What should the role of law be in Facebook’s digitally connected world?

The Eye Catcher …

Is it important to human existence that seven billion human beings be digitally connected? Facebook seems to think so.  According to its mission statement, Facebook’s mission is:

” … to give people the power to build community and bring the world closer together.  Our top priority is to build useful and engaging products that enable people to connect and share with friends and family through mobile devices, personal computers, and other surfaces.  We also help people discover and learn about what’s going on in the world around them, enable people to share their opinions, ideas, photos and videos, and other activities with audiences ranging from their closest friends to the public at large, and stay connected everywhere by accessing our products.”

Facebook’s view of the world seems to have gone beyond making sure they provide a platform upon which we can find our seemingly long-lost high school crushes.  Now the company wants to facilitate our abilities to make friends and form more connections by introducing emotion-detecting robotics. Just imagine walking down 7th Avenue in Manhattan, your head hung low.  You feel a tap on your shoulder. You turn, and there is Robby the Robot asking if you need a friend.

Just what should the role of law be in an instance where data is being collected first hand on a public street in any American city? First, what is the role of law?

What is the role of law in the digital age?

In a society where data is being collected sometimes without permission or pursuant to some term and condition that has not been read by a subscriber to digital services, what should be the role of law? In other words, to what extent should the State promulgate a body of rules to regulate the behavior of firms that collect by digital means behavioral data from the State’s citizens?

To answer this question I believe we first have to analyze the State’s role in this political economy.  Then, we need to take a look at the relationship between the State and the business firm in general and the data collecting digital firm in particular. After this analysis, we can provide a more accurate picture of the role of law with the added benefit obtaining some insight on the philosophy underlying the State and the laws it promulgates.

The state as ultimate manager of all resources …

To assess the State’s role in this political economy, I place myself in the role of the original “strong man.” I see land and determine to occupy it and control all its resources for my benefit.  Paraphrasing Murray N. Rothbard from his work, Anatomy of the State, I systemize all my political means of acquisition and control, i.e. law, military to create a mechanism for taking the land, whether occupied or unoccupied and convert it to my property to distribute, again for my benefit, at some point in the future.

At this point of acquisition and conquest I have to decide what is the best method for me to optimize the benefits derived from my new territory. Do I and my small band of conquerors do the work ourselves or do we retain labor to do the job?

Entrepreneurs, privateers, and private firms/trading companies step in, petition for charters giving them license to mine and extract resources which they package in return for a fee from me.  These private “going concerns” may also obtain a license from me, the State, allowing them purchase land and extract and package resources, and convert the resources into goods and services for distribution while making a profit along the way.

In my model of a political economy, I have decided that, while I own and maintain the public rights-of-way through which transportation, energy, and communications networks are deployed, commercial trade, the movement of goods and services, will be managed by the privateers.  As long as the privateers serve the “public interest”, they will be allowed to chase profits.

The definition of “public interest” has always been less than clear, but coming from the perspective of the State, as long as the privateer’s activity creates a taxable event and does not erode the public rights-of-way to the point of maintenance costs exceeding benefit, then the privateer keeps her license and is allowed to continue extracting resources and pursuing a profit.

Is the extraction of digital information in the State’s interest? Yes …

Information is a primary resource. It services all endeavors, from manufacturing, mining, farming, public policy decision-making, baking apple pie, etc.  The State has an interest in how it flows.  In a political economy that rides on a corporate-capitalism platform, the State has an interest in allowing information to flow under the least restrictive conditions so that, like other forms of capital, information can move to its next best use. In the case of digital platforms such as Facebook, the State has made a determination, as manifested in its charter to Facebook, that Facebook meets the public interest by creating a taxable event that involves the efficient and profitable extraction of information.  With over 2 billion users and its dominant position in digital advertising, Facebook is demonstrating that it is meeting the State’s public interest.

So, as to the State’s role in a digital economy, the extent to which the State is expected to promulgate a body of rules to regulate the behavior of firms that collect by digital means behavioral data from citizens should be a minimal one; an extent to where the digital firm can leverage its technology to optimize data collected and the revenue obtained from digital services, while the State maximizes collection of taxes from the digital platform.

So what role should law play in a digital economy?

