Economy

Is It Time to Delete Facebook?

The overly social network comes to terms with unhappy users.

Photo Credit: D K Grove / Shutterstock

Cambridge Analytica’s systematic harvesting of Facebook user preferences to create detailed models of voter emotions appears to have played a significant role in the election of Donald Trump and the victory of the “Brexiters” on the referendum on whether the United Kingdom should leave the European Union or not. There is shock and anxiety at the revelations about how a few right-wing ideologues were able to exploit Facebook’s database and then use it to justify populist campaigns fronted by publicity hounds of dubious moral and financial principles (Donald Trump, Steve Bannon and Nigel Farage immediately spring to mind).

Whether the Facebook fiasco conclusively proves either Russian involvement in the 2016 election (or the UK’s Brexit referendum), or simply highlights the violation of campaign finance laws, is yet to be determined. But what is certainly beyond dispute from the apparently unauthorized use of Facebook’s database of some 50 million users is that longstanding Madison Avenue advertising techniques worked equally well when applied to majority voting instead of employee practices or consumer spending. One possible outcome is that centralized repositories like Facebook—or Google, or Amazon—could become a ripe target for regulation and/or anti-trust action. Another possibility is that the voluntary participation on which Facebook is built will collapse spontaneously via consumer rejection.

That course of action is currently being advocated by WhatsApp co-founder Brian Acton, who is spearheading a #DeleteFacebook campaign.

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In one sense, there is nothing new in what Facebook and Cambridge Analytica have done. Way back in 1957, author Vance Packard’s The Hidden Persuaders described how:

“Large-scale efforts are being made, often with impressive success, to channel our unthinking habits, our purchasing decisions, and our thought processes by the use of insights gleaned from psychiatry and the social sciences. Typically these efforts take place beneath our level of awareness, so that the appeals which move us are often, in a sense, ‘hidden.’”

But in a world in which we have all become reliant on the internet for our information, our searches and declared preferences are constantly recorded. Therefore an uncanny amount about us can be learned in a manner that is far more centralized and prone to manipulation than traditional forms of advertising. A wave of shrinkage in traditional advertising firms has correspondingly occurred as the robotic, targeted advertising has become the new norm, largely because it is both cheaper and more effective.

Facebook in particular is a social media way of harnessing interpersonal linkages through the net. Its model must be using those links and the information they generate to create value for advertisers. Any user of Facebook (or Amazon) can easily see how fast browsers insert ads related to one’s most recent searches. So it becomes manifestly clear that these companies are tracking us for common advertising purposes.

Politics has always looked into the underlying motivations of voters to manage them. But using the data as documented by the Guardian, this went to a new level of political detail in 2016 that fueled the faster cycle of hard-hitting Trump campaigning. Facebook, Google, Amazon, Twitter, etc., have all become huge aggregators of this information. Facebook CEO Mark Zuckerberg’s recent apologies notwithstanding, the companies are either being naïve in proclaiming shock that their data can be misused or, more likely, have been so obsessed with building market share and watching their company market caps explode into the hundreds of billions of dollars that they willfully ignored the scope for abuse. Either way, the information seems to have reached a threshold of importance where governments will step in and disrupt the existing mode, especially now that the full power of this database has been recognized and exploited by a successful political candidate, whether via regulation or antitrust measures. Otherwise, the demands will rise for Facebook to give the data to all, because it cannot guarantee that it has been erased everywhere, which has disturbing implications for our privacy (as well as threatening to destroy Facebook’s business model, the success of which is predicated on the exclusive use of the data aggregated from the user base).

However much someone like Brian Acton, who was made a billionaire courtesy of Facebook’s purchase of his company, might like others to embrace his #DeleteFacebook campaign, that appears problematic, given how successfully the use of Facebook’s model operated in the political context. But there is growing international political momentum to strip the "social network" and its targeted advertising model of much of its abilities to record and use customer data. Former President Barack Obama hinted at this at a recent speech at MIT:

“I do think the large platforms—Google and Facebook being the most obvious, Twitter and others as well, are part of that ecosystem—have to have a conversation about their business model that recognizes they are a public good as well as a commercial enterprise. They’re not just an invisible platform, they’re shaping our culture in powerful ways.”

Obama did not explicitly state what he had in mind for these companies, but he did suggest that at a minimum, “the government should have ‘rules of the road’ to create a level playing field.” Even if users find they can’t do without their daily Facebook fix, Google search, or Amazon shopping spree, the former president is right. A price will be paid as these companies’ activities are increasingly scrutinized.

There are defenses that have been mounted in favor of an unregulated market for Big Data, notably by People Analytics, an organization run by Alex Pentland and his colleagues at MIT’s Media Lab. Pentland feels the very centralized nature of the aggregated data is what makes these companies such excellent research targets:

“With the advent of big data and machine learning, researchers actually have enough data and sufficient mathematical tools to build predictive mathematical models. ... If you talk to other people and see what they are doing, you can improve your own performance, and as you talk to more and more people, you continue to do better and better.”

What is not to like? Better decision-making, higher productivity, more efficient communication networks: It looks like a win-win all around. Of course, it was under the guise of research that Cambridge Analytica allegedly got the Facebook data in the first place. It can be used as cover for less benign purposes.

