How much is the ‘free’ internet really worth to us?

On my morning commute last week I decided to dip into a bit of 18th-century philosophy: Hume’s fork, Kant’s Critique of Pure Reason. Then I veered off into some physics: Newton’s law of universal gravitation, Einstein’s theory of general relativity. But what’s even more remarkable than my geekiness is the fact that I did all this on my smartphone. The articles were on Wikipedia. And I started out not with a planned reading list but with Google.

In those ancient days before smartphones, wifi on public transport, and, of course, the internet, I would have needed to go to a library to read up on such an eclectic range of topics. Or I would have needed to carry a number of books around with me, carefully selected before leaving the house. We all know that digital technologies have changed our lives over the past decade. But what is harder to pin down is how much this benefit is worth to us economically.

Leaving aside for a moment the issue of advertising and our personal data, there is no upfront charge to use a search engine like Google. Wikipedia is, of course, a public resource. But this means there is no price tag for economists to use in order to impute the value we all derive from such new services.

But that doesn’t mean economists have given up on estimating it. In 2010 Yan Chen from the University of Michigan conducted an experiment to see how much time people save through searching for information online relative to the older methods. She found that the average online search time for a given task is seven minutes, versus 22 minutes for the offline search. We should perhaps take the research with a pinch of salt given that it was partly funded by a Google research grant. Yet there seems little reason to doubt the basic result that online search is around three times quicker than the older methods. When was the last time you went to the library, or opened an old-fashioned dictionary to look up a word’s spelling? 

So how does that help us to value such services? Time is money. To get a very rough estimate of the value of your time consider how much you get paid per hour. Now consider how much time a day you spend searching online for information. Multiply the time spent searching by your hourly pay rate. Now double it. That’s a rough estimate of how much online search engines benefit you financially. Or, if you’re searching of information as part of your job, that’s how much the technology benefits your employer by making you more productive.

But let’s think about it from another perspective. Google saves us time. But is there not value from spending longer on the internet sometimes too? Think of time on social media catching up with friends and family. Erik Brynjolfsson of MIT conducted a survey in which Americans were asked how much they would have to be paid not to use the internet for a month. From these results he and colleagues were able to derive a rough estimate of how much value individuals derive from various online services. The value of social media – the likes of Facebook, Instagram and Snapchat – for Americans in 2017 was put at $322 a year. The value of search engines was put at a whopping $17,500.

Brynjolfsson presented his results at an Office for National Statistics conference about measuring the economy last week, hosted by the Bank of England. He argued that such benefits for consumers from the new digital economy are being missed in the national accounts of countries like the US and the UK – and that statisticians should consider using work like his to incorporate them. It wouldn’t be a trivial adjustment. Brynjolfsson’s figures suggest free sites added around $ 100bn a year to the US economy between 2007 and 2011, around 0.75 per cent of GDP.

Speaking at the same conference was Hal Varian, Google’s in-house economic guru. Varian made a point about free cloud storage for digital photos, offered by firms like his employer. How much is this service worth? Well, he noted that Kodak used to say that people would rush into a burning home for three reasons – to retrieve family members, pets and, finally, photo albums. Again, the fact this claim came from a photography company might detract a bit from its credibility. But it rings true. The implication of the fact that many people would be willing to risk their very lives for their photos implies the digital photo revolution has an implicit financial value to people – and a significant one.

So should statisticians be making substantial adjustments to their national accounts as Brynjolfsson, Varian and many others suggest, in order to capture the undeniable value to consumers of new free online services? Aren’t we underestimating an important area of economic growth by our failure to do this? There are reasons to be a bit cautious. First, as mentioned earlier, there is a question mark over whether we actually should regard all these services as free given some of these firms run a business model in which they sell our personal data to advertisers. Wikipedia might be a nonprofit, but Google and Facebook most certainly are not.

Second, there are many other goods beyond the digital realm that people value – and which one could attempt to measure through surveys – which do not enter the national accounts. Consider clean air, or friendship, or political freedom. How much would we pay not to choke on smog? How much would we pay to be free of the fear of being locked up by a repressive regime? Perhaps the problem is less that official measures such as GDP are not fit for purpose in the digital age but that, in the digital age, we place too much weight on GDP as an indicator of our changing quality of life.

#ErikBrynjolfsson #HalVarian #GDP #searchengines #consumersurplus

Welcome to Jim Ratcliffe’s Britain

Not since the days of Margaret Thatcher has a trade union been so comprehensively outmanoeuvred. In 2013 the petrochemical giant Ineos announced that its Grangemouth refinery, Scotland’s biggest industrial site, was losing money.

