Radical digital change: I put this cartoon at the beginning, given the time (and I know we’re all tired), but I think it depicts very well what is happening. The tablets are looking at the newsstand saying “We are coming in peace”, but I think, “OK, you are coming in peace but the effect that you are producing is not peaceful at all!”.
What is a computer? Computing power, storage, data transmission, are all rising at exponential levels, so this means that computers will be everywhere, just to quickly summarise. It is happening, and it is happening at a pace that we cannot imagine, and it’s a challenge for regulators.
This is a girl who is ten years old, in ten years more than twice the population of North America and Europe combined use Android daily. Android was born ten years ago, so in ten years from zero to more than twice the population of North America and Europe combined. And we have some outstanding effects. If we look here, this is the election of the Pope and if you look at the picture above, the upper picture, in the lower right hand corner there is a small smartphone of the time, in 2005, that may be a NEC or Nokia or Motorola, and the interesting thing is that none of these three companies exist anymore, they have all disappeared. That happened in ten years, so things happen extremely quickly, and one of the reasons why these things happen very quickly, giving the exponential trends in the reduction of the cost of electronics, is that the rules of the game are very different when you talk about material or immaterial dimensions. I don’t like to call it “virtual”, because it’s very real, and I call them dimensions, because material is not alternative to immaterial, they both integrate, like length is not an alternative to depth. They are dimensions. Production costs a lot, reproduction costs, it has a significant variable cost. Archiving has variable costs, transferring costs money, transferring requires time, manipulation is done by humans, and humans work in working time. When you enter in the immaterial dimension, producing costs money, but costs very little, and then reproducing, archiving, and transferring does not cost anything, it has zero marginal costs, and transferring does not require time, and manipulating is done by machines that work 24 hours a day.
So once you have something, it always used to be material and when it becomes immaterial the basic rules of the game change significantly. Material goods are rival and excludable while immaterial are nonrival and not excludable, and that poses significant challenges to policymaking. Returns are generally decreasing in the material dimension while they are often increasing in the immaterial space and this is something that has been studied in the last twenty years. And then integration, the material dimension is disconnected, while the immaterial is connected, so if you combine these things, if you think of the price, the general price, which is material and is disconnected and has significant reproduction costs, and you think of Facebook on the right hand side, which is connected and has zero marginal costs, you understand the dynamics of certain businesses.
I’m not going to enter into more detail in this because I don’t have time, but these different properties, the basic material and immaterial properties, have significant impacts. For example, the first one is that the traditional intermediation structure of central distribution and retail, and even a political party, with some regional offices and local offices, or whatever organisation that has some value-added in the geographic dimension, given that transmitting doesn’t cost anything and happens in real time, and storage increases and computation etc., organisations like the ones on the left tend to be substituted by organisation models like the one on the right, and of course this poses challenges. Then, as you don’t have frictions, the material frictions of moving things around, processing and handling etc., things tend to happen faster, and the fact that it is not a physical thing explains the huge success of Android.
Another consequence is that the world becomes a point. There is a nice comic strip from Mafalda that you probably know, when Felipe says, “Can you imagine if everything were here?” and suddenly Felipe collapses thinking about all of the things here, but this is what is happening, everything is available always, everywhere, and this is a significant change that poses problems in terms of regulation and enforcement and all the kinds of political problems that I mentioned before when we were discussing the possibility of building this network. And then another consequence is that while computing power tended to be centralised, now they are scattered everywhere. We tend to think of computers and devices like our mobile phones, or the computers that we have on our desks, but this is going to change very quickly and this is happening in a very short timeframe. We lived for 10,000 years in a material dimension that has always had very slow changes and now what has happened in the last ten years – because in the last ten years the internet has reached everybody in the first economies – is that this material dimension has been complemented by an immaterial dimension that is becoming the major user interface to the material dimension.
And as I mentioned before, computers are changing. We are not interacting. As computation moves away from the device, and gets into the network, as storage moves away from the device and gets into the network, what we see is that we have interaction with other devices that are not computers in a traditional sense and they are based on the recognition of the identity of the user. This is how we are starting to interact now and are going to interact in the future with our data, and these things are going to be pervasive in the fabric of our homes, of our offices, in buses. We’re not going to see them any more. This is an actual slide from a presentation of a company which I advised; they are building microphones and speakers to put inside of light bulbs and switches, connected via a Bluetooth low-energy network and that is going to be one of the ways in which we interact with our systems, so the way in which we think about computers today. So all of this, we’re going to be living inside a computer that is going to recognise us and grant us access to the things that we need to do and to our data etc.
