical method with a comparative approach, it integrates Progressive Law Theory and Smart Regulation Theory to assess Indonesia’s regulatory adaptability against international benchmarks, particularly the European Union’s GDPR and Singapore’s principle-based model. The findings reveal that Indonesia’s digital governance remains fragmented, reactive, and inconsistent, resulting in legal uncertainty and limited investor confidence. However, significant opportunities exist to strengthen the legal system through regulatory harmonization, digitalization of law enforcement (RegTech), and multi-agency coordination. The study proposes a hybrid regulatory model that combines strict accountability with innovation-friendly flexibility, aligning with both progressive and smart legal paradigms. This model provides a pathway for Indonesia to enhance legal certainty, foster innovation, and establish a competitive and trustworthy digital economy in the global regulatory landscape.