TOC From "@" to "from @" in the world wide souq Your Turn

December 18, 2012

If the world is a theater, who are the players? Pondering nationalist fevers, Philip Stephens focuses on states and citizens. He mentions "multinational corporations" and "international institutions" too (*). If the latter have not shaken off their dependency on their member states, the former are to be fully reckoned with. Note their essence, being corporations, primes their existence, as multinational. If expedient, how difficult is it for the most domestic of corporations to move its headquarters to the Bahamas?

Philip Stephens' title should read: "In tomorrow's world, it's the state versus the individual" versus the corporation, a real life version of "The Good, the Bad and the Ugly" (1) with name permutations allowed.

Using Starbucks as a case study, John Kay cleverly shows how tough it is for states to tax corporations, these non state powers without borders (**). No truly arm-length transactions can occur within an information-based business. John Kay "favor[s] reform based on a simple apportionment of total profit reflecting the scale of operation in different countries". In Massachusetts for instance, the formula involves payroll, assets and sales.

In an information-based business of course, most assets are movable at will. Neither payroll is what it used to be any longer, according to Gillian Tett's timely reminder (***). "Since digitisation took off in 1995, it has performed an ever-greater proportion of economic functions". In this quote, "Brian Arthur, an academic at the Palo Alto Research Centre" echoes Paul Krugman, who partly blames "the robots" for the disappearance of jobs.

A state then has little hope unless it focuses its tax base on sales to its own residents. Mind, a corporate tax assessed on sales should not be confused with a sales tax, even if it were collected preemptively at the time of each sale, like payroll taxes are each time a salary is being paid.

If the world economy is a play then, its plot centers around the only incontrovertible act of commerce, the arm length transaction between two independent parties. Especially when one party is a local consumer for, to cater to them, corporations must come where consumers happen to be.

The individual and the state are thus natural allies against the corporation. And if the latter did not buy pronaocratic statesmen to see no evil, hear no evil and above all play dumb at all times, they would point out no truly arm-length transactions can be agreed upon unless on an even playing field.

In the light of this logic, the plot fails without eprivacy. Deprived of this elementary protection, the consumer is like the Ugly, unwittingly facing both the Good and the Bad with an unloaded gun. I have said it before, I think. It is comforting to read it written under a more famous name. In his recent essay about online privacy and advertising, Jeffrey Rosen does say "real-time bidding also makes the online marketplace less of an even playing field, allowing companies to send loyalty points or discounts - or price increases - to individuals based on their spending power" (****).

Please ponder every word. Take "also". It alludes to the risk "the rich profiles being created about consumers can be used to harm them at work and in their financial lives". So says "Julie Brill, a commissioner with the US Federal Trade Commission", Emily Steel reports (*****). Right she is. Yet corporations are wont to shrug off such privacy risks, not yet proven deadly, and turn this loaded gun at the states, as a greater privacy risk.

What Jeffrey Rosen highlights then is that, stealthily acquired, individual profiles can "also" be used by corporations to manipulate prices. As Richard Waters stresses apropos the financial industry, "dynamic pricing - or using real time data to price services on the fly - points to one of the areas of greatest potential" (******). The trend behind this, Big Data, is the subject of a whole series published by the Financial Times. It is worth reading.

Mindful to muddle the issue, corporations prefer to present dynamic prices as discounts, a way "to make shoppers more loyal", as Kroger does per Barney Jopson (*******). How nice! Stephanie Clifford easily sees through this algebraic abracadabra. "Some promoted discounts at Amazon [...] appeared steeper because the base price was increased before the [...] markdown" (********). Forget the price. What counts in a souq is not what the merchants write on the tags, it is how the seller and the buyer split the total value created when they strike a deal among themselves.

Both reporters also write about, which "offers consumers a tool suggesting when to buy", "empowering consumers in an era of minute-by-minute price changes". As a technology, Big Data is indeed neutral. In the instance Big Data put bullets back in the consumers' gun magazine.

But unlike a gunfight, the economic drama drags on for years. Decide is useful only as long as corporations publish comparable, if ever fleeting, prices at which they are ready to sell real inventory. How long will it be before all consumer industries follow the lead of mortgage companies?

Public tags at a mortgage company only show from at what amount to little more than teaser rates. Individuals must accept a credit check and risk lowering their score before getting a real quote, often higher than the lure. The world wild web may well behave as a souq, but in mirror fashion. Instead of writing the highest price stupid tourists are willing to pay, the merchant will write the lowest price smart comparators are willing to report.

In a world where your profile is your price, you will then have to surrender it to and let it become your personal purchase agent. That's a lot of power to give. Better shop around and compare Decide to its competitors. Do you see the recursion and what it does to your privacy?

Instead of begging for corporate hand-outs, what Starbucks promised the United Kingdom, states should push for a progressive privacy tax. This new revenue flow would foster eprivacy and hence more level playing fields. But states should not be the only ones to see their future in such a plot.

If in this new scenario, most jobs come from creating and processing information, if taxes are levied at the time and place of sales, there should be no reason left to let a corporation pollute without paying a full price for this allowance. Environment activists then should embrace my approach, and not just because eprivacy violations and pollution are similar economic distortions. But eprivacy even transcends political polarization.

In our society, people fortunately face few occasions to enforce their security at gun point. Rather than such an improbable problem, the National Rifle Association should tackle the one constant case of our Information Age. No individual should confront the state and the corporation without the right to bear up-to-date arms. For a lobby known for extreme positions, what can be more radical, yet more logical than to fight for eprivacy?

Philip Stevens is right, there is a duel out there, but a duel between states and corporations as individuals have not realized yet they are weaponless.

Philippe Coueignoux

  • (*) ............... In tomorrow's world, it's the state versus the individual, by Philip Stephens (Financial Times) - December 14, 2012
  • (**) ............. Starbucks shows that the tax system must change, by John Kay (Financial Times) - December 12, 2012
  • (***) ........... The ever-expanding digital threat to Fed's jobless target, by Gillian Tett (Financial Times) - December 14, 2012
  • (****) ......... Who Do They Think You Are, by Jeffrey Rosen (New York Times) - December 2, 2012
  • (*****) ....... Advertising gets the power of intimacy (Decoding Big Data 4), by Emily Steel (Financial Times) - December 13, 2012
  • (******) ..... Data open doors to financial innovation (Decoding Big Data 5), by Richard Waters (Financial Times) - December 14, 2012
  • (*******) ... Caught between loyalty and a bargain (Decoding Big Data 2), by Barney Jopson (Financial Times) - December 11, 2012
  • (********) . In Retail War, Prices Change Hourly, by Stephanie Clifford (New York Times) - December 1, 2012
  • (1) for more details, see The Good, the Bad and the Ugly in the wikipedia
December 2012
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