Here David Rimmer, Advisor to Leading Edge Forum, discusses whether we need to update our laws, regulations and institutions for the digital age, just as the Victorians did for the industrial age
Tim Berners, in this year’s annual birthday letter to the World Wide Web Foundation, controversially raised the prospect of regulating the internet. “Companies are aware of the problems and are making efforts to fix them ……. The responsibility — and sometimes burden — of making these decisions falls on companies that have been built to maximize profit more than to maximize social good. A legal or regulatory framework that accounts for social objectives may help ease those tensions”. I agree in principle but would go further, arguing that the issue goes beyond the internet per se: it is about how we bring our regulatory and legal systems in line with the digital age in general and, just as importantly, how we evolve underpinning institutions.
During the 19th Century, when industrialisation took hold, the Victorians passed a series of laws to regulate industry and to alleviate the side-effects of industrialisation.
Between 1830 and 1890 the Factory Acts regulated working hours for children, the Railway Act provided for passenger safety, the Food and Drug Act prohibited the adulteration of food and the Sanitary Act required local authorities to remove health hazards and made them responsible for sewers, water and street cleaning. These acts were contentious at the time, but nowadays we would find few proponents of child labour, trains without brakes, open sewers and bread filled with glass powder.
Today, we are experiencing comparable economic and social dislocation, this time brought on by digitization. Yet, there is no comparable stream of legislation – at best there is a trickle.
In his letter to the WWW Foundation Berners-Lee drew attention to how, “We’ve seen conspiracy theories trend on social media platforms, fake Twitter and Facebook accounts stoke social tensions, external actors interfere in elections, and criminals steal troves of personal data”. He could have added to the list: hate speech, trolling, breech of copyright, sexting, slander, grooming, online radicalisation, political advertising, electoral spending and social-media incitement of gang violence. If this seems like a ‘kitchen-sink’ list of issues then that’s because it is – because there are few aspects of our lives that do not have a digital dimension.
Since many of abuses of the internet are beginning to generate discussion, I want to explore a distinct area, the taxation of digital businesses, to demonstrate that we should look beyond the internet itself and consider instead the profound mismatch between our regulations and institutions, and the digital age in general.
Tudor Taxation in a Digital Age – Tax subsidies for the wealthiest companies in the world
The European Commission estimates that digital businesses pay an effective average tax rate of 9.5%, compared with 23.2% for ‘bricks-and-mortar’ firms. In order to “level the playing field”, the EU is looking to implement a tax on revenue of 2% – 6% for digital businesses with global turnover of more than €750m. The riposte from GAFA (Google, Apple, Facebook and Amazon) is that they are playing by the rules and are being unfairly singled out. This misses the point, however, which is that the rules were designed for a physical, not a digital world.
Under the today’s tax rules, digital businesses have a tax advantage in three areas.
- Corporation tax – In 2016 Google paid £36m on UK revenue. But the latest accounts filed by Alphabet, Google’s parent company, show UK sales of more than £6bn. Apparently, sales of advertising to UK companies do not take place in the UK because Google’s legal entity that books the sale is registered in Ireland (which just happens to be a low tax location). After adverse publicity, negotiations with HMRC and appearances before parliamentary committees, Google has agreed a new approach with HMRC and will pay £130m, covering taxes since 2005. If a tax system depends on persuading companies ‘out of the goodness of their heart’ to pay more tax, then you know something is wrong, both with the tax rules and the ability of a government to exercise its jurisdiction.
- Business rates (property taxes) – In the UK, business rates, assessed on property values, are the third biggest outgoing for many small businesses after rent and staff costs – that is unless you are an online retailer, in which you case you may pay no business rates at all. The irony here is that business rates were introduced in the 16th Century to address the side-effects of a still earlier economic revolution, the agricultural revolution. The aim of business rates was to raise money to care for the “aged, decayed and impotent” and “to place and settle to work the rogues and vagabonds”. So, 330 years later – after both an agricultural revolution and an industrial revolution – we rely on a tax designed to alleviate begging in Tudor towns.
- State and local taxes – In the USA, for many years online retailers have been able to undercut ‘bricks-and-mortar’ retailers by not adding state and local sales tax (5% – 9% depending on the location). No in-state retailer presence, no sales tax. Recently, Amazon has had to add sales tax in many states since its Amazon Prime service depends on in-state distribution centres. Yet, even now retailers who sell via Amazon’s marketplace are not required to add sales tax.
Without doubt many consumers nowadays prefer to buy online, but surely digital businesses, some of the wealthiest companies in the world, should not receive such sizeable tax subsidies?
