Capital. The true digital divide

A couple early morning thoughts on the digital divide.  So far the digital divide narrative has occupied two schools of thought that are not necessarily opposed to each other.

Race and the Digital Divide

The first school of thought revolves around race.  Given that within the black American community there is a higher level of poor households, affordability is keeping blacks from accessing the internet via high-speed broadband infrastructure.  If blacks do not have the income to sustain a broadband business model, then internet access providers are less likely to deploy facilities in poor neighborhoods.  Lack of deployment in these neighborhoods may result in a barrier to valuable information that may lead to greater economic opportunities, according to advocates seeking to close this gap.

Rural Communities and the Digital Divide

The second school of thought revolves around rural communities.  The argument is that lower population density as compared to urban areas makes deploying broadband access facilities in rural areas more expensive.  In addition, terrain, such as that faced by internet access providers in mountain states, has traditionally added to the problem of higher costs to provide broadband access facilities.

An Overlooked Divide

There is another divide, one that is often overlooked and it has to go to what is known as “first-mover advantage.” The real value generated by the internet is the ability to extract, analyze, package, and distribute information, and have that information be available digitally forever.  The focus on a gap between facilities deployed in black neighborhoods versus facilities deployed in white neighborhoods or the gap between rural community deployment versus urban community deployment goes to seeking out new suppliers of information.  The civil right veneer that has been placed over the broadband racial divide hides this supply-side characteristic from the policy debate.  It has also created the opportunity for the political left to craft an electoral package that can be sold to voters.

It is the other side of the equation, the production side, that, in my opinion holds more value.  When we look at the history of the internet, particularly the period when the internet was commercialized, its players included white venture capitalists; Web 1.0 internet service providers, i.e. AOL, CompuServ, Mindspring, etc.; and dial-up access providers such as BellSouth.

Black Americans could always access information from analog sources, i.e. television; print media; or word of mouth, but the efficient extraction, cataloging,  indexing, aggregation, and distribution of information via the internet were the domain of companies invested in and managed by whites.  As whites continued to level their first-mover advantage, this gap between producer/owner of capital and consumer continued to grow.

Capital not only seeks a vacuum, it also seeks a return.  Returns from investing in black or even rural communities were not going to be as high as returns invested in affluent neighborhoods, neighborhoods whose residents probably owned shares in the very companies that commercialized the internet in the first place.  Closing the “digital divide” means first closing the capital divide.

What will Government Do Next?

Government will do nothing from a capital perspective to close the digital divide. The Federal Communications Commission has a number of universal service funding initiatives designed to encourage mobile and fixed broadband deployment in rural areas; to facilitate the delivery of health care via broadband; and to reduce the costs incurred by low-income consumers for accessing and maintaining high-speed broadband service.  By subsidizing the consumer demand for broadband services, the Commission hopes to encourage the delivery of broadband services.  But again, the focus is on consumer demand, not bridging the capital gap.

The philosophical underpinnings of the American economy, where capital is to flow freely to its best use may prohibit government from taking any concrete action for closing a capital gap.  If blacks or rural residents had sufficient capital to purchase, construct, or maintain broadband access facilities, using their intimate knowledge of their communities to distribute services, we might see a decrease in the gap.  We should expect that government will stay on a path of incentivizing capital investment in infrastructure development versus trying to repair capital discrepancies via a capital transfer.

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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….

Democrats kick the net neutrality can down the road again

Speaker of the House Nancy Pelosi and her fellow Democrats today announced introduction of the Save the Internet Act, legislation that would repeal the Federal Communications Commission’s 2017 Restoring Internet Freedom order and replace the 2017 order with the Commission’s 2015 Open Internet order. Speaker Pelosi’s rationale for replacing the 2017 order with the 2015 order includes:

  • Lowering costs and increasing choice for consumers;
  • Giving entrepreneurs a level playing field on which to compete;
  • Helping bring broadband to every corner of the country; and
  • Ensuring American innovation and entrepreneurialism can continue to be the envy of the world.

