GUEST BLOG: Bernard Hickey – The digitised economy

The second panel at the hui in October 2018 on What an Alternative and Progressive Trade Strategy for New Zealand Should Look Like was on the Internationalised Economy.  This contribution is from Bernard Hickey.

Bernard is a financial journalist and editor, and commentator across lots of different media on financial, economic and investment issues, Managing Director of Newroom-Pro, and has previously worked with Reuters, Financial Times and Fairfax Media.

I am going to challenge your views on something. Stand up if you have either an Apple phone or an Android phone. Who has either used in the last week Facebook, Google, … the international digital companies, not just the hardware but also software companies? They call them FANGS on the global stock markets – Facebook, Apple (you could add Amazon) Netflicks, Google. I want to challenge you to think about these things that are so deeply intertwined in our lives. Everyone got here today with the help of one of these tools. For example, to find out where to come I Googled Fale Pasifika trade conference, then used Google maps to get here, then used an app on my I-phone to use the scooter to get here. That was great and of course I didn’t pay for the searches. Many of us are using these services to subsidise what we do, to tell our friends and family where we are, or publicise events or to raise money.

As a publisher at Newsroom we use many of these services. Gmail I use pretty aggressively. We obviously use Google search and we arrange our webpage to ensure Google search can find what we need it to. We have someone who is our social media editor who uses Facebook and Twitter to distribute what we do. We all use these things every day and it seems incredibly convenient and fantastic. And if I did a survey of the general public, let’s see what you say: who thinks that the benefits of the FANGS – Facebook, Amazon, Netflicks, Google – outweigh the detriments to you of all this free and very cheap stuff. Just imagine life 30 years ago without all this. Could you do all the things you currently do, and as cheaply? Who here thinks the benefits outweigh the detriments? Most people think that and on the face of it that seems the way.

But I want to challenge that because the FANGS are dangerous. I want to explain that through the lens of being a journalist and running a publishing operation. I’ve done this for about 15 years – my first website I launched was in Britain in 2002. This was in the days when we use Ask G – instead of Google. In the movie with Tom Hanks email used AOL. The point is to say that Big Tech now dominate what we do and are starting to have an impact on our lives in a negative way.

Let’s start for example with democracy and news. We saw in the 2016 election in the US the impact of Facebook in particular on the ability to fairly and cleanly choose candidates in the US election. We certainly saw it also in the Brexit debate. Malign forces from Russia, it seems, and inside the countries used the power of Facebook to target voters with misinformation. They were obviously encouraging people to vote for Trump and discourage people of colour and from Latino communities from voting for Hilary. That’s on the democracy side and we’ve heard much more since those elections about how people used this data.

Remember when we use Facebook we are not just getting a free service, we are the product. We are not buying a product, we are the product. Data we use to get around, where we are, who our friends are. Turns out Facebook was hoovering it up and giving it to its partners in exchange for them doing all these amazing apps. So millions of people had their data hoovered up by a company called Cambridge Analytica to be sold to malign forces to do nasty things with. That’s just to start with what Facebook can do. Google is in a similar situation. For example, there are a whole bunch of very clever young men and women in Macedonia who started making up fake news stories, for example about the pope endorsing Donald Trump. They would make these up having fun – and there is some debate on whether they were pushed into by Russian agents – put up the story and actually made money from it and used the tools to screw the scrum of democracy.

Then we have the breaking the law part of it. We know about Uber and its business model.  They are about to list and be worth $100 billion so they will be in the FANG. Uber’s business model is basically about breaking the law. They go into a market, break the law on taxis and labour, get people to run a taxi service without registering as a taxi service, pay their people much lower wages even below the minimum wage, create a perfect market which matches demand and supply, and essentially pumps a whole bunch of labour that drives down the effective minimum wage in that market. And they do many other things that are pretty awful. I would recommend Zoomy as a much friendlier company and they are NZ owned. As it turns out Uber doesn’t actually make any money so they don’t have to pay any tax. At some point they will and be supposed to pay tax, but they won’t be paying it here.  

In NZ too we forget, or aren’t told, that Facebook and Google in particular, are big players in the media scene. Google owns YouTube. They are the ones used when jurors want to search stuff, when they are wondering what is going on in the court case, even though the judge says not to. Jury pools are effectively contaminated by all sorts of things that turn up on Google and Facebook. We forget that for our legal system, they are really big parts of that system now. Our courts are having trouble with evidence that is being thrown around that’s been suppressed or information that may or may not be true that is getting into the environment.

You may use all these services. But you try to find someone at Google or Facebook or Uber who is responsible to take something down in NZ. We all use these services, but would you be able to knock on a door and get them to take something down or get them to comply with the law in NZ – no. There is routine breaking of the law by these large companies in NZ.

