September 23, 2008

In times of trouble, and who would deny such times are not upon us, Americans tend to look at Grant Wood's icon as in a mirror. The rugged individual, upstanding and unsophisticated, the nuclear family as the economic unit, here are the true American values. Yet nothing could be more dangerous than to rely on American Gothic to clean up Gotham's Wall Street antics.

However rugged, individuals belong to a society, defined by the rules and regulations its members must accept. Cornerstone of capitalism, self-interest cannot be counted upon to bear others' burdens nor can it be reliably separated from excessive greed, except in hindsight. Engine of growth, innovation cannot be abandoned without peril, whether it concerns farming or financing.

Still the future President of the United States can hardly expect to be elected for taking rules, greed and financial innovation in stride. Why not propose to bring fairness to the people? Fairness happens to have both sound moral and economic meaning. Fairness in short is of the left, right and center. And if, poacher intent to become gamekeeper, he were to recognize the advantage of eprivacy, I could give him some tips.

Take policy making for instance. When it is meant to reward or punish, a policy must per force discriminate among behaviors and, when applied preventively, among profiles. It is a fact though that such pattern recognition requires errors to be made in its name. Wouldn't it be fair to publicly acknowledge it in advance with a rule to compensate future victims? This would have immediate and positive public impact on security related matters, such as air travel safety.

Better still, many a fairness measure needs not cost a single tax dollar while promoting efficiency. Michael Skapinker reports how "the London borough of Camden began a trial of charging [utilities] up to [$1,150] a day to dig up the road, although the first three days were free" (*). Surprise, Camden traffic jams decreased as utilities saw fit to fill up their holes quicker.

May I suggest another experiment? Loss of confidential personal data by private and public organizations has become routine, barely getting media attention anymore, witness how little was made of a recent dispatch by Reuters (**). Making the organization pay those whose data they have exposed would be, as my readers have already spotted, a rule of the kind which gives regulation a bad name. The higher the payment, the higher the incentive to hide the loss. Besides how can the loser know the content of the list if it is lost? I totally agree.

A good rule stays simple. Make every organization holding a copy of someone's confidential data pay a premium to the person concerned for the associated risk of exposure, while allowing the first three copies to be free if properly disclosed. Instead of a useless privacy notice, I will each year receive the copy list plus a check in the mail. I bet organizations will quickly cut down on excessive copying. Simple, a rule needs not be simplistic. The premium for a copy could be reduced if the organization can show it is encrypted and increased when it is outsourced to a foreign jurisdiction.

Why not take up markets as our second cause? Remember United Airlines? Justin Baer told us (***) its share price briefly collapsed last week in mistaken chain reaction to someone's reading an old report on its 2002 bankruptcy filing (1). As Tim Arango explains, stock market trades can be driven by programs which parse news feeds automatically (****). Any programmer will tell you, computers, like people, process bad inputs into bad outputs but do it much faster and more consistently. How fair then can a stock market be if nobody is responsible for news feed accuracy?

The challenge for the next US President is to create new, efficient information markets which encourage providers to act responsibly in self-interest. Establishing rules to govern such economic mechanisms is by no means an easy task, but one which will hardly burden the budget. On the contrary, harnessing better primary data would unleash new economic value. Market in free commodities are of course hard to set up. But if Coca-Cola could once resell Thames water to British consumers (2), can't information be properly filtered, packaged and distributed for profit?

Actually if piracy, law, philanthropy free information over time, it does not start that way. Market organization should promote law and philanthropy and fight piracy. For instance, whether they spy on the behavior of their users or lure them into disclosing personal information, consumer data originators and aggregators should be a priority target. Not only do they enrich themselves by stealth but, as Stephen Pritchard warns us (*****), they increase the exposure risk of consumers. Worse, their practices threaten data integrity and push consumers to lower information quality.

Furthermore information used in negotiations is not a commodity. The proper venues to express its value are the value markets of which it is a factor, such as salary levels on job markets. Having reviewed the case for public disclosure of employee pay, Lucy Kellaway concludes "secrecy not only suits managers - it suits workers too" (******). While employers cannot help knowing how much their employees make, no such limit on confidentiality needs apply in hiring. Job markets would be more efficient if all parties could match their expectations without premature disclosure.

Fairness requires to eliminate information asymmetry which prevails today on job and most other value markets.

Isn't a commitment to fairness a mere sideline however, when the hole in Wall Street is of a size Camden has never seen? Read on part 2!

Philippe Coueignoux

• (*) ............... Pay-to-Dig is the answer for holes in the road, by Michael Skapinker (Financial Times) - September 8, 2008
• (**) ............ Britain: 4 Governement Laptops Stolen in Another Data Breach, (Reuters) - September 18, 2008
• (***) .......... Old news cuts 99% off United Shares, by Justin Baer (Financial Times) - September 9, 2008
• (****) ........ I Got the News Instantaneously, Oh Boy, by Tim Arango (New-York Times) - September 14, 2008
• (*****) ...... Every piece of data lengthens a digital shadow, by Stephen Pritchard (Financial Times) - September 17, 2008
• (******) .... How much do I earn? You're better off not knowing, by Lucy Kellaway (Financial Times) - September 15, 2008
• (1) I once wondered whether my flying pattern affects, if not the weather, at least the Stock Exchange in London. Little did I know my reading is as potent.
• (2) Please Google News, note this comes from an old story.
  Coke recalls Dasani after health care, by Adam Jones, Betty Liu and Jo Johnson (Financial Times) - March 19, 2004