Saumyen's Pages
The Parallel Money in Our Economy?
(July 2021)
Rethink
Early morning you check Facebook – 25+ ‘Happy Birthday’ messages from your friends and family - you feel delighted! You decide to cook a special chicken dish for dinner and select a delicious recipe from Google. After all, your invited guests in the evening must appreciate your expert culinary skills! You look for party music and create a playlist on YouTube to play in the evening. You go ahead and send a ‘gentle reminder’ on WhatsApp to the guests and share location and direction on Google map to a few who are visiting your new apartment for the first time. You post the party photos on Instagram instantly – to let your ‘social-site connections’ know that your day is worth spent with fun, food and entertainment.
In the entire day, you have supplied information on your new home address, birthday, your friends’ details, your music preference, your food choice, photos of your select friends and families and many others. You have shared all such details voluntarily - to “unknowns” – you have not met or known and mostly not located in India. On the other hand, those “unknowns” have shared the recipe with you, gave direction to your house, played your favorite music on request, hosted your photos – to make the day enjoyable.
In the earlier world, all these would have costed you money - you would need to make phone calls to invite – each call costing you money, buy a recipe book to select your choice, purchase music CDs to play the songs, print the photos and courier to your friends by post etc etc.
Welcome to a new form of barter trade in the digital world - where you provide your information and receive services you need in return - almost instantaneously i.e. saving significant time in the process. Today, you have done such barter transactions with “unknowns” like Google, Facebook and possibly a few others. Unlike goods made of atoms, goods made of bits can be replicated perfectly and sent across the planet almost instantaneously and with minimal marginal cost.
Such trade is growing – thanks to the connection of most of the people of the planet via a common digital network, increase of mobile devices and emergence of real, useful Artificial Intelligence (e.g., machine learning, NLP, computer vision etc). In India, smart phone users have increased 10x over the last 8 years (760 million in 2021) and is expected to reach 960 million by 2025.
In this barter trade, what do these “unknowns” get?
Data - the new parallel money in digital world.
Data – the Digital Money
For time immemorial in human history, barter economy was in existence – an economic system in which services and goods were traded at negotiated rates without use of money. Approximately 3000 years back, money came as a medium of exchange – though the paper currency was introduced much later. Introduction of money helped in convenience of pricing of products and services by a uniform yardstick, ease of carrying money in long-distance trade, collection of taxes by the monarchs/ government etc.
In simple terms, money is ‘anything that people are willing to use in order to represent systematically the value of other things for the purpose of exchanging goods and services.’ Wikipedia defines money as ‘any item or verifiable record that is generally accepted as payment for goods and services and repayment of debts, such as taxes, in a particular country or socio-economic context.’ From these perspectives, data can be considered as an alternative money in digital world. We have entered an age, where the users exchange their information in form of data and the same is done in exchange of the services from these companies. In our earlier example, where the value in monetary terms does not exist in trade, the value can be well established if measured by data.
Money has two other characteristics worth noting - universal convertibility and universal trust. Acceptance of money within a geographical boundary is based on trust by the people on that form of money and is authorized by the government. You are sure if you sell paddy to someone in exchange of money, you can use money to buy a watch and that seller will accept the same.
Here the data differs from money as of today. The transactions in our birthday story are based on data - mostly trusted by people but not yet recognized as an authorized money form by the government.
So, money - the most universally efficient medium of exchange, has taken the form data in the digital world. It is indeed another form of money – yet to be recognized by the governments. Tomorrow, similar to money, data generated from a country can be termed differently!
Moreover, accumulation of data enables wealth creation and power as evident from new edge business – a characteristic similar to money. The enormity of data accumulation is often difficult to comprehend and so is the value data brings to these digital companies. India now has over 500 million active internet users with over 450 million users were accessing the internet on smartphones – almost all are Google users. There are over 330 million Facebook users in India alone, making it the leading country in terms of Facebook audience. With 340 million users exchanging 100 billion messages every day, India is WhatsApp's biggest market.
