Thinking out of the box

Some months ago I came across a book entitled Radical Markets: Uprooting capitalism and Democracy for a Just Society by Eric Posner and Glen Weyl which proposes that in order to organise markets for the good of everyone, we should be less concerned about curbing market power than giving them free rein to operate. Given that one of the motivations for this blog in the first place was to highlight that markets do not always deliver optimal social outcomes, in contrast to much of the conventional thinking amongst policymakers, the ideas in this book caught my eye. Admittedly, most of them are bonkers and will never be implemented, but at the very least the authors force us to look more closely at the ills within our current economic system. On the basis that if you can diagnose the problems you might be able to find a cure, this is a useful service.

One of Posner and Weyl’s key ideas is that property rights confer a monopoly status that prevents markets from operating properly.  Take the example of land: A landowner can extract a very high price from someone who wants to put the plot to a more productive use. They pose the question whether it is socially just that the landowner can extract rent at the expense of wider society. Their solution to this problem is brilliantly ingenious, albeit impractical. All members of society assign a value to each and every asset that they own and are taxed on the basis of their declared wealth. But the twist is that if someone offers to buy the asset at the value which the owner declares, they are legally obliged to sell it.

In a world of perfect information, asset holders would be able to value their assets at a sufficiently low price to minimise their tax bill but high enough to deter potential buyers. But because we do not inhabit such a world many asset holders will overvalue their assets, in which case society benefits from the additional tax revenue that results. Similarly, many will undervalue their assets which will allow wealth to be redistributed throughout the economy. As an intellectual thought experiment, I was very much taken by the idea. Obviously it would never work in practice because the ultra-rich would simply acquire the assets of the less well-off and we would end up with more concentrated ownership of wealth. But at a time when there is evidence of increased industrial concentration, with a smaller number of firms accounting for a rising proportion of sales in most economic sectors (think Amazon or Apple), this is brave attempt to force the concentration problem onto the agenda.

The authors also propose solutions to the problem inherent in democratic systems whereby the rights of minorities have to be protected, but equally minority interest groups cannot be allowed to block the progress of a wider agenda. Posner and Weyl use the area of environmental regulation as an example but we might even apply it to the Brexit problem, where the actions of the DUP and the ERG have thwarted plans to move things forward. Posner and Weyl’s solution is to abandon the principle of one person one vote and instead give individuals a fixed supply of credits which means that if they expend them on one issue, their blocking power in other areas is correspondingly reduced. In the authors’ words, “a vote can tell you only whether a person prefers one outcome to another, but not how much the person prefers the outcome … we need a way of determining whether the intense preferences of the minority outweigh the weak preferences of the majority.”

On a day when the UK government has issued its immigration White Paper which I found a profoundly depressing and economically illiterate document, based as it is on pulling up the drawbridge, it should come as no surprise that Posner and Weyl weigh into this subject. Their analysis on this area is pretty weak but it boils down to the idea that citizens should be allowed to sell a visa to an immigrant  worker, to whom they provide financial support until such times as the immigrant is able to stand on their own two feet. The rationale is that society benefits from the additional income which flows from immigration, though I struggle to see why those who are not prepared to sponsor immigrant workers should be allowed to free-ride on the additionally generated income.

But mad as many of the proposals are, and unlikely as they are to be implemented, the authors at least have a go at identifying many of the problems which have exercised voters across the western world. The question of whether society could or should accept the undermining of individual property is more troublesome. However, many of the cases highlighted in the book demonstrate that in theory, individuals can better express their preferences by giving up their rights. In a year when The Economist has called for the liberal agenda of free trade and free markets to be redefined in a bid to enhance living standards, the book is suitably thought provoking.

As a final thought, until 1917 just four major countries permitted universal suffrage and it was not until 1971 that all cantons in an enlightened country such as Switzerland allowed women to vote. What was once unthinkable is now commonplace. Just because we cannot imagine how some of Posner and Weyl’s solutions might operate does not mean that they should be dismissed out of hand.