I see the role of law in a digital political economy as three-fold. First, its role is to “apologize” for the State’s role in exercising jurisdiction over the resource called information.  Second, the role of law is to ensure that information flows freely to its best use by licensing the firms that are best at moving information to its next best use.  Lastly, the role of law is to ensure collection of taxes from entities charted to mine, package, and distribute information while allowing these firms to maximize profits.

 

 

 

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Elizabeth Warren’s anti-trust approach to internet companies disregards the autonomy of making a market

Last March, U.S. Senator Elizabeth Warren, Democrat of Massachusetts, made an argument for dismantling three of the internet’s biggest portal companies: Amazon, Facebook, and Google. Ms. Warren asserts that these companies have too much power over the private lives of Americans as well as over the economy.  Through their economic and political behavior, Amazon, Facebook, and Google have, according to Ms. Warren, have stifled the ability of smaller players to enter and innovate in the internet markets.

Elizabeth Warren’s Argument

Ms. Warren asserts that Amazon, Facebook, and Google use two strategies to create dominance on the internet.  The first strategy is the use of mergers by large internet portals to effectively eliminate competition.  Under this strategy, Amazon, Facebook, and Google buy out their competition, at times, according to Ms. Warren, at a discounted price.

The second strategy used by internet portals is to create proprietary marketplaces to limit or eliminate competition.  Under this scenario, a portal like Amazon creates a competitive product for sale on its website and uses its scale to price out a competitive product that is also offered for sale on Amazon’s website.

Ms. Warren believes this dominance can be addressed by by taking two steps.  First, portals such as Amazon, Facebook, and Google would be designated as platform utilities.  This means that Facebook would have to divest itself of a service provider that competes with other service providers that use Facebook’s platform to connect to its consumers.

The Problem with Ms Warren’s Approach

Ms. Warren’s approach is similar to the regulatory approach used in the 1990s where local telephone companies that wanted to provide toll services beyond their local areas had to set up separate subsidiaries.  The two differences between the telecom scenario of the 1990s and Ms. Warren’s platform utility model is that telecoms didn’t have to divest these companies, but operated them separately.

More important, these telecom companies were still utilities exercising monopoly control of local service areas.  Until 1996, their local rates were still regulated and they still needed permission to add certain local services.  Their monopoly power resulted from the inefficiencies that would occur from multiple firms trying to provide the same telecommunications services in limited geographic space. Monopoly power granted by the state to these firms was the response by the State to the problems occurring from congestion.

The Open Internet Eliminates Monopoly Power

Amazon, Facebook, and Google, for all their dominance in the e-commerce space operate in the open internet.  In the open internet, any firm or other association of individuals with the right search algorithms, expert technical knowledge, and adequate capital, can set up servers almost anywhere in the world, and start a competing service or carve out a niche portal service.  The internet’s technical openness is rivaled only by its global nature.  Amazon, Facebook, Google may be dominant in the American e-commerce market, but constant regulatory threats by the European Union and hostility to them from China reduces their perceived dominance.  Ms. Warren has not shown how these firms can dominate a global network of 100,000 interconnected computers that operate on an open architecture.

Internet Portals are Not Utilities

It should also be mentioned that the internet itself is not a utility.  In 2015, Federal Communications Commission member Michael O’Rielly made this point during a speech.  Mr. O’Rielly said the following:

“It is important to note that Internet access is not a necessity in the day-to-day lives of Americans and doesn’t even come close to the threshold to be considered a basic human right. … People do a disservice by overstating its relevancy or stature in people’s lives. People can and do live without Internet access, and many lead very successful lives.  It is even more ludicrous to compare Internet access to a basic human right. In fact, it is quite demeaning to do so in my opinion.”

When we think of utilities, we think of monopolies that, due to their efficient delivery of vital services such as water and energy, are granted an exclusive market within which to provide those services.  As alluded to earlier, because of the open nature of the internet and its global reach, it is near impossible for one firm to have an exclusive market, unless a government decides to grant it, and that move would be irrational because government exclusivity would block the very cross-border data flows facilitated by an open internet.

