July 31, 2012

"Julie Brill, a member of the Federal Trade Commission, said consumers should have access to all the details that the data brokers collect on them, as well as any analyses that the companies sell about their behavior" (*).

This is not the first time an individual voice at the FTC shows a clear awareness of eprivacy issues. Julie Brill's wisdom recalls past insights from David Vladeck and Pamela Jones Harbour, putting an unfortunate glare on the fact the whole is not always greater than the sum of its parts. Has the FTC ever shut down a famous corporate digital pirate (1)? Instead it clings to some messianic ability of sheep to keep watch over the wolves.

Or could it be the sheep will turn into tigers? Perhaps the FTC will force data brokers to reform their profitable trade in personal information and "operate more transparently". According to Natasha Singer, Acxiom for instance has quite a way to go.

A wish for greater transparency is at least in the air. Hear it again as concerns about public security push governments themselves into digital piracy. Quoted by Adam Liptak, "Marc Rotenberg, the executive director of the Electronic Privacy Information Center" declares that electronic surveillance "need[s] much more transparency" (**).

Transparency however should not be pursued indiscriminately. Acxiom for one would not mind more transparency on our part when it comes to its harvesting of our profiles. And were oceans ever to become transparent, submarine-based nuclear deterrence would suffer a devastating blow.

When these fillips mention transparency, it is not as a goal but as the means for two of the three criteria by which to judge recommendation systems. For without it one can secure neither the recommender's responsibility nor the possibility of redressing abusive recommendations.

Notice the tension inherent between these two aspects of transparency. Indeed consider the European Commission antitrust inquiry on Google's dominance of Internet search. Too little transparency and Google cannot refute accusations of gaming its system to its own benefit. But impose too much transparency and Google falls prey to the third parties who game its recommendations to benefit their clients and themselves.

So far however we have talked of transparency as it relates to individual persons, whether real bodies or true corporations. Michael Skapinker offers us another perspective where transparency bears on collective behavior (***).

"Why do people get angrier about some corporate scandals than others?", he asks. Sifting through data a plenty, he concludes that the public is particularly aroused when the scandal "uncover[s] an insiders' secret world". Anything else "is not new: reprehensible, but hardly a surprise".

For example, the US recently levied a $3 billion fine on GlaxoSmithKline in part for having encouraged doctors to prescribe an antidepressant to children while "hid[ing] research that showed the drug caused suicidal feelings and behaviour in some minors who took it" (2). Whether GSK was a source for John Grisham's "King of Torts" (3) or conversely, can the plot of a 2003 best seller qualify as news today?

We should not be put off track by Michael Skapinker's vocabulary. It has been revealed to the public that the Libor was manipulated by traders he calls "insiders", but this is not to be confused with insider trading, itself "reprehensible, but hardly a surprise", as we know it only too well by now.

Raj Rajaratnam and Foster Winans made new, profitable trades based on real data. They relied on a momentary lack of transparency on still secret factual information items. Traders at Barclays and sundry other banks fabricated false information items to fit their past, actual trades. This was made possible by a permanent lack of transparency on a secret collective behavior.

In other words, Michael Skapinker's "insiders" live invisibly inside an opaque bubble whose pricking is not, indeed just like any other bubble cannot, be anticipated. No wonder its bursting makes news and magnifies the scandal as our outsiders' illusions are shattered together with the bubble.

While criminals themselves create their own little bubbles, the greater impact is thus found to be felt from collective bubbles. Is this then just another instance of how size, scale or their opposite, decentralization, are such capital factors behind social phenomena, starting with capitalism itself?

We must not forget transparency. The late housing market bubble in the US was for all to see, indeed drawing the entire population inside itself. The inflation of a Skapinker bubble is not only quantitative, as measured by the number of insiders' transactions, but qualitative. "Hidden corporate misbehavior comes to seem normal to those engaged in it". Count on habituation to encourage further descent into collective addiction.

As its opaque barrier is used by the insiders to exploit the outsiders' trust ever more egregiously, trust turns to bust when the bubble breaks. "Yet trust is the essence of financial intermediation", John Kay writes on the aftermath of the Libor rigging scandal (****). Therefore he calls for "a structure of regulation, and of the financial services industry itself, that [...] rebuilds trust and confidence on the basis of [...] changed behaviour".

Our personal data is an asset which, like money, we should entrust to no one, unless the receiving party accepted the fiduciary duties which burden bankers. Building on the analogy, I have warned repeatedly against what I call the data bubble. I now understand the latter is a Skapinker bubble.

This is a very sobering thought. For such bubbles are quite resistant to efforts towards transparency. Douglas Keenan testifies "Libor misreporting has been going on for decades" and wonders "why have investigations only recently begun?" (*****). John Kay has already answered as he denounces regulatory capture, whether "crudely corrupt, as in the US" or "intellectual" as in Europe.

Facebook is under the greatest pressure to break its users' trust. Its shares still "traded last week at around 55 times earnings, based on forecasts from S&P and Barclays", as reported by April Dembosky and Arash Massoudi (******). Pity the Facebook shareholders whose IPO investment "is down 40 per cent". A bit more transparency might finish them off as Facebook is already the most transparent of all personal data aggregators.

The FTC should be relied upon to turn any request for transparency on its head. Charge users to access their profile after a free try. Slap users with onerous proofs of identity. Still Acxiom must be furious about Facebook for feeding a need for more protection money against real transparency.

Short of a catastrophe, it will take a miracle to open the eyes of those who do not want to see. Transparency is a collective mind game.

Philippe Coueignoux

• (*) ........... Consumer Data but Not for Consumers, by Natasha Singer (New York Times) - July 21, 2012
• (**) ......... The Public Is Left in the Dark When Courts Allow Electronic Surveillance, by Adam Liptak (New York Times) - July 24, 2012
• (***) ....... The odd ways we calibrate our outrage, by Michael Skapinker (Financial Times) - July 26, 2012
• (****) ..... Finance needs trusted stewards, not toll collectors, by John Kay (Financial Times) - July 23, 2012
• (*****) ... Mt thwarted attempt to tell of Libor shenanigans, by Douglas Keenan (Financial Times) - July 27, 2012
• (******) . Facebook tumbles after disappointing investors, by April Dembosky and Arash Massoudi (Financial Times) - July 28, 2012
• (1) is famous a company which enjoys a good name before any investigation. The FTC record shows far less leniency towards no-name corporate pirates.
• (2) for more details, see the Paroxetine in the wikipedia
• (3) for more details, see the The King of Torts in the wikipedia