Chancellor: Bring surveillance capitalism to heel - Reuters

Silhouettes of mobile users are seen next to a screen projection of Instagram logo in this picture illustration taken March 28, 2018.

LONDON, Oct 15 (Reuters Breakingviews) - It’s been a grueling few weeks over at Facebook (FB.O). First the social network giant had to cope with the release of damaging information about its practices by a former employee. Then the company suffered an outage across its suite of businesses ranging from Instagram to WhatsApp. Over the course of its brief history, Facebook has overcome many travails. Still, each scandal undermines the fragile trust and consent upon which technology companies, especially Facebook, depend. The case for reforming this brand of “surveillance capitalism” is overwhelming.

Facebook has trouble living up to its public image. The company claims to treat all its users equally, but internal documents published by the Wall Street Journal showed that high-profile users received special privileges that allowed them to evade Facebook’s censorious algorithms. Founder Mark Zuckerberg has spoken about how Facebook can fulfill people’s “personal, emotional and spiritual needs”. Yet in-house research released by whistleblower Frances Haugen reveals that insiders knew Instagram could be harmful to younger users. In 2018, Facebook announced that it was changing its News Feed to improve the bond between users. But staffers observed this change had actually exacerbated social antagonism.

None of these revelations is particularly surprising. A 10-year-old study found that people on social media exposed to “beautiful users” developed a more negative self-image. A 2017 research paper determined that Facebook “does not promote well-being... [and advised that] individual users would do well to curtail their use of social media”. One doesn’t need a PhD to reach this conclusion. Last year’s Netflix (NFLX.O) documentary, “The Social Dilemma”, describes how social networks encourage people to withdraw into their own “bubbles”, where they interact with like-minded users and lose their capacity to distinguish truth from falsehood.

Spending too much time on social networks may not be good for mental health, but it’s wonderful for profits. As an internal Facebook memo released some years ago by BuzzFeed observed, “the ugly truth is that... anything that allows us to connect more people is de facto good”. Facebook has survived bigger scandals in the past – notably the illegal use of its users’ personal data by Cambridge Analytica, which in 2016 sought to influence Britain’s Brexit vote and the U.S. presidential election. Facebook has now put its Instagram Kids project on hold. Zuckerberg and colleagues must hope that when the current uproar subsides business will continue as usual.

Yet the public’s tolerance of Facebook and other firms that commercialise personal data may snap. That’s the fervent hope of Shoshana Zuboff, author of the groundbreaking book, “The Age of Surveillance Capitalism”. The Harvard Business School professor argues that tech businesses, such as Alphabet’s (GOOGL.O) Google and Facebook, have created a new economic order based on “scraping” personal data from their users. Human experience provides these companies with the raw material that they translate into behavioural data and sell for marketing purposes.

The traditional model of capitalism is one of perfect competition in which multiple firms vie to deliver products and services to meet their customers’ needs. Zuboff’s “surveillance capitalism”, on the other hand, is dominated by impregnable monopolies that enjoy economies of scale and scope. Unlike industrial companies, tech titans create relatively few jobs. General Motors (GM.N) had more workers at the depths of the Great Depression than Facebook and Google collectively employ at the height of their prosperity. As for corporate governance, Silicon Valley keeps noisome shareholders at bay with dual class share structures.

More importantly, surveillance capitalists and those who use their services are not joined by traditional contracts that impose reciprocal rights and duties. Instead, users are bound by pernicious terms of service agreements – so-called “contracts of adhesion” or “click wrap” – that are interminably long and, as Zuboff notes, can be changed unilaterally, often without the user’s consent or knowledge.

Tech companies claim that they are enriching their users’ “experience” – Google has its search, maps, email and other services, while Facebook’s networks connect billions of people around the world. But Zuboff argues the nature of the exchange is fundamentally unequal. Vast amounts of personal data are extracted at relatively little cost. Our rights to privacy have been surrendered too cheaply. This explains why the tech giants are so obscenely profitable: Facebook’s return on equity and operating margins are above 30% and 40%, respectively. From an economic perspective their profits are best viewed as “rents”, namely the excess income that accrues from having a privileged position in society.

Having plundered the online world for personal data, tech companies are moving into physical space. Smart telephones identify our location. Smart TVs and personal devices listen in to our conversations. Smart cities of the future will follow our every move. The “internet of things” will connect and surveil just about anything imaginable: vacuum cleaners, alarm systems, thermostats, electric vehicles and even children’s toys. In this brave new world, it may no longer be possible to speak of private property.

That’s not all, says Zuboff. Surveillance capitalists wants to make human behaviour more predictable. That would further boost their profits, but in the process personal autonomy is eroded and human nature corrupted. A few years ago, Alibaba’s (9988.HK), Jack Ma declared that Big Data “will make it possible to plan and predict market forces so as to allow us to finally achieve a planned economy”. Chinese President Xi Jinping has decided that this planned economy will be firmly under the control of the Communist Party. But Xi’s surveillance state is inimical to the Western tradition of individualism and liberty, upon which both capitalism and democracy depend.

Silicon Valley argues that the changes wrought by information technology are inevitable. Zuboff says that we have a choice. Her crusade may not be in vain. In the United States, President Joe Biden named a tough critic of the tech giants, Lina Khan, to run the Federal Trade Commission. The White House’s proposed new head of the antitrust division of the Department of Justice, Jonathan Kanter, holds similar views. Biden has announced that “capitalism without competition isn’t capitalism. It’s exploitation”. Adam Smith would agree. The latest revelations around Facebook may provide the impetus for genuine reform.

Follow @Breakingviews on Twitter

Editing by Rob Cox and Amanda Gomez

Reuters Breakingviews is the world's leading source of agenda-setting financial insight. As the Reuters brand for financial commentary, we dissect the big business and economic stories as they break around the world every day. A global team of about 30 correspondents in New York, London, Hong Kong and other major cities provides expert analysis in real time.

Sign up for a free trial of our full service at https://www.breakingviews.com/trial and follow us on Twitter @Breakingviews and at www.breakingviews.com. All opinions expressed are those of the authors.

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