March 5, 2013

"Knowledgeable voices share my memes" I claimed on New Year's Day. Two weeks later, right on cue, the left leaning French Government issued a white paper advocating a privacy tax (1). Even if white papers are made to be ignored and, with its one hundred and fifty pages, this one begs to become a door stop, it is comforting to be at the beginning of a trend. Mammals did not displace dinosaurs in one day but they won, didn't they?

Naturally evolution is such that large outcomes may come from little facts. In the fast forward flow of made for media events, could it be portentous that "the furniture giant Ikea [...] withdrew its signature Swedish meatballs from its markets and cafeterias across most of Europe after one batch was found to contain traces of horse meat" (*)?

Had Andrew Higgins and Stephen Castle reported the glue holding Ikea's products together came from horses or that sawdust had contaminated the food it sells in its stores, it would not have been a surprise. Nor was it strange when last month the frozen food brand owned by the eponymous Findus Group was caught red handed peddling the wrong kind of red meat.

What the Ikea case highlights is the head spinning span of the networks supplying companies. Behind this phenomenon one finds the hidden hand of the market, the value added by competitive specialization. But capitalism being an utopia, one also suspects some sleight of hand conjured in the name of expediency. A supply chain well stretched and shared comes handy when one wants to exploit economic externalities, i.e. market failures.

Apple for one outsources the manufacturing of its electronic goods to the countries which charge the least for damaging the environment.

Read the tribulations of a Chinese supplier in China, as investigated by Sarah Mishkin, Patti Waldmeir and Kathrin Hille (**). "A manufacturer that produces Apple iPad casings faces sanctions from the Shanghai government after discharging waste that turned a river milky white". Accused is a "factory of Riteng, a subsidiary of Taipei-listed Casetek". "Majority owned by Pegatron, a leading contract manufacturer", Casetek also "supplies to brands including Hewlett-Packard and Asus, according to an analyst in Taipei".

Like industrial pollution, our present lack of privacy is another externality. Hence my interest in market failures. Neither rare nor new in theory, in practice this issue must be analyzed in today's context, two independent trends which Fernand Braudel would have qualified as being long term.

The first trend is of course the dawn of the Information Age. Cheap digital data enables globalization and furthers innovation, both of which in turn spawn ever more digital data, in a self-reinforcing loop. Mimicking the Olympic Games, "citius, altius" could be its own motto.

By its very nature, the information Age tears up all past implicit contracts. One effect is to give corporations an edge over states as the former reap the benefits of location arbitrage. Another effect is to enable corporations to jettison most jobs, either by commoditizing them into slack-free temporary tasks, like Amazon with its warehouse employees, or by enticing their workers to work without pay, like Facebook with its users. Without reasonably paid, stable jobs, the middle class will lose its characteristic economic independence unless it gambles all in the hope of stardom.

Like global warming, these effects are difficult to measure. States are still powerful and jobs plentiful enough to dull the urgency of an appropriate adaptation. But in their white paper Pierre Collin and Nicolas Colin explain that if states continue to directly or indirectly rely on jobs rather than information to finance their budgets, their resources will surely decrease. The two effects discussed above reinforce each other dangerously.

The second trend is the world wide expansion of an antique religion, hedonism heretofore too marginal to influence society. Sustained by the remarkable advances of biology and computer science, it teaches the individual to behave as an autonomous agent who has no other goal in life but to please him or her self as much as possible. As any major religion, hedonism is ridden by a fundamental schism.

Hedonists of the right obedience emphasize individual responsibility and reject as encroaching on their autonomy any attempt of the state to tax the fruit of their unlimited greed in order to foster social solidarity. Hedonists of the left obedience emphasize individual pleasure and fail to fully value the role the traditional family, whose children are raised together by their two biological parents, as the least costly source of social solidarity.

Like climate change, these effects are daily contradicted on a micro level, whether by the personal generosity of many rich people or the loving care of many modern parental reconfigurations. Yet overall the hedonists of the right externalize the subsistence of the poor to better tap cheap sources of spot labor and the hedonists of the left externalize the production of children to make more liquid a momentary marriage market. At the scale of a whole country over a century or two, the two hedonist churches whose religious wars tend to paralyze the state unite to undermine social solidarity.

Divided at home, states justify their existence by wading ever deeper into cybernomachia (2) and staging international theater, a dangerous escalation. Exalted in principle, in practice powerless, lone individuals seek comfort in pleasure inducing pursuits worthy of a Brave New World where opium is the religion of the people. Yet despite their ascendency, corporations depend on their brands, which live by reputation alone. This creates a critical issue. For, in the closed system of our planet, the externalities which sustain their success must be met, eventually.

Their hope is still to keep all externalities at bay as long as possible. For pollution, they count on the absence of international cooperation among competing states. The Colin report notwithstanding, resisting privacy laws is made all the easier by the fact prime offenders include both states in the name of security and office seekers for the sake of being elected. But externalities involving food and health are harder to manage. Although in an hedonistic Age of Information few people will chose to grow and cook their own food, a brand could truly go from trust to bust over night.

McDonald's may "[devote] an entire global advertising campaign to its bonds with farmers", write Louise Lucas, Patti Waldmeir and Neil Munshi (***). But a pound of minced meat may be mixed into hundred of channels, including furniture stores. Can each brand affected afford to field an inspector? Is there time and space enough? The problem for corporations is that states are better equipped to handle food and health safety.

What can corporations expect from a state where social solidarity is in crisis, partly because of location arbitrage? "China [...] dedicated more money and manpower to food safety, but analysts say the results have been mixed". "The $2bn in automatic cuts to the US Department of Agriculture's budget would cause it to put food inspectors on furlough for up to 15 days later this year", reports Neil Munshi (****).

Let states care for food, the next step may be a privacy tax or favoring stable, biological families. Or is the motto of the Age "citius, altius, infirmius"?

Philippe Coueignoux

• (*) ....... Ikea Recalls Meatballs After Detection Of Horse Meat, by Andrew Higgins and Stephen Castle (New York Times) - February 26, 2013
• (**) ..... Apple supplier faces Shanghai sanctions over river pollution, by Sarah Mishkin, Patti Waldmeir and Kathrin Hille (Financial Times) - February 23, 2013
• (***) ... 20,000 miles to the plate, by Louise Lucas, Patti Waldmeir and Neil Munshi (Financial Times) - February 25, 2013
• (****) . US food shortages loom amid cuts, by Neil Munshi (Financial Times) - February 28, 2013
• (1) for more information, see "le rapport Collin/Colin", a white paper on taxing private data collection and usage, by Pierre Collin and Nicolas Colin, Jan 2013
• (2) the neologism cyberwar suffers from a congenital malformation which prevents it from traveling freely across linguistic borders.