Regulating the Data Economy is Essential

The History of Economics is nothing more than the History of Humanity from another perspective. It is the achievement of successive economic cycles and socioeconomic systems, punctuated by the arrival of new technologies.

As happened with oil in the early twentieth century, data, essential for the new economy must be regulated…ahem…Facebook Congressional hearings. And this should not happen only from the obvious point of view of privacy, but must also be done because of its profound implications for the economy as a whole, laying the foundations for a future economy that is truly sustainable as a source of socio-economic progress for our society.

It is a challenge that has already been dealt with by Humanity in the past on innumerable occasions, and that once again is considered as a dilemma that, depending on how we approach it, poses either great advantages or frightening risks.

I’ve been talking to you for a long time about the importance of data in today’s economy.  In today’s analysis, we are going to focus on why it is essential to regulate it effectively, and as soon as possible.

After oil, data is the new raw material of the 21st century.

Oil was introduced at the beginning of the last century and was a “fit” economically. Regulators ended up entering the playing field of black gold to lay the foundations of a future that has ended up bringing higher rates of prosperity to the present day.

The process of analysis by the authorities, and subsequent regulation culminated in the segregation of the once dominant Standard Oil at the beginning of the 20th century.

Although it is true that there is no almighty and unique technological player comparable to Standard Oil, it is no less true that, if we analyze the matter by subsectors, similarities to the monopoly exist. For starters, there is the famous FAANG quartet (Google, Netflix, Apple, Facebook and Amazon) – the five largest companies listed by stock market capitalization, with data one of its main foundations.

The evident concentration of FAANG

Indeed, the fact that there are five seems to reveal that they are competing with each other, therefore preventing one single company from achieving a dominant position, and maintaining a healthy competition market…not quite. Amazon monopolizes one out of every two dollars spent by e-commerce customers in the USA. Google is the undisputed and dominant leader in online searches, as is Facebook in social networks, both together account for virtually all of the growth of digital advertising revenue in the US in 2016.

Microsoft maintains still maintains a dominant position on office productivity. Apple is the undisputed leader in several segments of the population in a largely closed ecosystem, in which the company dictates what you can and cant do or not with hardware that is owned by the user.

 

As you can see, although these companies compete with each other in certain fields, there are others in which they are dominant leaders, and this is where the data come in as raw material. All these leaders of the digital economy have strengthened their dominant position thanks to the huge amounts of data that they harvest from their users. A virtuous circle (for them) that gives them greater knowledge of their users and their preferences, which only gives them an even more dominant position.

The three (debatable) points made by The Economist

The Economist points to some factors that make one think that the situation is not serious (yet). The first one is that, far from squeezing consumers, the FAANG have brought many new services and an important deflation to many sectors, with many of those services being free. This reasoning is slightly perverse. What The Economist affirms is undoubtedly true, but it is no less true that many dominant companies in the past began to take anti-competitive actions once they felt strong in their position of dominance.

The issue is that the new economy is not an emerging sector as was oil at the time. Recall that the new economy is a one that is replacing many sectors of the old economy. Therefore, it is not only a company that is creating a new market to exploit, but it is literally eating others’ market share, or at least, putting itself in a strategic intermediary role that makes its dominance position equally relevant.

The potential implications of the above lead to the fact that this dominant position will be even more dominant when they have destroyed productive fabric, or when they have simply submitted it to their designs: then it will be when we could see the true implications (and intentions) of reaching a situation of quasi-monopoly. This is the scenario we must avoid, hence the need for regulation.

The second point cited by The Economist for not qualifying the situation serious is that, if we take into account the relative weight of these leaders of the new economy including the players of the brick-and-mortar world, their position  is not so dominant. This point is not very defensible. Let’s think a little about how relative weight that future leaves to brick-and-mortar, especially when the truly valuable data is already in the hands of digital leaders. And if people had any doubts, they can read about how shopping centers are already going out of business.

I’ll discuss the last point and wrap up our analysis tomorrow.

Stay tuned for part 2

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