This interview was first published in DIE ZEIT 47/2020, 12 November 2020.
The entire digital system is headed in the wrong direction, says economist Dennis Snower. He wants full control of personal data for all and a real market economy in the digital space
DIE ZEIT: Mr. Snower, your focus is on big economic issues. Now you want to revolutionize the digital economy. Why?
Dennis Snower: It has become clear to me that the entire digital system is headed in completely the wrong direction. In the online world we offer information for free and receive internet services in return, which are also often provided at no direct cost to the consumer. But a real market that benefits all cannot exist when everything comes without a tangible price. In addition, our current digital system is creating huge social divides because, for the first time, we as humans don’t have the opportunity to forge our own social networks – instead, they are prescribed for us. At the same time, productivity growth in the economy is declining, despite the feeling that we are making great progress through digitalisation. Something has gone terribly wrong. This is probably the most important economic problem of our time.
ZEIT: What is so bad about this kind of bartering: I give you my data and you give me an internet search or access to a social network?
Snower: To me, it’s like this: A woman walks down the street after dark. A young man approaches her, threatens her with a gun and says: “Your life or your bag.” And she thinks to herself, okay, I have a choice, life or bag, I’ll give him my bag. The situation is similar, because we are totally dependent on this digital medium in order to participate in society. The market power of the digital monopolies is so great that everyone has to submit to their conditions.
ZEIT: How did it come to this?
Snower: For one thing, there was no new legislation for the internet, and there was little in the existing law that was applicable. In addition, people reassured themselves with the argument that digital goods weren’t a problem because consumers didn’t have to compete for them: No matter how many people consumed the product, there was just as much available as before. Nearly everyone bought the story that the internet was a miracle because everything on the net was free.
ZEIT: But in reality, the Internet is not “free”.
Snower: Of course not. In the physical economy, where everything has a price, certain people benefit from the internet because through it they can target their advertising better at individuals or influence their preferences. They then make huge profits, while digitally everything is free and the whole world supposedly costs nothing. And the digital service providers who connect these two systems make the most of all. It’s quite possible that in the future, the classic economy as we know it will simply be a supplier.
ZEIT: Your academic colleagues predict that the digital world will largely replace our money with data. What would be the consequence of this?
Snower: In a market economy, money in any form – credit cards, Apple Pay and so on – will never be abolished, because in the physical economy you always have to buy and sell with money. But if data replaces money in the digital realm, this could be very threatening, because we must be able to compare the value of our information with the value of services provided. Money is also there to create these comparisons. Without this possibility, nothing will stand in the way of exploitation.
ZEIT: There are already a number of proposals in the EU regarding how to change the digital world. What new idea are you bringing to the table?
Snower: The EU has its General Data Protection Regulation …
ZEIT: … with which it wants above all to protect private individuals from the unwanted storage and use of their data.
Snower: This regulation can be simplified to more easily fulfil its goals and at the same time have a much further reach. The main point is that the data generated by users does not currently belong to them, but to the tech companies. Users still have little control over how these data are used, by whom and when. So we need a new system to give them back control. Just as in the offline world, if I go to a doctor and I tell him about my illness, the doctor is not allowed to sell this information without my knowledge. In fact, over the decades our society has eradicated the worst effects of the market economy through regulations and laws. But we have forgotten about this in the digital world. To correct the error, we can learn from the offline world.
ZEIT: You mean for Europe?
Snower: Yes. Roughly speaking, we have three large digital spaces in the world. In the United States, the digital monopolists know practically everything about the users and are not subject to their control, while in China the state has control. But in Europe, we are more concerned with fundamental human rights in the digital space. That is why Europe offers a lot of hope. If this area can become a real digital market economy instead of a barter economy, it will also attract many investments and flourish as an economic power.
ZEIT: So far, the General Data Protection Regulation seems more likely to protect tech companies, because they are better prepared to deal with the many rules than newcomers. Is this true?
Snower: In the current interim phase, yes. But it was similar when the world moved from feudalism to the industrial revolution and a labor market suddenly emerged. People were no longer serfs and they could sell their labor freely. Back then, strong entrepreneurs emerged who used their market power to create terribly exploitative conditions. However, with time, trade unions and new laws emerged. If we get back control over our own data, we can pursue such a path and create organizations that can represent us as users in negotiations with the digital tech companies.
ZEIT: What is the core element of the proposal you and your colleagues have made?
Snower: We need to divide our data into three types, each with its own rules. First, we have official data such as your name, passport number, address, telephone number or even fingerprints. Such data must be confirmed and conveyed by official authorities. A hotel for example wants to see my passport to know who I really am. Second, there is collective data, which is shared for certain purposes like the joint representation of interests – such as by clubs or associations. These can also be very large organizations, for example for consumer protection or climate protection. These organizations maintain data about their members and interests, which is administered in trust with the purpose of a common cause.
ZEIT: Can you give an example of this so that we can better imagine it?