The first point I want to raise is that the immaterial dimension is, for some of us, and will be for everybody, the main user interface for the material dimension – and I explained why I called them dimensions because they are not alternative, and they are real – for interpersonal, social and economic relationships, and everything is flowing through this. As I talk to you, the air does not discriminate, everything that you hear, you hear the same in every corner of the room. And this is how we think of communications. If I get out of here and go into a pizzeria, there is nothing stopping me from entering the pizzeria, nothing discriminates. While when we come into these immaterial gateways we have different intermediaries: the network, the basic level, and then the hardware, the operating system and the application, and each of these layers can, and often do, discriminate. They often do discriminate. We tend to think about computers and ICTs (Information Communication Technologies) as enablers, but in the last ten years, this significant change – the introduction of smartphones etc. – has turned them into intermediaries, so computers, operating systems, applications are no longer enablers but are intermediaries of our communication.
Think of all the times that you here that the internet is dis-intermediating, that the platforms are dis-intermediating: it’s not true, they are re-intermediating in a different way, different from the previous intermediaries. Previous intermediaries were extremely well regulated. New intermediaries in the material dimension as they grow exponentially, because the rules of the game are different, tend to benefit from network effects, and tend to practise very smart lock-ins – see this fishing cage, the fish enters very easily but cannot get out –because the kind of regulation that we put in place for the immaterial dimension was specifically aimed to foster the growth of these players because that kind of economy is sustainable, compared to building highways, bridges, cities etc. So it was very successful, so we didn’t put in place any pro-competitive regulation on this part of the economy, and they were very successful, and they became effectively in these layers, the gatekeepers of the access to information. Very generous gate keepers I must say, but controlling the gateway to the immaterial dimension is controlling the main user interface to the material dimension.
There is a nice quote that I want to read to you, this is a quote from Brandeis: “In final analysis, size in steel is the measure of the power of a handful of men over our economy. That power can be utilized with lightning speed. It can be benign or it can be dangerous. The philosophy of the Sherman Act is that it should not exist. For all power tends to develop into a government in itself. Power that controls the economy should be in the hands of elected representatives of the people, not in the hands of an industrial oligarchy. Industrial power should be decentralized. It should be scattered into many hands so that the fortunes of the people will not be dependent on the whim or caprice, the political prejudices, the emotional stability of a few self-appointed men. The fact that they are not vicious men but respectable and social minded is irrelevant. That is the philosophy and the command of the Sherman Act. It is founded on a theory of hostility to the concentration in private hands of a power so great that only a government of the people should have it”.
I read this because I believe we are facing a political problem that starts from the network, and we can see the effects that stem from the network up. I am a computer scientist, currently sitting in Parliament, and I can see now my colleagues talking about the problem of base erosion and profit shifting that has been recalled before, the problem of fake news and political influence, but also the reduction of consumer protection, unique bid auctions that tend to lower compensation and compress salaries, the Uberization of work which will reduce labour rights, these are all effects of the dynamics of the two different kinds of properties between the material and the immaterial.
The point I want to make is that to deal with the discrimination at the bottom layer, we introduced the concept of net neutrality, meaning non discrimination, very heavily sustained by the players above, and very clearly sustained by the players above, because their business, their lives depends on the fact that the telecom operators do not mangle the traffic, but the same happens above, we should have provision about device neutrality, and to ensure competition, otherwise we will not have freedom at the upper level, freedom to inform, to have social relationships etc.
These are the kinds of things that we have been going through in the material dimension. This is the ultimate surveillance and conditioning weapon.
These are titles in the last few months; Amazon giving Alexa transcripts, Apple removing apps from China or opening a data centre in China, 112 people detained in Turkey because they use a specific app. I believe, and I quote the Pope, the internet is a wonderful tool for the benefit of humanity, we must work to mitigate its development, we need plurality and freedom of choice built in at all layers, so when we come to the Declaration, I warmly ask you, to include the fact, at point 4, that the principle, it is not enough to develop the infrastructure, because the infrastructure will develop into a tool of mass conditioning and mass discrimination and mass control, so including the principle of the plurality and freedom of choice at all layers in the stack. Thank you.