From a banking and trade perspective, the rationale offered by the Democrats for repealing the current set of net neutrality rules at the Commission sounds good. Lowering the cost for accessing an information trading platform provides the benefit of reducing information discovery costs. Bringing broadband to every corner does increase the chances of network effects taking hold where the value of a network increases as more traders use it. As network effects increase, more data traders and content providers will be encouraged to carve out more niches on the internet and provide data consumers more options for content sources.

But what was blatant from an economics perspective was the total lack of discussion in the bill itself about how an advanced communications infrastructure underpins the economy; its role as part of a three-layered infrastructure that has supported the exchange of value since the earliest days of trade between small communities. At issue here is, in terms of trade, does the Save the Internet Act facilitate trade? My answer is no and the failure is due in large put to a number of mistakes driven more by politics than economics.

Mistake: Believing the Internet is About Democracy. It is Not.

The classic argument from the Democrats is that a free and open internet is great for American democracy; that gateway keepers such as AT&T, Comcast, and Verizon should not be allowed to prevent citizens from expressing themselves via broadband. But is accessing content via a communications technology the same as expressing thought via voice, graphics, and text over that medium?

I can buy and read a newspaper but it is not the same as sending letters to the editor or leaving comments online. If democracy is about expression, then there are plenty of examples where expression is limited in the private sector, and we should not forget that core providers, such as AT&T and Verizon, and edge providers, such as Facebook and Netflix, are private companies providing the data collection, data distribution, and data access that creates value on the internet.

Could Americans in their zeal for unfettered access to the internet as a digital medium for exchanging value and communications be conflating corporate power with government power? Building on the earlier point, democracy is about the relationship between citizens and government. Democracy is about the limits citizen and government agree to.

Democracy recognizes, at least in theory, that the State has a resources advantage that can be used to oppress the individual, thus preventing her from trading for and consuming resources necessary for daily survival. This imbalance in power is why democracy, again in theory, allows the citizen to express herself in the ballot box by choosing the representatives that are supposed to keep government at bay.

Unless core and edge providers have some agency relationship with government that puts them in a position to bring down the power of government on the citizenry, then corporation is in no position to stifle democracy.

Mistake: Congress Does Not Understand the Relationship Between Corporation and Government.

Corporations are not chartered by governments (state or federal) to protect consumer rights. Corporations are expected by government to create taxable events. They are expected to hire labor and apply capital in order to extract and process resources in such a way that they become deliverable for end use consumption. Both wages paid to labor and purchases are taxed in order to fill government coffers. To maximize taxable events, corporations must come up with more revenue streams or innovate the packaging and sales of product in order to create additional demand.

In the case of broadband access providers, they see an information services market that they would like to play in so that they can increase shareholder wealth. Competing with Facebook and Google allows these companies to create additional revenue streams that can be used not only to increase their shareholders’ wealth but, as mentioned above, generate taxes that go into government coffers. In short, government shoots itself in the foot by disallowing broadband access providers to not enter the content market.

Conclusion

The Democrats’ two-page legislation will not bring any improvement to a communications infrastructure that provides support for trade and commerce in the United States. It keeps broadband access providers out of the information markets, eliminating incentives for broadband access providers to expand their service offerings.

Government’s role in regulating access to personal data

Yuval Noah Harari recent wrote an article for The Atlantic where he posed the question, “How do you regulate the ownership of data?” Professor Harari argues in the article that data is the most important asset today, moving ahead of land and machinery.  “Politics will be a struggle to control the data’s flow”, says Professor Harari.

Last spring saw the United States Congress’ struggle to at least map out a course through the turbulent waters of data privacy as members of the House of Representatives and Senate took the opportunity to grill Facebook CEO Mark Zuckerberg about his company’s handling of personal data obtained from the social media giant by a consultancy.