More generally, the example of taxation shows just how ill-fitted our regulations are for the digital age: taxes levied on property, a physical asset, when so many of today’s assets, especially software, are intangible; taxes based on demarcating the notional physical location of a transaction when in reality it happened in cyberspace; and taxes applied by national and local governments that are circumscribed by physical boundaries when digital businesses are global. Perhaps, most disturbing of all, is the way that such a fundamental aspect of how our society operates, as how we fund our public services and redistribute wealth, can be undermined with so little public challenge.
The principle which we have applied until now that what is illegal offline is also illegal online is shown to be naively inadequate. This principle would suffice if regulations had been designed for a digital world but patently they were not. The Elizabethans did not have online retailers in mind when they introduced property taxes, nor Madison the internet when he drafted the First Amendment. Likewise, our rules around electoral spending and advertising were devised for an age of mass media and our procedures governing the access of law enforcement agencies to evidence have developed over centuries under the assumption that evidence is physical as opposed to sitting on a server, a mobile phone or a hard disk.
However, new regulations alone will not be sufficient since regulations are only effective if there are institutions capable of defining and enforcing them.
New institutions to underpin new regulations
In the Victorian era, alongside legislation for industrialisation and its side-effects, came new institutions to monitor and enforce regulations. So the Factory Acts brought a Factory Inspectorate. The Health and Sanitary Acts required a uniform system of municipal boroughs which was introduced by the Municipal Corporations Act. Town councils were held to account through election by ratepayers, with transparency brought by open audit and the publication of financial accounts.
In contrast when it comes to the digital age, we have yet to evolve our institutions; neither their powers nor their composition.
The feebleness of today’s institutions in the face of digitisation is illustrated by the appearance of Mark Zuckerberg in front of various Congressional Committees. The four-minute limit for each questioner, compounded by committee members’ ignorance about Facebook, allowed Zuckerberg to obfuscate and filibuster, thereby preventing any meaningful probing. Perhaps the rigour of questioning was also impacted by the $600,000 that Facebook lobbyists had donated to 82 out of 91 committee members and their campaigns since 2013?
In the UK, the Parliamentary Home Affairs Committee has fared no better, proving itself unable in over a year to force social media companies to remove content propagating ‘neo-nazi’ ‘hate speech’. Indeed, a House of Commons review of the powers of select committees, notes that 1666 was the last time that a fine was imposed for Contempt of Parliament; while no-one has had to endure the punishment of being committed to the Prison Room of the Clock Tower, aka Big Ben, since Charles Bradlaugh refused to take an oath on the bible in 1880.
There is a mismatch not just in powers, but also in the nature of institutions themselves. Returning to the case of taxation, it is hard to see how our current institutions, based on physical jurisdiction, can easily adapt. It is a fundamental tenet that a government’s powers are limited to its own boundaries and its citizens or residents, whereas digital businesses are global, their transactions virtual and they may lack any local physical presence. Furthermore, in a virtual world the whole idea of an event happening in a specific place is a touch spurious. What counts: the location of the end customer at a particular point in time, their place of residence, their nationality, where data is stored or processed, the location of the agency that negotiated the contract for digital ads, etc.?
The General Data Protection Regulation (GDPR) is an example of how our concept of jurisdiction is straining at the seams. True, GDPR puts in place valuable protections over how EU citizens’ data is stored and used, but GDPR applies to any organisation handling EU citizen data anywhere. In practice, the EU has legislated for the rest of the world – is this right? And it is not just the EU that is trying to overcome the limits of a jurisdiction based on physical bounds.
Therefore, when it comes to devising a regulatory solution for a digital world that is global and virtual, a global aspect seems inevitable,. The challenge here is that what we need is not just new regulations or even new institutions, but a new institutional model.
Most of our current global organisations are composed of nation states. Even the Paris Climate Accord, operates under the umbrella of the United Nations. In the case of the internet, national governments will need to play a central role, not least because resilience of the internet is becoming a prime national security concern. However, so many actors within the internet ecosystem suspect the motives of government that a mere coming together of nation states is a non-starter, especially as trust and transparency are the very concerns that are driving some of the demands for regulation: why replace one untrusted party with another?. The answer would seem to be some kind of open institutional model that involves multiple stakeholders: governments, technical bodies and citizens’ representatives. Moreover, institutions would have to act in an open transparent manner that inspires trust. Again, this aligns with the nature of the internet itself which is in its essence an open network.
New institutions and even new institutional models may sound like a tall order, yet institutional innovation is nothing new. Douglass North, the Nobel prize-winning economist, and his school of New Institutional Economists have shown how the progress of humanity is above all a story of the evolution of institutions. It would seem odd – a unique exception even – if a wholly new technology were invented that transforms almost every aspect of our society but calls for no institutional evolution.
