Last Wednesday, the US Department of Justice filed a case in California challenging Google on contempt of court for defying a court warrant on sharing data linked to 22 named email accounts.
This sounds similar to the case against Microsoft last year but they managed to win the court battle with the ruling on 14th July 2016 which absolved Microsoft from producing information stored in its data centre at Dublin, Ireland.
The Economist had demanded a new approach to antitrust rules on the burgeoning data economy or the new oil, highlighting the unstoppable dominance of internet giants Google, Amazon, Apple, Facebook & Microsoft with their collective profits exceeding $25B in Q1 2017 by dealing with “data oil”.
And then a roaring public statement on 15th August 2017 by a niche AI startup bracing itself up from Silicon Valley: “hiQ believes that public data must remain public, and innovation on the Internet should not be stifled by legal bullying or the anti-competitive hoarding of public data by a small group of powerful companies.”
Finally, EU regulators are clamping down on the “data oil”. With GDPR (general data protection regulation) going live in May 2018, whether it is Google or Facebook or LinkedIn whose business models thrive on public data – as the “controller” of all data associated with a “data subject” – they will now need to rethink on their models of allowing the machines and associated “processors” to distribute data across geographies, and implement new solutions to provide full transparency with respect to each of the GDPR regulations like “the right of access”, “the right to be forgotten” and so on.
Many companies across EU may not even have enough time to get their act together. Given the immense cost to comply with these regulations and the repercussions of non-compliance (a penalty of€20m or 4% of global turnover, whichever is higher), some companies have already wiped out or stopped keeping a record of data subjects.
Is there a smarter solution which overlays on the existing distributed architectures of the controllers? The answer may be in Artificial Intelligence (AI). The AI-powered neural graphs of some niche startups do have the capability to self-learn from scattered raw data and show in real time all the hotspots of data associated with the data subject across the estate of the controller as well as each and every processor. This could give full transparency to compliance officers.
But then why is Google citing enormous technical issues when they already have AI-powered “DeepMind” in their arsenal, which is handling far more complex data-related problems in industries? In response to the court warrant Google lamented “…at that time it received the warrant, the tool it used to collect information responsive to SCA warrants was data location agnostic; it did not identify where on Google’s network data was stored….it would take several months to make significant progress on the development of long-term solutions to such a complex technical issues”
Social Media Meltdown
One of the intriguing GDPR regulation is the “Right to Data Portability”, which will be a boon to AI startups that may want to leverage and scan the public profile data for driving intelligent insights. Earlier in May this year, Microsoft tried to wield its muscle power on behalf of LinkedIn for preventing the niche startup hiQ Labs from scrapping the public profile data on LinkedIn. But on 14th August hiQ managed to win a win a preliminary injunction in San Francisco against LinkedIn wherein the US Federal Judge also ordered LinkedIn to immediately remove any system controls or technology obstacles which LinkedIn might have initiated to stop hiQ from accessing public profile data on their site.
Microsoft had spent a hefty $26.2bn to buy out the high valued LinkedIn, which prides itself on its almost half a billion subscribers, of which only 0.4% (approximately 2m) are paid subscribers. Consequently, the data economy of LinkedIn is driven by a phenomenal 99.6% voluntary subscriber base, each of whom, as per the new GDPR regulation, can rightfully demand from LinkedIn for their “structured and machine-readable format data” to be transferred as-is to any new “controller” of their choice.
This finally gives the power back in the hands of the “data subjects” whose content is being milked by the social media giants to drive their ad-rich economies. And this may have a huge repercussion on the valuation of the internet giants riding on huge volumes of voluntary public data and broadcasting their legal control over it.
For a long time, regulators have harangued financial institutions, but they are now finally clamping down on internet giants and tightening the regulatory noose on so-called “data oil” to ensure that the interests of the data subject are fully protected.
Suspect Detained in New York
Following an explosion in midtown Manhattan, a male suspect has been arrested in New York.
The blast occurred on Monday morning near 42nd Street and Eighth Avenue, just one block from Times Square, in one of the busiest parts of New York. Eyewitnesses have said that a man entered the train station with a pipe bomb attached to him before detonating it on a platform. The suspect, Akayed Ullah, suffered burns after the device failed to explode properly and three others sustained minor injuries. New York’s mayor Bill de Blasio confirmed that the incident was a terror attack, making it the second in less than two months. Back on October 29th, a terrorist killed eight people by driving a truck into a busy Manhattan park.
