By Michael Fertik, contributor

This week in Davos, the World Economic Forum is convening several sessions on digital privacy. (I am moderating one and panelizing and participating in others.) The WEF has taken a leadership role in this field, emphasizing the importance of privacy in the context of cyber security, which the WEF’s Risk Response Network has identified as one of the top five risks facing the world today.

Top policymakers from the U.S. and EU, as well as business leaders from around the world, are meeting to discuss the most critical questions concerning personal privacy and freedom on the web, including how to give users more control over their personal data.

Meanwhile, back in their home countries, regulators are taking steps to protect privacy. Germany and Korea have taken action against social networks for opting people into data streams without their permission. And the United States Federal Trade Commission and the Commerce Department are currently taking comments on proposed “Do Not Track” provisions that would make it possible for users to prevent companies from aggregating and mining data about where they surf on the web.

The proposals from the FTC and Commerce Department are getting a wide range of reactions, from those who think the measures will go too far to those who don’t think they go nearly far enough to safeguard personal data.

The tech industry has begun to respond. Microsoft (MSFT) got a jump on the discussion some weeks ago by announcing they would build privacy protections into their upcoming Explorer release. The positive public reaction — combined with an apparently growing interest in privacy by the Seattle giant — gave the “older school” Microsoft a much-needed boost just as people began to think that newer social media and advertising businesses were beginning to erode their core franchise businesses.

Just this week, Mozilla and Google (GOOG) both announced that they are following suit, building do not track-type measures into their Firefox and Chrome browsers.

This is big news, and there are a few things that policymakers, business leaders, and commentators should keep in mind.

First, government does have a role to play when it comes to protecting personal digital privacy. Just by discussing “Do Not Track” measures, American regulators have clearly influenced decision-making by the largest browser makers in the world. The government’s light, non-invasive discussion has raised the bar for what is a best practice in the industry, and the private sector is responding and rising to the occasion.

Second, some light changes to policy do not spell the end of freedom, speech, information, or innovation on the Internet. It is an often-repeated canard that any change at all to existing advertising practices will kill “innovation” (a code word for “revenue” used by technology companies who are aware that some members of Congress will grow wide-eyed if they hear that “innovation” is under threat) on the Internet.

It’s not true.

Plenty of governments protect digital privacy more than the U.S. does. And there is a lot of Internet activity in those areas. Small, incremental changes in the law do not harm innovation; in fact, they usually furnish new and interesting opportunities for even more innovation.

Third, business leaders and policymakers are on to something. The American public — like the public in other countries — is increasingly clamoring for tools and measures to protect their privacy.

Now is the time for leaders at Davos to double down on these promising developments. Regulators and business officials alike are to be applauded for their interest in this field, and they should be encouraged to do even more.

Michael Fertik, a repeat Internet entrepreneur and CEO with experience in technology and law, is the founder of Reputation.com. He has been named a World Economic Forum Technology Pioneer for 2011.