The third piece of the puzzle, beliefs. Whose freedom?
If regulations and institutions are to change, then the third piece of the puzzle is beliefs: people have to believe that new regulation and institutions are both necessary and right. Education will play an important part in shaping beliefs, as people become more aware of the impact of digitization and the ramifications for our society. But values will play a crucial part too.
Hitherto, the debate about regulation of the internet has been framed as a matter of making trade-offs between freedom and privacy. However, this is to define ‘freedom’ in a particular way and thereby to tilt the argument, “So you are against freedom?”. In reality, there are two sets of freedoms here, pitted against each other in a classic philosophical debate between “freedom to” and “freedom from”. Everyone’s ‘freedom to’ is at the expense of someone else’s ‘freedom from’. On the one hand, there is the freedom to say or post what you like online; against this stands freedom from being trolled, groomed, bullied, exploited by monopolies, or shot in a drive-by-shooting by a gang provoked by video posts on social media.
This is no different to the debates of the 19th Century when the factory owner’s freedom to run his factory however he chose was weighed against children’s freedom from having to work more than ten hours a day in a factory with unguarded machinery. At present, society seems to give more weight to a particular set of freedoms. Is this owing to how the debate has been framed? Is it because our ideas of liberty have shifted to a more libertarian basis, or because Internet and IT companies are regarded as ‘cool’, or is it simply that the issues are not sufficiently well understood, that the pace of technology change is out-running not only our ability to regulate, but also our ability as a society to comprehend the problem?
In the Victorian era, the golden age of free trade, there was an ingrained disposition towards economic laissez faire, no less than today there is a marked inclination for laissez faire in the digital realm. Nevertheless, attitudes shifted. Perhaps in 50 years we will look back aghast at the extent to which our society has provided a very limp response to online radicalization, cyber-bullying, electoral interference, hate speech and wide-scale misuse of personal data.
U.S. inauguration turns poet Amanda Gorman into best seller
WASHINGTON (Thomson Reuters Foundation) – The president’s poet woke up a superstar on Thursday, after a powerful reading at the U.S. inauguration catapulted 22-year-old Amanda Gorman to the top of Amazon’s best-seller list.
Hours after Gorman’s electric performance at the swearing-in of President Joe Biden and Vice President Kamala Harris, her two books – neither out yet – topped Amazon.com’s sales list.
“I AM ON THE FLOOR MY BOOKS ARE #1 & #2 ON AMAZON AFTER 1 DAY!” Gorman, a Los Angeles resident, wrote on Twitter.
Gorman’s debut poetry collection ‘The Hill We Climb’ won top spot in the online retail giant’s sale charts, closely followed by her upcoming ‘Change Sings: A Children’s Anthem’.
While poetry’s popularity is on the up, it remains a niche market and the overnight adulation clearly caught Gorman short.
“Thank you so much to everyone for supporting me and my words. As Yeats put it: ‘For words alone are certain good: Sing, then’.”
Gorman, the youngest poet in U.S. history to mark the transition of presidential power, offered a hopeful vision for a deeply divided country in Wednesday’s rendition.
“Being American is more than a pride we inherit. It’s the past we step into and how we repair it,” Gorman said on the steps of the U.S. Capitol two weeks after a mob laid siege and following a year of global protests for racial justice.
“We will not march back to what was. We move to what shall be, a country that is bruised, but whole. Benevolent, but bold. Fierce and free.”
The performance stirred instant acclaim, with praise from across the country and political spectrum, from the Republican-backing Lincoln Project to former President Barack Obama.
“Wasn’t @TheAmandaGorman’s poem just stunning? She’s promised to run for president in 2036 and I for one can’t wait,” tweeted former presidential candidate Hillary Clinton.
A graduate of Harvard University, Gorman says she overcame a speech impediment in her youth and became the first U.S. National Youth Poet Laureate in 2017.
She has now joined the ranks of august inaugural poets such as Robert Frost and Maya Angelou.
Her social media reach boomed, with her tens of thousands of followers ballooning into a Twitter fan base of a million-plus.
“I have never been prouder to see another young woman rise! Brava Brava, @TheAmandaGorman! Maya Angelou is cheering—and so am I,” tweeted TV host Oprah Winfrey.
Gorman’s books are both due out in September.
Third on Amazon’s best selling list was another picture book linked to politics and projecting hope: ‘Ambitious Girl’ by Vice-President Kamala Harris’ niece, Meena Harris.