Acquiring data leads to digital wealth and power that these companies (“unknowns”) accumulate from India alone and power of accumulated data reflects in the extraordinarily high market value of these companies. Take the example of Facebook. The company reported assets of $6.3 billion at the time IPO in 2011and its bank assessed its valuation of $104 billion. A study showed that Facebook had collected 2.1 trillion of monetizable content (“likes”, posted content etc) between 2009-11 – i.e., each piece of content valuing at 5 cents or each user worth $100. The vast difference between “book value” and “market value” raises the issue that this intangible, invisible asset “data” is not reflected in accounting (and in valuation) and potentially can create market volatility. May be, we call this ‘data hype’ that inflates the market. In our earlier example, data as money-substitute bypasses accounting and taxation accordingly.
The value may differ according to company’s own use, use by third party (lending data for other advantage), may be different for primary use of data or secondary use, one time use or perpetual use etc. In absence of a transparent or established approach to value data, it is neither recorded as part of companies’ assets, nor legally liable. Data as input (marginal cost in most cases is negligible) to generate value for a company does not reflect in their books.
If we interpret data as a parallel money, then the value of such needs to be assessed from all data transacted. One question still remains unanswered - How do we assess the exchange price of the services that are traded – in many cases, with no monetary value attached? Simple answer is data (Bytes) exchanged in any transaction. While we often pay to the carrier of data but data source is mostly not compensated. Do we value all data equally? Or should we classify types of data and value them differently? We do not have answers to all these as of now.
In absence of a mechanism of valuing data (pricing in data terms) in such trades, trade barrier is the tool the governments adopt – by restricting the collection and/or usage of some or all data. China does not allow collection of the countrymen’s data by external companies/ agencies; India government restricts data hosting (and potential data collection by external entities) in select categories etc.
There are several implications of not assessing the value of data in the economy – let me share a few in the Indian context.
Implications on the Economy
1) Economic measurement no longer says it all
Data is unfortunately not visible and not accounted for in our economic measurement – like GDP. The transactions and value-adds on your birthday have not have not added anything monetary to these companies and not reflected in India GDP either. Online availability of books, news, music, videos etc. have made significant values to the economy, but are invisible in GDP because they have zero price.
We may refer to them as ‘data activity’ – that does economic activity but does not generate measurable economic value in monetary terms but significantly enhances utility or value to people.
Secondly, as our productivity data is based on GDP values, such services do not reflect in productivity improvements. But these add values and real productivity should have included the same. If we do so, there is a delink between (real) productivity and GDP.
Thirdly, data you have provided voluntarily – without much effort from the company – so, input cost is minimal. Data – the raw material (vital input) of business now is used to create a new form of economic value – that is not always priced or accounted for in economic measurement. Moreover, the global mobility of data and digital services provides the necessary economies of scale for the companies to operate at different pricing mechanisms.
Under these circumstances, GDP growth not necessarily measures economic growth and well-being. All the new digital activities that do not have a price in monetary terms today but adds values - make the traditional GDP estimate inaccurate. Had these pieces been added, GDP and productivity measures would have been higher. It is difficult to estimate the same for India – as most of the data to estimate is either not available or not reliable.
However, it remains imperative that measurement of GDP needs change. If GDP per person is a basic measure (leave aside inequality) for standard of living of a country, this may not necessarily reflect the truth any more. Standard of living should also include the Gross Data Usage (GDU) per person as a measure of our living standard i.e., GDP+GDU per person.
2) New business models in sight
Tencent in China provides multiple offerings including social network, chat, e-commerce through its digital platform that helps in up-sale and cross-sale very effectively – thanks to the advantage of a single database of its users.
In another model, companies have developed solutions by leveraging other available innovations - a digital ecosystem is established. For example, Waze used Google map, phone, social sites to provide traffic details and becomes a market leader in this specific field. All the inputs Waze uses for generating its business are available with no or minimum cost of collection and data used are not exhausted after one time use (but used to strengthen its offering).
Extending this further, the new business model is evolving where companies are forming a network to be the leader of the digital world. Tomorrow, we may see a fight between one such business-cartel with another. Recent plan of Reliance possibly indicates that direction.
