Tech Is Privatizing Personal Data For Profit: The Question Is Why Society Is Letting It Do So

Concerns are rising about whether people - and the economies they support - are really getting value for service now that technology use is so widespread. The most significant innovations are behind us, at least for the moment.

But the tech companies are still demanding data - and charging - like the benefits to consumers and to society are ahead.  The question is when the cost-benefit trade-off goes negative. JL

Evgeny Morozov comments in The Guardian:

Since data is the source of their profits, tech firms are happy to offer, at highly subsidised rates, services and goods that yield even more data. They are as happy to track us exercise, eat, drive or even make love: for them, it’s all just data – and data means cash. (But) the data-intensive business model adopted by leading tech firms actually distorts how markets operate, depriving them of essential information needed for the efficient allocation of resources.
Are we facing another tech bubble? Or, to put it in Silicon Valley speak, are most unicorn startups born zombies?
How you answer these questions depends, by and large, on where you stand on the overall health of the global economy. Some, like the prominent venture capitalist Peter Thiel, argue that virtually everything else – from publicly traded companies to houses to government bonds – is already overvalued. The options, then, are not many: either stick with liquid but low-return products such as cash – or go for illiquid but potentially extremely lucrative investments in tech startups.
If true, this is good news for Thiel and his peers, especially at a time of negative interest rates. And for the rest of us? Well, we are probably doomed.For several months now, Alphaville, the excellent finance blog of the Financial Times – not your typical bastion of technophobia and capitalism-bashing – has been raising concerns about Silicon Valley’s effect on the rest of the economy. Its writers insist that, for all the highfalutin talk about radical transparency, the data-intensive business model adopted by leading tech firms actually distorts how markets operate, depriving them of essential information needed for the efficient allocation of resources.
How so? Since data – the fuel of advertising markets – is the source of their profits, tech firms are happy to offer, at highly subsidised rates, services and goods that yield even more data. Ultimately there is no limit as to what kind of goods and services those could be: they might have started with browsing and social networking, but they are as happy to track us exercise, eat, drive or even make love: for them, it’s all just data – and data means cash.
All these subsidies, though, make it hard to understand what the underlying goods and services cost. And as these firms transcend our browsers and smartphones and enter into our homes and cars and bodies, we should expect even more distortion of price signals.
Izabella Kaminska, one of Alphaville’s lead writers, even thinks that we are facing the Gosplan 2.0 – a Soviet-like system of technocratic elites who, flush with cash from desperate investors, allocate money as they see fit based on purely subjective criteria, favouring some groups over others, and using proceeds from their advertising business to fund exotic “moonshot” projects of dubious civic significance.
Thus, tech firms end up disrupting both governments and markets: with their sensory tentacles reaching into every domain, Google and Facebook claim to know how to make cash better than anyone else – and how to spend it in the interests of humanity.
Given all this, it’s quite likely that Google, Facebook and the rest will eventually run the basic infrastructure on which the world functions. They would be thrilled to do this, given the ensuing data rainfall. Other companies would be pushed to focus on luxury goods – a bit like Apple. This won’t be good news for the global economy: not every firm can – or should – be Ferrari or Apple.But this could be the least of our problems, for in the long term it’s at the level of these very basic, infrastructural services that Silicon Valley’s promise of a glorious, advertising-subsidised future seems most dubious.
Kaminska warns that a “slowdown in globalisation, world trade and growth” might finally reveal the true costs of the services we are using. But there’s an even more basic threat on the horizon: the eventual meltdown of advertising – one industry that, like God, is supposed never to fail.
Think about it. Given all the disruption around us, how reasonable is it to expect that advertising will remain the magic cash cow that helps bring free internet to Sri Lanka or India and allows millions of people to use email and search for free?
If software, indeed, is eating the world, this “world” surely also includes car companies, banks, hotels, newspapers. How likely is it they will have the cash to keep on advertising – and do so using the very platforms that are actually eating them alive? Especially when even the most technology-savvy of investors’ darlings – BuzzFeed has just posted missed revenue targets – are losing money, while platforms such as Facebook are thriving?
Advertising was always held in contempt by Silicon Valley; it’s too crude, too inefficient, too evocative of the connections between technology and vulgar capitalism. Early on, Sergey Brin and Larry Page of Google famously wrote an academic paper denouncing the effect it could have on their search engine. Mark Zuckerberg of Facebook – the Zen-loving man with dozens of identical grey T-shirts in his closet – does not seem particularly big on advertising either. Advertising might have been a necessary evil to get these companies off the ground, but there is no reason to stick with it for ever, especially if – and when – they manage to destroy all competition and make the world dependent on their platforms.
Once that happens, they can stop the subsidies and simply start charging for the services they offer. In fact, since many startups based on Bitcoin and blockchain technology are obsessed with micropayments – they want users to pay for everything, from sending emails to visiting websites to, eventually, breathing and blinking – the older generation of platforms like Google and Facebook might simply be forced down that path. Especially once they find that, lacking a strong advertising market, all the data they have accumulated is of little value – hence all those fictitious assets on their balance sheets.The solution proposed by the FT – “the breakup of the mini command economies, which are the cross-subsidising conglomerates in our system” – is unrealistic, given today’s politics. These “mini command economies” also conveniently centralise the gathering of valuable national security intelligence; they perform some basic functions of the welfare state via this much-maligned cross-subsidising; they seem to be the state’s preferred vehicle for conducting “moonshot” innovation.
The downside – never mind the privacy disaster – is that they pay almost no taxes; their penchant for moonshots undermines any state-led innovation efforts; their welfarism cannot possibly last for ever. In fact, the latter is likely to result in the hyper-modern form of feudalism, whereby those of us caught up in their infrastructure will have to pay – at least it will be as easy as tapping your Oyster card! – for access to anything with a screen or a button.
The Financial Times rejects Gosplan 2.0 out of hand – which is to be expected, given its love of free markets. But there’s no reason why Gosplan 2.0 has to follow the corporatist model that puts tech firms in charge of all big decisions in the economy. There is also another Gosplan 2.0: the one that uses all those sensors, algorithms, databases and real-time co-ordination in order to offer public services that function outside the price system itself.
The problem with Google is not that it thinks it is a better computer than the market – and Friedrich Hayek, the chief theorist of neoliberalism, thought that the market was just that, a computer that could process and incorporate all the price signals to arrive at an optimal price, and that no better computer was available to central planners – but that all its optimisation efforts aim to satisfy just one goal: profit maximisation.
Google might have proved Hayek wrong – and his many opponents (especially the Polish economist Oskar Lange) right: given enough data and real-time connectivity, there could be better computers than the market.
The political task ahead, then, is to deploy the data to maximise social welfare rather than let Silicon Valley usher in a new form of feudalism that would make the unhinged privatisation of the last few decades look like socialism.