Part of this struggle may be due in part to the popularity of social media network platforms. Facebook has climbed from a digital bulletin board developed in the early 2000s in an Ivy League college dorm room to a global subscribership of over two billion people.  Former president Barack Obama’s Twitter following is in the millions while the current president, Donald Trump, is not shy or slow to taking to Twitter to either connect with and inform his base of supporters or attack the traditional media for what he perceives as unfair coverage of his administration.

Professor Harari notes that users of social media network platforms have not reached the point where they are ready to stop feeding the “attention merchants.”  Speaking on the difficulty subscribers may have in exchanging personal data for “free” services, Professor Harari points out that:

“But it, later on, ordinary people decide to block the flow of data, they are likely to have trouble doing so, especially as they may have come to rely on the network to help them make decisions, and even for their health and physical survival.”

Professor Harari offered up one solution, nationalization of data, to stem the abuses that corporations may impart on addicted social media and internet consumers, but admits that just because an asset is in the hands of government doesn’t mean things will necessarily go well.  Hence the question, how should the ownership of data be regulated?

The question will require public policymakers and politicians go through the exercise of defining “personal data.”  Would personal data be any characteristic about you? Would it be about any marker, no matter how temporary or permanent, that can be attached to you?  Must the “data” be something that the consumer actually produced?

Politically, attention merchants would want a narrow reading of the definition of personal data.  A narrower reading of personal data means being able to obtain more information pursuant to fewer restrictions. While this outcome would be ideal for corporate entities in the business of brokering data, I don’t see Republicans, even with their mantra of promoting business, enthusiastically endorsing less restrictive collection of personal data given the public’s concern for privacy.

Verizon moves ahead with 5G

Verizon yesterday announced the rollout of Verizon 5G Home internet service. Verizon claims in its press release that it is the first company to introduce 5G commercially in the United States with service to be provided in parts of Houston, Indianapolis, Los Angeles, and Sacramento.

Given the lack of uniform industry standards, being first to provide 5G service means moving ahead with the service based on its own proprietary 5G standards.  According to Hans Vestberg, Verizon’s chief executive officer,  “To be first, we encouraged others in the ecosystem to move more quickly at every step. We appreciate the partnership of network equipment makers, device manufacturers, software developers and chip makers in reaching this critical milestone. The entire wireless industry gets to celebrate.”

Verizon will start taking consumer orders for the service on 13 September 2018 with the service taking effect on 1 October 2018.

SDx Central, a technology content provider and research firm, estimates that the first phase of 5G standards will probably not materialize until late 2018 when industry can base concrete standards on high profile cases. However, Verizon sees no concerns with moving forward with its own proprietary standards.  Rather, it sees itself as a leader on moving the industry further along the journey to rolling out 5G. According to company spokesman John O’Malley:

“The 3GTF standard we developed actually accelerated the adoption of the international standard last December — two years earlier than most people thought it would happen. And now, device, infrastructure and other technology leaders are developing products that will run on that standard. And when those products and technologies are available, we’ll evolve our offerings as well. The entire industry is working together on this.”

Although Verizon did not mention the impact of its 5G rollout on global trade, broadband communications has been described as an important platform for international commerce, particularly for small and medium enterprises.

In 2013, the World Economic Forum determined that 95% of businesses located in countries that are part of the Organisation for Economic Co-operation and Development has an online presence. The internet in general and social media in particular allowed these businesses to market products globally and reach customers outside of their regions.

Joshua Meltzer of the Brookings Institution in a paper addressing the internet as a platform for international trade said the following:

“Significantly, the Internet is creating new opportunities for small and medium-sized enterprises (SMEs) and for businesses in developing countries to engage in international trade and become part of the global economy. By providing opportunities to access business inputs such as cheaper telecommunications, strategic information on overseas markets, legal and consulting services, and cloud computing, SMEs and developing country firms are now more than ever able to become globally competitive. With a website, these firms can now engage internationally, reaching customers and communicating with suppliers all across the world.”

Could we see further integration of the aforementioned cities into global trade as a result of this rollout?