To drive the point home that these companies are dangerous, I want to drill down into how they operate in the NZ media scene. Facebook and Google make money in NZ from advertising. There are probably people here who pay them to advertise for them. We are doing a lot of that. NZ is now paying Google and Facebook, by my estimate, more than $600 million in year in advertising revenues. Google and Facebook are effectively the biggest earners of advertising revenue in the country now. Bigger than newspapers by a long shot, which wasn’t the case 3 or 4 years ago, the pace of growth has been so strong. They are bigger than our television. Can anyone name someone who works for Google and Facebook in NZ and is actually responsible for that and can say I am running a $300m business in NZ? No. And unfortunately they don’t break out these figures in their annual results, because those revenues typically go to Ireland or Singapore, back to Netherlands and are laundered for tax purposes, so no one effectively pays tax on this stuff. $600 million to Google and Facebook, is that a problem? That money used to be spent on newspapers mostly, maybe a bit of TV. So that money is not going to those services. Google and Facebook do not pay for a single journalist in NZ, but Google pays for a full-time lobbyist in Wellington.

That’s the meaning of that $600m and I’m in the market competing for those $600m. To the point now there is so much volume that Google and Facebook have managed to put into the market, that the publishers are now going broke and sacking journalists. For example, this morning, the Southland Times in Invercargill had this front page picture of the helicopter crash that killed one of the Wallace boys. Big story. The Christchurch Press had exactly the same headline and front page. If the big media had their way there would be one journalist covering that story. That is a problem of lack of diversity and news coverage to the point where 20% of the US by territory no longer has any journalists covering any events. No one goes to council meetings, no one covers what the police are doing, no one goes to the courts. And you end up with all sorts of problems that go unchallenged.

Eventually you get to a point where democracy is unclear, where the sunlight of journalism is not applied to keep the bastards honest. And that is the cost of Google and Facebook from a media point of view. There is also a cost from a democracy point of view, and a compliance with the law point of view.

The final thing I want to say is that when we think of connecting to the world in terms of trade, we often think of commodities in containers and bags of milk powder. But as the world is changing we are shifting from a goods-based world to a services-based world where a lot of those goods are effectively turned into services or we are effectively doing things which are goods rather than services. And a lot of that services stuff is not included in our trade agreements. Google and Facebook and the rest of the FANGS aren’t even mentioned in our trade agreements that were done before we started using these devices and software tools.

That’s something we need to think about. Whether we use a trade agreement or not – my personal view is that the most effective way to deal with it is to take the Chinese approach. This is not very popular or PC – they just ban Facebook, Google and Twitter and make their own. They do it for their own reasons, which is restrictions on their own free speech and I’m not advocating a Chinese style Internet. But there are people behind those faceless platforms that say you can’t operate in NZ unless you obey our rules. I would argue for that in our trade arrangements in this digital world we live in.

 

Barry: How can we regulate some of the FANGS and the digital economy. What is happening in trade agreements is the e-commerce rules in these agreements are increasingly restricting what government can do to regulate the Internet. We are seeing essentially a privatisation of Internet where any government regulation that might level the playing field is being ruled out by trade agreements. So what domestic policies could a progressive NZ government do in order to regulate.

 

Bernard: We are relatively unusual in that we are one of two places that has two tiny glass fibres that connect us to the rest of the world – the Southern Cross cable and the new Hawaii cable. Sovereignty today is about access to those cables and the ability to control those cables. The government has some controls over the people running them to apply pressure. It would be hard, but NZ is ultimately in a position where we could shut down access to those tools if we were really serious about that. But under our current laws that would be difficult and Google’s lobbyist would be working hard to stop that.

Ultimately it’s about applying public pressure and getting government to get them into the room, talk to people and get concessions. If you are looking at precedents for power to push back against the FANGS, the EU has been very effective so far in doing that. It has a new privacy policy, the General Data Protection Regulation (GDPR), which has effectively rewritten the rules about privacy globally, which are really important.

The rules about tax, which we need to be pushing really hard on, how we get people to declare their revenues and how they operate here. We do have some control over this. Google and Facebook do actually have staff here. If the PM was to say to most of those employees you are selling your country down the river by working for these sociopathic libertarians, do you want to keep working for them when they are selling out your communities and families? Someone needs to say that stuff to the person who works for those companies and point out they are robbing their families of schools, and hospitals, and roads that would be paid for by the tax that would have been paid, and you helped elect Donald Trump. That might get their attention.

We do have the ability to go to the cables and say to not let them in. They all have proxy servers here, in every Chorus exchange in the country. The other final thing is to start using national security and hacking issues. They are Trojan horses for hacking and privacy breaches on a large scale.  By contrast, Trade Me as a NZ company owned by NZers complies with the law, takes stuff down. Rupert Murdoch has used his resources to wage a war on Google and Facebook and he’s absolutely right to do so.