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How Big Data Drives Economic Inequality

As more of the economy moves online, the importance of data mining and the asymmetry of control of information becomes ever more critical in economic markets.  Addressing this change calls for far more active regulatory action to reverse the trends undermining user privacy and increasing economic inequality due to that rising information asymmetry.  Such action should lead to a greater focus on big data platforms sharing the financial bounty of user information with those users, serving both equity and competition. 

Data mining of individual privacy is fundamentally reshaping markets by transferring so much knowledge about user interests, behavior and desires into a few corporate hands.   Such information asymmetry is easily converted into economic inequality when one side of every transaction has so much more knowledge about the other during bargaining.   Joseph Stiglitz and allied economic thinkers argue increasing information asymmetry feeds increasing economic inequality as well, such that the “result from the new information economics is that issues of efficiency and equity cannot easily be delinked."  When information is itself the commodity being sold, companies inevitably "appropriate the returns to creating information for economic advantage in the market place” in ways that creates dynamics towards monopoly control of such markets.[i]

Big data platforms have the economic incentive, pushed by advertisers seeking their own information advantage in marketing to users, to increasingly violate user privacy to appropriate more and more information to solidify its economic dominance, all while making it less economically possible for potential competitors to challenge the company. The fact that many of the largest online advertising customers in the mid-part of the last decade were linked to the subprime mortgage industry is just one indicator that understanding the dynamics of the search advertising sector gives insight into larger theoretical problems of market failure, the harm from predatory firms and why we have seen rising economic inequality and corporate concentration in the economy over recent decades.

Government authorities using regulatory tools can stem at least part of this trend by restoring a degree of control by individuals over what personal data is shared online and the financial terms on which that data is shared.  Such pressure might translate into a greater focus on sharing the financial bounty of user information with those users, serving both equity and competition.   The less big data platforms are able to use privacy violations for anti-competitive purposes, the better guardian of legitimate privacy concerns they will become. At least one writer has compared the market failure of providing privacy and data protection to that of poor user information on food and safety a hundred years ago, explicitly highlighting the way equity and consumer safety concerns of crusaders like Upton Sinclair then should be the precedent for action today.[ii]

This in turn can eliminate some of the information-based inequality in the modern marketplace that is driving the overall economic inequality.  If nothing else, public advocacy for these changes can be a chance for a much broader public debate on the abuses of data mining online and how to make all markets work more fairly for average working families.

 

[i] Joseph E. Stiglitz (2002); see also George  A. Akerlof, The  Market  for Lemons:  Quality  Uncertainty  and  the  Market Mechanism, 84 Q.J. Econ 488 (1970)..

[ii] Benjamin Sachs, “Consumerism and Information Privacy: How Upton Sinclair Can Again Save Us from Ourselves, “95 Va. L. Rev. 205 (Mar. 2009) (suggesting a strict liability standard for companies experiencing data breaches to force them to tighten security for users).