To restore profitability, the management demanded cuts to employees’ benefits, including an end to their final salary pension scheme.

The workforce refused and, represented by the Unite union, voted to strike. But when Ineos threatened to shut down the entire plant in response they caved in, agreeing, against the advice of the union, to swallow all of the management’s terms, including a pledge not to strike for three years.

The founder of Ineos and the man who broke the resistance of those Scottish fitters and labourers was Jim Ratcliffe, named by the Sunday Times at the weekend as Britain’s richest man, with his 60 per cent stake in the company valued at around £20bn.

The media has made much of Ratcliffe’s humble origins, growing up in a council house in Oldham, and being publicity-shy. Yet his reticence in promoting his interests should not be exaggerated.

There was a disturbing coda to the Grangemouth showdown. Documents revealed last year (thanks to a rare freedom of information request that was not frustrated by officials) show that in the months before the 2013 industrial action, Ratcliffe had been privately lobbying the former chancellor, George Osborne, on the need to erode union rights. The Ineos man urged Osborne to “remove the right to strike, directly or indirectly” over threats to workers’ pensions.

Billionaire business owners can get a private audience with a chancellor in which to push their preferred policies. How many trade unions have had similar opportunities in recent years? The “beer and sandwiches” these days are for reserved for executives.

We can speculate on why Osborne’s door was open to Ratcliffe. Ineos had ostentatiously shifted its headquarters out of the UK to Switzerland in 2010 in order to trim the company’s corporation tax bill.

Personal pique also seems to have played a role in the departure. Ineos, struggling with a large debt burden in the wake of the global financial crisis, had asked earlier that year for a special VAT tax break from the UK government. The favour had not been granted. Ratcliffe vented his frustration at that time at not being able to make his case directly to a government minister (although he apparently did get access to the powerful cabinet secretary Jeremy Heywood).

As part of that 2013 capitulation, Grangemouth’s workers agreed to a three-year pay freeze. That’s a microcosm of the wider economy over the past decade. In real terms average wages are more than 6 per cent below where they were 10 years ago – this has been the worst decade for pay growth since the Napoleonic wars. And official projections suggest the pre-recession peak for wages will not be reattained until well into the next decade.

Theresa May’s preferred form of Brexit – leaving the single market and the customs union – will, according to the government’s own projections, compound this economic damage to living standards.

Incidentally, Ratcliffe is a fan of Brexit, and has been lobbying the government to reduce environmental taxes on companies like Ineos when Britain leaves the European Union.

Wages and living standards for most people in Britain remain under severe pressure. But some aren’t doing too badly. The combined wealth of Britain’s 1,000 richest residents rose 10 per cent in 2017 according to the Sunday Times’ calculations. That’s a £66bn increase, with £15bn of that jump accounted for by Ratcliffe alone. It’s hard to credit that Ratcliffe’s wealth has risen so dramatically in only a year; his net worth was either under-measured before, or possibly overestimated now. Much remains opaque since Ineos is a privately held company.

Yet, whatever the truth about his fortune, Ratcliffe makes a suitable figurehead for the modern British economy. Soaring wealth for the union-busting, tax-avoiding, regulation-reviling boss with ready access to the ear of the country’s top politicians and policymakers. Stagnant wages, hollowed-out pensions and chronic insecurity for his workers.

Theresa May said she wants to create an economy that works for everyone. At the moment, it feels like a country that works for the likes of Jim Ratcliffe.

#SundayTimesrichlist #Ineos #inequality #JimRatcliffe #tradeunions

‘Neoliberalism’ and nonsense

Here’s a fun fact: the founder of neoliberalism was a Corbynista.

Well, not exactly a Corbynista. The German sociologist Alexander Rüstow died in 1963, long before Jeremy Corbyn entered Parliament, let alone became Labour leader. But some of the economic policies Rüstow advocated bear a striking resemblance to those pushed by Corbyn today.

Rüstow, according to the valuable research of Oliver Marc Hartwich, was in favour of the nationalisation of rail companies and utilities. He supported an active industrial policy to ease the social impact of economic upheaval. He wanted to reduce inequality through high inheritance taxes. He proposed higher taxes on large companies. “The economy is there for people,” Rüstow insisted. Any of that might have come out of Labour’s 2017 election manifesto.

