March 12, 2013

"The 21st century was [...] presumed to be an era when capitalism, innovation and globalisation would rule", Gillian Tett declares before ruing "how times change" (*). Indeed capitalism is "observed as much in the breach as in operation". Digital innovation is backed by barbarians to pillage people with impunity by breaking tacit property contracts. But I take exception with her view on globalization.

Today money has many reasons to be border shy. Apple sits on a "$140 billion cash pile", "much [of which] is held abroad in foreign subsidiaries" for, explains Steven M. Davidoff, "if the company repatriates it to return to shareholders, it would have to pay taxes on it" (**). Apple "ha[s] become wary about moving money across borders" like any big "private sector bank". From this perspective, Gillian Tett is factually correct. But her professional focus on financial flows is too narrow. Was World War II any less global for choking financial transactions between enemies?

What is afoot is a misunderstanding of what actual globalization is about.

For the traditional state, France a prime example, it is a push for national champions, companies like Areva and EADS (1), which are both world leaders in their fields and good providers of jobs at home and cash from abroad. For the "Davos Man", it is when capitalism extends its benefits to the whole planet. A generous concept were it not utopian, as no world government exists to put international commerce under the rule of the law.

In reality the whole world is now enmeshed in what Fernand Braudel called a "world economy", but one with no center, whether a city or a nation state. Rather the world is a single battlefield where local states and global corporations fight one another for advantage. And in what is essentially a period of transition, at the same time bursting with new life and fraught with uncertainty, no one needs special powers to state or predict the obvious, i.e. the initiative currently rests with corporations. When one can pick among competing rules of the law, one can make one's own rules.

States not so much pick companies as national champions as they are picked as corporate heralds, retainers of the companies they want to retain.

"The European Union fined Microsoft $732 million [...] for failing to respect an antitrust agreement with regulators", James Kanter wrote in the New York Times (***). "Google has struck a 561m euro blow against Microsoft after the EU's competition authority [...] fined [the latter] for settlement breaches secretly flagged up by the US Internet group", Alex Barker and Richard Waters reported in the Financial Times (****). Both accounts showed Microsoft to be a monopolist past its prime one can safely condemn, but one gave top billing to the regulator, the other to the snitch.

Which do you think was the most insightful lead? While Joaquín Almunia, the European Union competition commissioner, deserves our respect for his humility, "say[ing] the bloc had been "naïve" to put Microsoft in charge of monitoring its adherence to the deal it agreed to in 2009", the real movers were the corporations. Microsoft tried to have its cake and eat it too, only to offer an opportunity for Google to pounce. There is nothing wrong in using informers but too exclusive a reliance on them is never a sign of authority.

Having no reason to favor one company above the other, the same Joaquín Almunia is fighting Google for abusing its dominance in search... with help from Microsoft. Playing two bullies against one another is quite clever but highly correlated with holding a weak hand in the first place.

The European Union is not a real state, only a club of states acting as a laboratory experiment for world government. As such it has shown laudable ambitions in promoting privacy and publicly rebuffing lobbyists for companies such as Google.

It is therefore all the more telling to hear from James Fontanella-Khan and Bede McCarthy that "Brussels will be forced to water down tough data protection rules [...] after many of the EU's member states called for a softer approach to the privacy push" (*****). "At least nine countries including the UK, Germany, Sweden and Belgium said they were opposed to several proposed measures that could add heavy burdens on businesses". Unable to stomach anything which sprouts in Brussels, the UK makes a usual suspect, but Germany?

Haven't the Germans been a force behind eprivacy? Lobbying Europe against its own people, hasn't the proud German state become the corporate herald of SAP? A major computer system seller, SAP is not directly concerned with eprivacy. But a leading provider of analytic tools for Big Data (2), SAP is, in its own field, similar to Krupp 100 years ago. Can an innovative cannon maker be pleased by an international move towards peace?

Notice that in its fight against China, Google has used the United States as a corporate herald for many years now. And if Business Objects (3) had bought SAP rather than the other way around, it might have become a French national champion with predictable negative effects on eprivacy. Still it happens that neither does France do the bidding of a leading corporation dependent on private data aggregation nor the other way around. Free from interference, it has instead given us a remarkable report on the taxation of private data usage (4).

Pierre Collin and Nicolas Colin, its authors, are realist. They know it is simpler to speak about money than less tangible ideals, it is more credible to burden business to shore up state resources than to protect its citizens. Forget eprivacy, what counts is that taxes track the source of economic added value, which increasingly means information flows. They proceed to list the four major premises behind their proposals.

A large part of the newly added value comes from what they call "the phenomenon of "free work" [by users]", data serfdom in my own words. However the corresponding flow of online data never makes it to "permanent places of business" (5), the only entities a corporate taxman knows about. Hence the solution must take its inspiration from "the general tax on polluting operations" or "the carbon tax". Once the proper legal framework has been established, then one can indirectly answer legitimate privacy expectations in the way the new tax is assessed.

Under no illusion that France alone can win the war, the authors too see Europe as the level at which their approach must first try to gain traction, although they fear lest the EU give control to the state in which consumer data is stored and processed, rather than the state from whose residents the data was collected. In such a case, they explicitly name Ireland a likely winner as it willingly plays the location arbitrage game of corporations.

Forget Ireland. Instead enlist Johannes Caspar (6) as an ally, help him prevent his own country from undermining his efforts in favor of privacy. As ploughshares or railroads also need steel, marketing will still need SAP databases even to analyze sustainable user data properly sourced, not stolen.

With the right technology, there is no need to trade-off privacy for commerce. With the right law, Europe is big enough to stand up to corporations.

Philippe Coueignoux

• (*) ......... Davos Man's belief in globalisation is being shaken, by Gillian Tett (Financial Times) - March 8, 2013
• (**) ....... Unusual Moves in Confronting Apple's Mountain of Cash, by Steven M. Davidoff (New York Times) - February 13, 2013
• (***) ..... European Regulators Fine Microsoft, and Then Promise to Do Better, by James Kanter (New York Times) - March 7, 2013
• (****) ... Microsoft hit by fine after Google tips off EU, by Alex Barker and Richard Waters (Financial Times) - March 7, 2013
• (*****) . Brussels in climbdown over data protection, by James Fontanella-Khan and Bede McCarthy (Financial Times) - March 7, 2013
• (1) EADS is of course a binational champion, illustrating the Franco-German alliance
• (2) for more information, see SAP and SAP Hana in the wikipedia
• (3) for more information, see Business Objects in the wikipedia
• (4) 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
• (5) "établissements fixes d'affaire"
• (6) for more information, see the Hamburg data protection office, a German site