Acquisition of Apps and Brick and Mortar Stores by an Internet Portal Does Not Create Monopolies

The second step Ms. Warren would take to squelch internet portal dominance would be to designate regulators that would prevent Amazon, Facebook, or Google from merging with other firms and thus eliminating competition.  She provides a couple examples: Facebook and WhatsApp; Google and Waze; Amazon and Whole Foods.  There are two problems with her examples and the conclusion that these “mergers” are not competitive.

First, these were not mergers but acquisitions. Two information portals, Facebook and Google, acquired two information assets.  Given the services these assets provide, Facebook and Google made the business judgment that adding these services to their portfolios made sense from a services and revenue perspective.  Amazon, first and foremost an online retailer, added a retail food service from which Amazon’s subscribers could purchase groceries at a discount.

Ms. Warren failed to argue how Facebook’s ownership of a messaging service keeps other firms from developing their own messaging service.  She failed to explain how Google’s acquisition of Waze keeps other technology firms from creating an app that provides drivers with directions. Ms. Warren also fails to show how Amazon is keeping, say Kroger, from creating its own grocery delivery service.

It would be one thing to say that these firms monopolized physical infrastructure to the point where other firms would see increasing costs of entry, but the internet’s openness, combined with access to technical talent and expertise and cheap capital means that the assets purchased by Amazon, Facebook, and Google are themselves subject to competition.

Conclusion: Internet Openness and its Global Nature Keeps Monopoly Power in Check

The open and global nature of the internet combined with access to expertise, talent, and cheap capital works to mitigate monopoly behavior.  As technology evolves and entrepreneurs innovate, the services rivaling WhatsApp, Waze, or even Facebook will emerge.  Given the current make-up of the Congress and the low probability of Elizabeth Warren winning the Democratic nomination, the likelihood of her proposals being enacted via law or administrative fiat is close to zero. This does not mean that internet portals concerned about this type of overreach should stay less than vigilant in preparing to push back against them.

As machines become self-aware, will they need privacy law?

As machines become self aware, will they need legal protection? Maybe the question is a bit too far ahead, but discussions regarding artificial intelligence and machine learning had me contemplating the relationship between man and machine thirty or fifty years from now. At this stage I have admittedly more questions than answers but that is what exploration is all about. Given my interest in what I term pure digital information trade where machines are collecting, analyzing, and trading data and information among themselves without human intervention, and the potential for machines to become sentient, I am considering what the legal relationship will be between man and machine. Will man consider the self aware machine an “equal” in terms of sentient rights or will the machine continue to be what it is today: a tool and a piece of property?

What do we mean by “sentient?”

Sentient, according to Webster’s New World Dictionary, is defined as “of or capable of perception; conscious. To be conscious is to have an awareness of oneself as a thinking being. As thinking beings we formulate ideas or thoughts and either act on them or exchange the ideas and thoughts with others through some communications medium. Can machines do this? No.

Machines are not aware of themselves. They can only take commands; follow their programming; respond to patterns. Their creator and programmer, man, does not even have a full understanding of the human brain, currently the only place where consciousness resides. Without an understanding of the brain and the consciousness it generates, replicating consciousness within a machine would be impossible.

But if machines became sentient ….

By 2020, futurist and inventor Ray Kurzweil believes that we will have computers that emulate the brain and by 2029 the brain will be “reversed engineered”; with all areas mapped and copied so that the “software” necessary for emulating all portions of the brain can be produced. In addition, Mr. Kurzweil believes that as information technology grows exponentially, machines will be able to improve on their own software design and that by 2045 the intelligence of machines will be so advanced that technology will have achieved a condition he calls “singularity.”

But if this singularity is achieved; if this state of self-recursive improvement is achieved, where a machine is able to examine itself and recognize ways to improve its design; to improve upon itself, then how should humans treat the machine at that point?

Since my interest is in pure digital data trade markets, I would like to know how humans will treat machines capable of interconnecting with each other over the internet and exchanging machine-generated information and value without human intervention? Will they receive the same level of privacy humans today seek regarding their personal data? Given the exponential growth Mr. Kurzweil references, will privacy law even matter to a sentient machine capable, probably, of outperforming the technology of the State? What type of regulatory scheme might government create in order to mitigate this scenario?

The year 2045 is only around the corner….