Snower: The possible examples are endless: geographical data for digital maps, for example, or data we use for smart cities. Medical research data is also part of it. As with common goods in the offline world – for example, in agriculture or fisheries – there must be clear boundaries, roles, obligations and responsibilities.
ZEIT: That leaves your third type of data.
Snower: Third, there are privy data that I either create myself, like autobiographical data and publications, or that others create about me like my purchase history on Amazon or my psychological profile on Facebook.
ZEIT: These are the most controversial data. How can I secure control over these as a user?
Snower: At this point you have to differentiate again. For first-party privy data …
ZEIT: … like my online calendar or my e-mails …
Snower: … I should have complete control over this and be able to decide who has access to it and under what conditions. The second-party privy data that is for example derived from my behavior, such as my psychological profile with a digital provider, should be used according to clearly stated laws and conditions such as those we are accustomed to as patients or as customers in the offline world.
ZEIT: How will that work?
Snower: Take Google, for example. It collects an average of 450 different pieces of information about each user and employs them in a way that people generally agree to because they want to use Google’s services. But most people have no idea what the information is and how it is actually processed. Under the new system, information that is created about me must be used in way that is verifiably in my best interest. All of this must be communicated to me in a way that I, or at least my representative, can quickly understand, so I can then say: my data may be used for this purpose, but not for that one.
ZEIT: The demand that we should regain control over our data is not new. But in everyday life, it is not easy to tell every single company what they are allowed to do with my data or what compensation I would like for this privilege. This requires a lot of effort, which many users fear.
Snower: Take early workers in the industrial revolution or after slavery. They were also unsure at first. How do I know how high my wage should be? And for which tasks? But people have developed systems that simplify this, based on the idea that you work somewhere for a year and receive a salary every month. Similar concepts can easily emerge in the digital world. And you can take the offline world as an example.
ZEIT: But that doesn’t completely eradicate the market power of the big digital companies, does it?
Snower: No. That’s why it is particularly important to have the right of association, so we can be represented. Just as for union members in the offline world.
ZEIT: So a union would negotiate with Google for me and many others to find a deal that is on balance advantageous for all?
Snower: Yes, or several such unions that are in competition with each other. And I then choose the one that best represents me.
ZEIT: Normally, competition and data privacy are treated as separate issues. But you link them and say that if data rights are altered, competition changes.
Snower: There is an interaction, just like in the offline world, where competition and intellectual property are closely linked. But even if you break up corporations, their data can still be misused by smaller companies. Only working within a system where users gain personal and collective control over their data can we really alter this world. Disadvantaged users then still need legal protection, anti-trust watchdogs, and effective competition law. We also need general accounting rules that allow us to monitor whether those who handle the data are also protecting the rights of users.
ZEIT: Let’s compare yours with other proposals. One well-known proposal, which is not particularly popular in Silicon Valley, wants the big platforms to open their data silos to small competitors.
Snower: Something like this can be useful. But that would be like telling a wrongdoer that what they do wrong, others can now do too.
ZEIT: Another proposal, which Silicon Valley also isn’t particularly amenable to, would be to store and use Europeans’ data only in Europe. Is that revolutionary?
Snower: Yes. That would help us protect people’s privacy. But today we have huge global value chains, which are even more complex in the digital space. Breaking them up would ultimately affect us all in terms of prosperity.
ZEIT: But wouldn’t the standard of living also decline in your system? Silicon Valley and Chinese tech companies could continue to create the best algorithms using billions of data, while Europe would have to bid farewell to such possibilities.
Snower: As a region, Europe has a major influence on what happens elsewhere. This was already the case with the General Data Protection Regulation. In the end, the market attracts businesses to the places where value is best created, and if we can turn this business of digital bartering into a real market economy, then that would bring a great deal of economic performance to Europe. Aside from this, the current practice is simply unethical.
ZEIT: What are the chances your proposal can be implemented?
Snower: Currently, there is more and more criticism of the digital monopolies. Therefore, the chances of changes being implemented are good. I was invited to the meeting of the G20 digital ministers where I presented this idea. There are also signs of interest from Berlin and Brussels. I continue to be amazed by the appetite for change.
ZEIT: And are you already feeling the resistance of the digital platforms?
Snower: We are beginning to feel it, especially from the talented people who work for them and are now arguing, for example, that the information users disclose about themselves is actually worthless…
ZEIT: … because they only become valuable when the algorithm processes them.
Snower: Exactly, by combining them with other data. My answer is that in a global economy, the work of an employee is just as worthless. According to this absurd logic, it would be the entire value chain that creates the value, so the individual would not have to be paid.
Dennis Snower, 70, was director of the Kiel Institute for the World Economy for many years. Today he is, among other things, President of the Global Solutions Initiative and Professor of Macroeconomics and Sustainability at the Hertie School in Berlin.
The interview was conducted by Uwe Jean Heuser.