Trump Attacks the WTO
Argentina joined Latin American leaders to strengthen the WTO system in the wake of Trump’s recent comments.
Over the past several months, President Trump has accused the WTO of an anti-American bias and his government is actively blocking the appointment of new judges to site on the WTO’s body. Other WTO nations view this as an attempt to fundamentally alter the system, which has for decades prevented trade wars among its 164 members. Yesterday, at the WTO meeting in Buenos Aires, WTO nations urged the US to re-commit to the organisation’s principles and strengthen the existing relationships within the current system.
Republicans Without Principles: Roy Moore and the Tax Bill
The Republican National Committee (RNC) joined with Mitch McConnell and approximately 18 Republican Senators in urging Roy Moore to resign. They pulled campaign funding and took the moral high ground…until the Senate voted on the tax reform legislation and they discovered that they only had one vote to spare.
The Alabama election takes place on December 12, 2017, before the date of a final vote on the reconciled tax bill that Republicans hope to place on the President’s desk before year end. And so, following the lead of the President, who is satisfied that Roy Moore not only denies but “totally denies” all allegations against him, the RNC changed direction and agreed to re-dedicate its support for the alleged perpetrator of over eight sexual assaults, four of which were on minors.
The Senate Tax Bill
Analysis of the Senate Bill has been extensive in the past few days. It has highlighted several problems arising from the hasty way it was passed.
Firstly, the alternative minimum tax (AMT) has not been repealed. Under current law, AMT is 20% compared to a regular tax rate of 35%. The bill passed by the Senate has both at 20%. Because certain deductions permitted against the regular tax liability are added back for AMT purposes, most corporations will, unless this is fixed in conference, now pay AMT rather than regular tax.
Additionally, the base erosion anti-abuse tax (BEAT) is a problem. It’s complicated. It’s intended to protect the tax base from US parent companies making payments to overseas affiliates whose earnings will be subject to a lower tax rate. But it will have negative consequences for the US taxpayer who reduces its US tax bill by any number of legitimate tax credits available to investors in renewable energy or low-income housing.
It’s not clear if these problems are oversights or intended features. It’s hard to admit the truth – that this was passed too quickly and without due consideration – because that is the point made by the Democratic Senators. Perhaps, as Nancy Pelosi said in respect of the Affordable Care Act, “We have to pass the [healthcare] bill to know what’s in it”. It was a terrible argument then; it’s a terrible argument now.
Christmas for the 1%
The 1% wealth bracket in the so-called Blue states of California and New York will be negatively impacted by the elimination of deductions for state and local tax and the limitation of the property tax deduction to $10,000. Overall, however, it is clear where the benefits of the Senate Bill flow, state, local and property taxes notwithstanding: to those making over $1,000,000.
The reduction in the corporate tax rate that has been approved will, according to many the CEOs interviewed, result not in additional investment in human or other capital but rather in share buybacks and increased dividends.
Why is the 1% Angry?
Senator Charles Grassley observed that the importance of repealing the estate tax was to ensure that those productive members of society would not be punished for a lifetime of thrift and hard work:
“I think not having the estate tax recognises the people that are investing, as opposed to those that are just spending every penny they have, whether it’s on booze or women or movies.”
The quote from Grassley raises a great point: fundamental attribution error. People are comfortable attributing outcomes to others based on their character and disposition: the poor are lazy; that’s why they are poor; the rich are rich because of hard work and intelligence. When explaining their own misfortunes, however, people are inclined to attribute causation to external circumstances. Gressley reinforces this fundamental error by his tactless comment.
The last ten years have been extremely rewarding for the top wealth slice of US society. Corporate earnings have been strong, and the financial markets have delivered robust returns to those who have been able to participate. It is not clear why either corporations or the wealthy have any reason to complain.
The middle and lower classes, on the other hand, have struggled with wages that have been essentially flat over the same period and with health, education and housing costs that have been climbing. It was this constituency that Donald Trump appealed to in his bid to be elected.
One of the unfortunate features of this tax bill is that, while everyone will enjoy tax cuts for the next ten years, the benefits will flow disproportionately to those with incomes over $500,000 after ten years. Individual tax cuts will phase out unless extended, whereas corporate taxes will remain at the same level. Consequently, the benefits of the corporate rate cut – increased dividends and share buybacks – will continue to flow to those with incomes over $1mn.
There is hypocrisy on both sides of the political divide, but the Republicans are running the show at the moment and the ‘house’ is beginning to look very crooked indeed.
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