The Reliance group tie up with Facebook will help the latter experiment e-commerce – using Jio network and using WhatsApp as the platform (in line with Wechat in China). For Facebook that has one of the largest subscriber bases in India, AI will provide necessary intelligence to target individual groups/ clients’ sales – while Reliance is expected to focus on providing supplies, logistics, government relations, implementing sales. In line with this plan, Reliance purchased the Future group sometime back to leverage the sale of items. It is likely that Facebook may introduce its new offering of payment service in India through this channel. Google’s recent plan to investment in Jio will facilitate their launch of smartphone on Android and leverage 5G. If all these falls in place, we may witness a new business network – where you will have the option to buy all these services from this network only. In other words, Facebook can use its brain over Jio body and Google hands! Services provided by Facebook, Google, WhatsApp will be monetized through this network. Who knows, we may see another such network with Amazon, Airtel etc tomorrow!
If the model works on the input data (mostly free) from India for monetary usage now, this should not be free. Like in non-digital world, the input cost should include taxes.
3) Debate on job loss
it is predicted by many economists that the new AI era is likely to have an adverse impact on employment (the optimists feel this as a temporary phenomenon) - more in high paying cognitive and/or routine jobs. That is a vast area and I will cover separately in another article. But in India context, the government is likely to potentially lose significant income tax revenue – when the base is already narrow and is primarily contributed by the income earners with cognitive skills.
4) Global services for local needs
AI and robotics will change the model of medical consult and diagnosis, education when your doctor or teacher does not necessarily reside in India – so the service revenue and taxes are likely to be adversely impacted for India without any directional policy change from the Government. This new model is a reality in near future.
Given our growth and breadth of experience in IT world, can we take the position of one of the leaders in this new world? Yes, possibly – but current trend, investment and focus may be inadequate (the subject requires more deeper analyses and will discuss in a separate article along with job impact).
5) Understanding of Data sharing Problem
Today many of us give up our privacy and our individuality by conducting much of our lives online, recording our every action and becoming hysterical if connection to the net is interrupted even for a few minutes. The shifting of authority from humans to algorithms is happening all around us, not as a result of some momentous decision, but due to a flood of mundane personal choices.
In this interconnected social environment – it is difficult for most users to understand and perceive the problem of sharing personal data with a virtual world! There are very few attempts from the government on sensitizing the citizens on the implications of sharing data voluntarily so that they can take conscious and judicious decisions.
What next?
Data, needless to say, has emerged as an alternative form of money. Similar to money that is driven by monetary policy, data should also have a data policy – at national level. The fiscal policy currently applies where there is a money-led transaction (income, sales etc); we need to think of a fiscal policy that works on data - may be tax on data (at generation and/or at consumption). If Indian data is used to develop and mature the system and in turn, create business to make money, this should be liable to be taxed and/or our usage should be subsidized. We need to develop an approach to quantify value of data at source and usage point from Indian perspective. This is not to curb or restrict freedom for people or business but to establish well-informed and judicious data usages.
The move will have a geo political impact – but we will face this conflict tomorrow anyway – when the digital business by “unknowns” from another country directly controls India’s health, education, commerce and other services at the cost of local businesses. And government loses control – financially. The need is beyond privacy, cyber threat and security issues – it is a matter of economics and governance.
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References
Brynjolfsson, Erik and Andrew McAffe (2016): The Second Machine; WW Norton & Company
Harari, Yoval Noah (2018): Money; Penguin Random House, UK
Lee, Kai-Fu (2018): AI Super Powers – China, Silicon Valley and the New World Order; Houghton Mifflin Harcourt
Malhotra, Rajiv (2021): Artificial Intelligence and the Future of Power: 5 Battlegrounds; Rupa Publications India Pvt Ltd.
Mayer-Schönberger, Viktor and Kenneth Cukier (2013): Big Data – A Revolution that will Transform How We Live, Work and Think; John Murray Publishers
Polson, Nick and Kames Scott (2018): AIQ – How Artificial Intelligence Works and How We can Harness its Power for a Better World; Bantam Press
Tegmark, Max (2018): Life 3.0 – Being Human in the Age of Artificial Intelligence; Penguin Books
Webb, Amy (2019): The Big Nine – How the Tech Titans and Their Thinking Machines Could Warp Humanity; Public Affairs NY
(The views are personal)