February 22, 2011

"The J-curve is a controversial idea" writes Ian Bremmer (*). He is entitled to defend his own invention, which "plot[s] the relationship between a country's stability (on the vertical axis) and its social and political openness (on the horizontal axis)". To the left are stable dictatorships like North Korea, to the right even more stable democracies like Great Britain, with "a turbulent transition" in between mimicking the bottom of the letter J.

Like all good images, the J-curve tries to provide an insight under a memorable guise. It does not pretend to mirror society exactly. If I have an issue, it is because its very insight is misleading, its memorableness bent on reinforcing our own prejudices.

Despite its being my early love, forget typography. J lacks the dynamic character needed to describe the actual situation studied by Ian Bremmer. I would rather talk about the pendulum curve. For, like an oscillating pendulum, society never stops forever at either one of its extreme states.

True the speed of the pendulum is fastest at the bottom of its path but it would be a dangerous illusion to think the high degree of stability enjoyed by so-called democracies is intrinsic, only threatened by external events such as powerful foreign plunderers or the rise and fall of sea levels.

Think of what happened to the Roman Republic. Though he had plenty of gall, Caesar never entertained the goal of making himself king until he found himself king in all but name. He just wanted to be elected consul so as to pay his gambling debts. And do not accuse him of immorality. His gambling was republican to the core, focused as it was on running for office. An expensive habit though, what with vote getting panem et circenses.

Doesn't it remind you of Richard McGregor's article on the cost of US presidential elections (**)? What can be more memorable than a curve familiar to all venture capitalists, the so-called hockey stick curve? Candidates spent 300 million dollars in 2000, 665 million in 2004 and 1,056 million in 2008, with the 2012 forecast set at a "conservative" 2 billion. This is not democracy at work, it is what I call a pronaocracy. But as stakes cannot rise indefinitely, a Rubicon will be crossed one day and the pendulum swing back to some strong man regime.

It is hard of course to predict when a metastable system loses its appearance of stability. In particular large, diversified economies are more resistant than those based on oil and minerals, whose monopolistic control is a strong man's dream. There lies the danger of our Information Age. As data replaces energy as the main engine of economic progress, could Western pronaocracies become easier prey for those who would be king?

Any attempt to answer such a question must be grounded in an understanding of information, its nature and its flows. Who could claim to have mastered such a subject matter? If such a synthesis proves elusive, it is not however for a lack of perceptive analyses.

For instance, Gillian Tett points out (***) "companies such as Google, Amazon and Facebook are now able to monitor what consumers and businesses are doing around the world in real time", "while bankers have used cutting-edge computer technology to, say, develop ultra-fast automatic trading strategies". Why is it then that regulators have not yet applied what Gillian Tett calls west coast technology to track the latest financial innovations from the east coast?

To some extent, her question is rhetorical. Its simply underlines the digital divide between the data slaves, who must surrender their personal information, and the data lords, powerful enough to impose their views upon subservient governments. In such circumstances why would investment bankers allow outsiders, regulators included, to observe their activities, especially their latest, most lucrative schemes? They are deft, not daft.

There is a silver lining. Data exploitation thus remains strongly segmented today. And in each segment, it is also fiercely contested. Fielding feuding forces pulling in so many directions, the US pronaocracy remains relatively free from a single overpowering influence.

As far as consumer data is concerned, the fight is on between tethered device operators, communication companies, advertising networks and content providers. Apple has stolen the show, "demanding a 30 per cent cut of all subscriber content sold directly through its iPads and iPhones" and throwing at publishers the information crumbs of a consumer opt-in scheme, as David Gelles and Edgecliffe-Johnson report (****).

Though Google has lately lost the limelight, its present crown still looks secure. It profiles us through every means in sight, its money machine is yet to be matched and now it unveils "a 10 per cent cut through One Pass, [as] a more palatable revenue share for publishers" (*****). As Tim Bradshaw and David Gelles gleefully underline, "relations between publishers and Google have not always been smooth". Being a content provider provides one with little content today, the pick of whose menu to grace.

Meanwhile the professional data segment seems to stage the survival of the fattest. With BATS Global Markets "finalising a deal to merge with Chi-X Europe", it is hard to dispute Jeremy Grant's conclusion that "the move caps a week of frenetic consolidation among global exchanges" (******).

In this segment, the raw data is no longer consumer profiles but share trades, the coveted source of future revenues no longer the ability to target consumers but to anticipate the market, preferably through complex derivatives. In both cases the quality of the raw data remains an issue. For trading, off-exchange alternatives fragment the vision offered to the public while derivatives hide as well as spread risks.

Even if the consumer and professional segments can be both tackled with the same data aggregation technologies, lobbyists will prevent pronaocratic governments from deploying such powers of observation. But the same restraint does not apply to enterprising private actors.

Whether consumers or investors, here are the toiling masses mentioned by Douglas Rushkoff. Any system which enables global, yet individualized monitoring of crowd behavior across all transactions would give its master a legal, nationwide insider status. The potential for rewards is great, an invisible tax on all activities which could help its beneficiary finance a pliant government until he feels ready to be hailed Godfather of the State.

Since spying on consumers appears to be the core competence, forbidding it would leave data money in the pockets of each and every one of us. This is the surest way to deprive strong men of the economic grip they need to swing the pendulum away from an open society.

Yet capitalists prefer strong men to messy democracy. Wasn't Hitler financed by the Ruhr? Stay the pendulum a bit longer! Which way Tahrir Sq.?

Philippe Coueignoux

• (*) ........... The J-curve hits the Middle East, by Ian Bremmer (Financial Times) - February 17, 2011
• (**) ......... Cash stakes rise sharply in race for White House, by Richard McGregor (Financial Times) - February 17, 2011
• (***) ....... How innovation has come to mean different things on different coasts, by Gillian Tett (Financial Times) - February 16, 2011
• (****) ..... Apple demands 30% slice of subscriptions sold via its apps, by David Gelles and Edgecliffe-Johnson (Financial Times) - February 16, 2011
• (*****) ... Google joins payments battle, by Tim Bradshaw and David Gelles (Financial Times) - February 17, 2011
• (******) . Exchanges to create European shares hub, by Jeremy Grant (New York Times) - February 18, 2011