Going further, Pentland cleverly invokes a “New Deal on Data” that allows for the “rebalancing of the ownership of data in favor of the individual whose data is collected. People would have the same rights they now have over their physical bodies and their money.”

In theory, this allows the individual discretion as to how much he/she will share with corporations and government regulators. Pentland goes on to suggest that, “the economy will be healthier if the relationship between companies and consumers is more respectful, more balanced. I think that’s much more sustainable and will prevent disasters.”

Pentland’s optimism sounds somewhat naïve in the wake of Edward Snowden’s revelations, as well as the current Facebook controversy. Of course, anything that further legitimizes this intrusion on our privacy will be welcomed by these entities. How much do we, the owners of our own personal data, actually control it? As far as the government goes, not much, Snowden’s revelations (or those of WikiLeaks) illustrated. And surely the current Facebook and Cambridge Analytica imbroglio undercuts this benign picture that Pentland describes of a happy, informed consumer who autonomously shares his data with various companies, with a view toward building a more "balanced" relationship.

On the contrary, the Facebook fiasco highlights that there exists a thoroughly unequal partnership between the aggregators of information and the information owners, making abuse almost inevitable. Indeed, it is highly doubtful that most consumers and users are even aware of the extent to which their habits, thoughts, and overall private space are monitored by these companies (to say nothing of the more obvious government and law enforcement agencies, even if we’re not terrorists).

In general, the notion of a level playing field of information or data that the market can freely and efficiently price has been debunked successfully by Nobel Laureates George Akerlof and Joseph Stiglitz. Both have challenged the "efficient market hypothesis," which holds that market prices or odds reflect all known information, mitigating the need for intrusive government intervention/regulation. If information asymmetry exists, the obvious implication is that there is a need for some form of overriding regulation to rectify this imbalance. This would also seem to apply to Pentland’s New Deal on Data.

Edward Snowden has made us question whether the data and corresponding privacy can be adequately safeguarded from more scrutiny by governments. The more relevant question from the point of view of, say, Silicon Valley and its high tech moguls is whether governments will move more aggressively to control the aggregators themselves, and whether the revelations of their abuses will provoke a backlash, which will impact their companies’ growth and profitability.

Already, as Reuters reported, “Nordea, the Nordic region’s biggest bank, will not let its sustainable funds buy more Facebook shares for the time being.” The European Union has fined Facebook €110m “for ‘incorrect or misleading’ information regarding data sharing between Facebook and WhatsApp” (even though Facebook acquired the latter). And the EU has also proposed that “companies with significant digital revenues in Europe will pay a 3 percent tax on their turnover on various online services in the European Union,” legislation that will cover Facebook (as well as Amazon and Google). Although the tax doesn’t actually address the issue of the database abuse itself, the Cambridge Analytica scandal has dissipated valuable political capital for these companies, which will make it harder for them to stop these attacks on their business model and underlying profitability.

Indeed, the focus on taxing turnover, as opposed to profits, is telling, because sales records are far more difficult to doctor and conceal via accounting subterfuge than profits. In effect, this is tantamount to the EU stating to these tech giants, “Don’t even think about making a transfer payment to Ireland and leaving yourself with an operating loss in our jurisdiction so you can pay no tax.”

As the Brexit referendum illustrates, the Facebook and Cambridge Analytica scandal itself goes well beyond the U.S. Consequently, we can expect an attack on all fronts—the U.S., the EU, and likely Asia as well. At this point it is too early to judge if this will have any impact on the ongoing Mueller investigation, but the economic implications already seem evident. The U.S. equity boom has been partly in reaction to deregulation in banking and elsewhere. The tech industry has largely escaped any kind of regulatory or antitrust scrutiny and has benefited accordingly. As Edward Harrison of the site Credit Writedowns has observed:

“Some of the best performing stocks in the US are the large Internet-centric technology stocks like Facebook. There is even an acronym, FANG, to describe Facebook, Amazon, Netflix and Google. Add Apple and, together, these five stocks account for one quarter of the Nasdaq’s total market capitalization. They are huge. And Facebook’s data breach represents a threat to them.”

Could it be that public indignation at the Facebook profile harvesting scandal will lead to new regulation that could impede the value of some tech-based advertising models? Will it lead to a consumer backlash that slows the growth of the companies themselves? Certainly, it is easier to attack a wealthy and powerful company, if and when it becomes Public Enemy #1, even though many of these politicos will find themselves attacking the instruments of their own political success (or fundraising sources). Facebook or Google would no doubt argue that their platforms are just a facilitation of the communities inherent in the internet and that they have benefited by exploiting first mover advantage. But a centralized, monopolistic exploitation of these interpersonal links is inviting public intervention, especially as the technology can also survive on a distributed, competitive basis. In the eyes of many, these companies are unlikely to escape the opprobrium of helping to allow the Trump disaster to descend upon us. Overseas, they could well be scapegoated if the British economy falters as a result of leaving the European Union. On a broader scale, this scandal may well destroy any last vestiges of “techno-optimism,” seeing how it has highlighted the misuses of technology and the human damage it can continue to inflict on us far more profoundly than ever before.

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Marshall Auerback is a market analyst and commentator.