From this historical perspective, the cry from Corbyn’s intellectual outrider Paul Mason last week that “Labour needs to wage war on EU neoliberalism” sounds pretty strange. Yet, of course, the definition of neoliberalism that Mason is using is different from that put forward by Rüstow in the 1930s.

For Rüstow, neoliberalism was a third way between socialism and British-style laissez-faire economics. It was conceived as a specific cure for late 19th-century German-style corporatism, with its proliferation of cartels. Mason’s conception, on the other hand, stems from the theorising of Michel Foucault in the late 1970s, who saw neoliberalism as an ideological project to transform all of society into a giant marketplace.

This freemarket fundamentalist conception of neoliberalism owes more to the thought of Friedrich Hayek and Milton Friedman than Rüstow.

Words can change their meaning, of course. And there’s no reason Mason, or anyone else, shouldn’t use the modern definition of neoliberalism as a kind of unhealthy fetishisation of markets. After all, this is what most people today understand by the term. Yet it’s important to ask whether Mason, and others on the radical left, are justified in describing the EU as part of a neoliberal project – especially when they use this framing to argue that Labour should be wary of joining the EU’s single market after Brexit.

With its high levels of social protection, state-owned rail companies, nationalised utilities and banks, various price controls and industrial interventions, the European continent does not, on the face of it, look like the neoliberal hellhole of the leftist imagination. Europe actually seems to be a collection of social democracies and what Peter Hall and David Soskice described as “co-ordinated market economies”. Yet, according to Mason, the European “social market economy” is merely “the specific European form of neoliberalism” because “it prefers private over public, vaunts market mechanism over state direction or subsidy, relies on effective competition to make capitalism fairer, rather than strong regulation.”

This is rather like arguing a hot bath is merely a warmer form of a freezing cold bath. It’s a definition that ignores the experience. Most normal people, when they run a bath for themselves, are concerned with how comfortable it feels when they get in it, rather than which tap most of the water came out of.

The insights of Hayek and Friedman about the utility of markets – in particular the access to the socially dispersed knowledge embedded in them – are valuable. Yet it’s also true that a mentality that presents the extension of markets as the answer to every social question is a destructive pathology. The merit of the post-war social democratic settlements of countries like Germany, France, Sweden and the Netherlands is that they have located a reasonable balance between those two extremes. Any theoretical framework that crams Germany’s Social Democrats into the same category as the US Republicans or the hardline Thatcherite wing of the Conservative Party has either gone badly awry or is conceptually useless.

Perhaps we can learn a lesson from the genesis of the term neoliberalism. Rüstow’s 1930s conception of neoliberalism had a specific social and historical context – the crony capitalism of Wilhelmine (and then Weimar) Germany and the global crisis of free markets and democracy in the wake of the Great Depression. To understand the programme, one has to appreciate the context.

The economically liberalising ethos of the EU’s 2007 Lisbon Treaty, which the left revile as one of the supreme works of the neoliberal devil, has a context too: a series of member states with a greater role for the state and social protection than the UK and the US but also structurally higher levels of unemployment. It’s not freemarket fundamentalism, for instance, to suggest that French employment laws ought to be reformed for the sake of those younger people who find themselves outsiders in a system designed to protect insiders at all costs. Nor is it wild-eyed neoliberalism, in a single market of 28 member states, each with their own domestic corporate lobbies, to police the granting of state aid.

The problem with the modern Foucauldian definition of neoliberalism is that it ignores context and invites paranoia. The result is that those who advocate a modest extension of markets in some areas cannot be understood as simply attempting to adjust the temperature of society’s bath but must be seen as part of a sinister ideological project to atomise humanity.

European leaders have certainly handled the eurozone crisis abysmally, inflicting unnecessary suffering on the likes of Greece and Portugal through excessive public spending cuts and badly designed structural reforms. Domestic fiscal policy in Germany has been, and remains, a disaster zone. There are many reasons for this, but it’s simply not credible to argue that these gross failures stem from the same species of ideological extremism that animates libertarian right-wingers in the Anglosphere. The context and the history are separate; the attitudes to markets, the state, inequality and social solidarity are fundamentally different.

It would be tragic if Labour rejected the option of single market membership for the UK after Brexit. And if the party did so on the basis of fallacies about European Union “neoliberalism”, it would be farcical.

#neoliberalism #Labour #MichelFoucault #singlemarket #FriedrichHayek #LisbonTreaty #MiltonFriedman #AlexanderRustow #EuropeanUnion