IPPR Economics Prize under 25 winner's blog
In the last ten years the balance of global economic power has undergone a dramatic shift: with improvements in the capacity to collect, store and analyse data, we’ve seen digital technology companies accumulate tremendous amounts of wealth and power. The world’s five most valuable companies, Alphabet (Google’s parent company), Amazon, Facebook, Apple, and Microsoft have exceeded multinationals based in industries like oil, finance, and consumer services to generate a market value of over £3 trillion in 2018. To put this into perspective, the combined value of those five companies now exceeds the GDP of 90 per cent of the world’s countries.
But where does this money come from when many of the services these companies provide are free? Facebook, to take one example, generated £45 billion in global revenue in 2018 and nearly all of this—98 per cent—came from the sale of advertising. In real terms, this process involves collecting the data of users—this includes their personal preferences, likes, comments, shares, or any other interaction with the platform—and analysing that data to form insights about users and their likely behaviour. These data and insights are then sold to advertisers to allow them to precisely target potential customers.
Likewise, 86 per cent of Alphabet’s revenues come from this process. This explains why you start to see adverts for new washing machines after typing “how to fix my washing machine” into Google, or adverts for Ed Sheeran concerts after “liking” one his songs on your Facebook feed. To varying degrees, the rest of the major digital platform companies are all modelled on this, or similar types, of data extraction, analysis and sale.
Leaving aside very profound considerations as to the ethical quality of these business models, it seems clear that there’s a disjunct between how the major digital platforms make money and who is rewarded. If the total mass of user-generated data in the UK—the result of billions of hours of unremunerated labour—was treated as a product, it would constitute one of our country’s largest exports. Instead, we give it away for nothing in exchange for the relevant platforms remaining free at the point of use. This is a little like an employer granting employees free office space, a desk and a chair, provided they agree to work for nothing.
There are two responses that would address very significantly the problems posed by this shift. Firstly, it’s clear that the corporate tax framework, much of which was written over 100 years ago, is not fit for purpose. It wasn’t designed for companies who can make money in territories where they don’t have a physical presence. As such, a new tax should be introduced on revenues generated from the provision of digital services like the sale of advertising. One that isn’t dependent on companies having a physical presence in the UK. A tax like this could generate over £1.5 billion a year, all of which would be the direct product of the work of UK users.
The second response ties into the first; the revenue from the levy, being the product of collective labour, should be ring-fenced to ease the transition into a shorter working week without a loss in pay. Traditionally a shorter working week would have meant losses in productivity but emerging technologies are giving us the chance to work far less as a society without losing our output. What’s more, there is significant evidence to suggest that a shorter working week can be a solution to a range of socioeconomic problems; from mental health crises to over-consumption and climate change, working less will be a key part of reducing and overcoming the problems linked to our increasingly precarious and poorly rewarded working patterns.
The tax revenue would be allocated for a wholesale programme of public and private investment in labour-saving automation technologies. This wouldn’t just help to address a reduction in working-time but it could also jolt us out of our low-wage low-productivity equilibrium. As it is, many businesses have been reluctant to invest in new labour-saving automation technologies that are relatively risky when compared to the alternative of using more low-cost labour, locking us into an uneasy balance where firms cut costs and do not get the returns from investment in the form of better workplace practices. Secondly, it would guarantee that the benefits of automation are shared evenly, in the form of more free-time, as opposed to falling disproportionately towards shareholders, whose pockets are already bloated and swollen at a time when earnings for most people have only just recovered to pre-crash levels.
Crucially, if we reconceptualise the time we spend online as work, the working week would not have been reduced, but merely altered to account for our unrecognised labour. Given that the average Britain spends seventeen hours a week online, this shift in attitudes has the potential to ensure unique sense of collective agency.
Read the full IPPR Economics Prize under 25 winning report here
Snakes and ladders: Tackling precarity in social security and employment supportAcross the country, people are trying to make ends meet, build financial security and pursue their aspirations. But, in a vicious cycle of snakes and ladders, many are being pulled down into poverty.
Making markets: The City's role in industrial strategyTo tackle climate change, we need a significant increase in public and private capital investment.
Broken hearted: A spotlight paper on cardiovascular diseaseProgress on cardiovascular disease was a significant driver of better health and prosperity in the latter half of the 20th century, however progress has recently stalled – with indications it may be in reverse.