Whose data is it anyway?

To the extent that economics is concerned with the study of how resources are allocated, a system of property rights impacts on the way these resources can be used. For example, if a person owns a piece of land they can choose (within limits) what to do with it e.g. build a house or let it lie fallow. Other people have no right to determine how the land can be used. In a modern market economy, transactions between individuals involve the transfer of property rights and form the basis of the price determination process we see at work every day. These rights are backed up by a legal system designed to enforce the entitlement to a given bundle of goods (or services) and to record their transfer from one person to another.

However, in the digital age the distinction of property rights has become much more blurred. I was reminded of this recently by an article in The Economist which quoted Nikhil Pahwa, an Indian digital-rights activist, as saying “When they say, ‘Big data is the new oil,’ I answer, ‘But my data is not your resource.’” The context of his quote is India’s biometric ID scheme, Aadhaar, whose database is apparently rather leaky with the result that many people’s personal details find their way into the public domain. But it could equally be applied to the likes of Facebook, which owns the world’s largest personal dataset. At issue is whose data is it? 

Technically, of course, it belongs to the individual who posted it. But Facebook’s terms of service state quite explicitly that “you grant us a non-exclusive, transferable, sub-licensable, royalty-free, worldwide license to use any IP content that you post on or in connection with Facebook.” In other words,  although you own the content Facebook has carte blanche to do what they want with it. From the company’s perspective this is great because it has a huge database upon which it can let loose its AI algorithms to generate ever more sophisticated consumer profiles. One of the great concerns expressed by network campaigners is that such huge databases act as a barrier to entry to smaller companies attempting to break into a particular market, because the lack of access to data means that their consumer profiling will always be inferior.

And this takes us right back to Pahwa’s point: Is it right that the data which we own, and which we give away for free, should be used by a profit maximising organisation to enrich shareholders? In their defence, big data companies argue that they do not charge for their services – Google clicks do not cost the user, so in that sense we are getting something for nothing. Except that is not quite true because we pay for it by giving up some data about ourselves, which may be trivial in isolation but when combined with the billions of pieces from other users, goes to make up a huge mosaic which Google can use to target its adverts more effectively. 

In an interesting paper by Imanol Arrieta and co-authors, the argument is made that data providers should be paid for the information they yield in order that they are compensated for their contribution to the world of AI – information which might in due course be used to displace workers replaced by machines. As data hoarding by Big Data companies increasingly raises public interest concerns, it is likely to provoke the interest of regulators keen to cut down the monopoly power of Google, Facebook et al. It would not be the first time that regulators have taken an interest in tech-related issues: Twenty years ago, the US government opened antitrust proceedings against Microsoft, accusing it of establishing a monopoly position and engaging in anti-competitive practices. And if data really is the new oil, as many commentators contend, recall how in the early twentieth century the US government forced the breakup of Standard Oil, accusing it of being an illegal monopoly.

Big Data companies are already potentially feeling the heat from the US Federal Communications Commission, which voted in December to dismantle its existing net neutrality rules. These rules prevent broadband suppliers from treating different groups of consumers differently, and the likes of Google, Facebook et al are concerned that changes to the rules could impact upon their business models if they are discriminated against by internet service providers (ISPs). As an aside, there are many who argue that net neutrality impinges on the property rights of ISPs, but that is a subject for another day. 

In order to alleviate regulators concerns, it might be prudent for the Big Data outfits to take some pre-emptive actions which show that they are taking mounting social concerns more seriously. For example, there is a case for suggesting that at least part of the data they collect could be shared across a range of platforms thus creating an open-source database (after suitable efforts have been made to anonymise it). After all, it is a public resource – it is “our” information. Of course, this might mean an end to much of the apparently “free” content currently available online. However, both the tech industry and society as a whole are going to have to do some hard thinking about how to balance privacy issues against the cost of online services. If this does not happen, it is likely that government will take the decisions for us, which may not be to anyone’s liking.