(Reporting by Umberto Bacchi @UmbertoBacchi, Editing by Lyndsay Griffiths. Please credit the Thomson Reuters Foundation, the charitable arm of Thomson Reuters, that covers the lives of people around the world who struggle to live freely or fairly. Visit http://news.trust.org)
Why brands harnessing the power of digital are winning in this evolving business landscape
By Justin Pike, Founder and Chairman, MYPINPAD
Delivery of intuitive, secure, personalised, and frictionless user experiences has long been table stakes in digital commerce, well before the era of COVID-19. As businesses harness the revolutionary power of digital technologies, they have pursued large-scale change to adapt to evolving consumer preferences (some more successfully than others, but that’s a blog for another day). Digital transformation is a term we hear repeatedly, and it looks different for each organisation, but essentially, it’s about utilising technology and data to digitise, automate, innovate and improve processes and the customer experience across the entire business.
As I said, this was already well underway but then came 2020 and no industry escaped the disruption of the coronavirus outbreak, which has had an indelible impact on businesses performance, operations, and revenue. Regardless of whether the impact of COVID has been very positive or very challenging, it has forced organisations globally to re-evaluate and re-orient strategies to adapt.
As lockdowns and pandemic-related restrictions continue to change daily life, this raises the question of how we can balance a dramatic shift to digital and the benefits it brings, while ensuring business continuity and innovation both during and post-COVID, and protecting everyone against fraud?
Digital is an essential survival tool, and even more so in a COVID world
No one could have predicted the dramatic digital pivot that has taken place over this year. Indeed, within weeks of the COVID outbreak cash usage in the UK dropped by around 50%. Digital solutions including delivery applications, contactless payments, mobile commerce, online and mobile banking have become essential components of a touchless customer experience in the era of social distancing. It’s no longer just about an enhanced and superior customer experience, it’s also about health, safety and survival.
In store, businesses have benefited from contactless payments enabling faster throughput and reduced need for consumers to touch payment terminals (therefore requiring greater cleaning, which degrades the hardware much faster). Mastercard reported a 40% increase in contactless payments – including tap-to-pay and mobile pay – during the first quarter of the year as the global pandemic worsened. Digital has also become an essential sales channel for many B2C brands. Where brick and mortar stores have been required to close, digital commerce enables continuity of customer relationships and revenue. This channel also provides brands with rich customer data, which can be used to enhance and personalise the customer experience and typically results in greater levels of engagement and uplifts in revenue.
Industry forecasts estimate that worldwide spending on the technologies and services enabling digital transformation will reach GBP 1.8 trillion in 2023 – a clear indication that the process represents a long-term investment and a global commitment to digital-first strategy. The key point here is that digital brings significant benefits, and regardless of COVID, is here to stay.
The challenges that rapid digital transformation brings to businesses
Regardless of whether businesses are operating in developed or less-developed economies, these times of crisis have levelled the playing field in the sense that all businesses are facing similar issues. Access to products and supplies, maintaining customer relationships, accelerating sales for some and declining sales for others, health and hygiene are just a few of the unique challenges brought about by COVID.
Many businesses in physical environments have had to swiftly implement changes to significantly reduce safety risks for staff and customers, such as contactless payments, mobile ordering and delivery options. But with these changes come a host of other benefits of digitisation, such as faster transactions, and reduced human error at the point-of-sale.
The reliance on technology, however, can also expose organisations and consumers to certain vulnerabilities. In particular, the risks of fraud and cybercrime have dramatically increased since the onset of the pandemic as scammers have taken advantage of digital technologies to target both businesses and individuals.
As a McKinsey report illustrates, new levels of sophistication in the activities of fraudsters have placed more pressure on companies that have been previously slow to go digital, bringing “into sharp relief how vulnerable companies really are”, and damaging the financial health of small and large businesses. In fact, the Bottomline 2020 Business Payments Barometer reveals that only one in 10 small businesses across the UK report recovering more than 50% of losses due to fraud.
But take these stats with a grain of salt. While it is important to be aware of the risks and challenges this new business landscape brings, it’s equally as important to have a lens firmly across your own business, industry and audience, and to identify the changes you can make internally to mitigate risk as well as improve your customer experience. Where can you make some quick wins? Do you have the right skillsets internally to achieve what you need to achieve? What technology is out there that will enable your business goals? There are tech companies like MYPINPAD that are making huge strides in software development, which will transform businesses globally.
A digital world post-COVID
Almost a year in, the line between business success and failure remains fragile. However, an ongoing transition towards greater digitisation will be the difference between survival and the alternative.
There is a wide range of initiatives businesses can implement to weather this storm. If we look at the space MYPINPAD operates within, secure digital consumer authentication is crucial to the ongoing success and security of not only financial products but also identification and verification across a range of different industry verticals. Shifting the authentication of consumers securely onto mobile devices enables businesses to completely reshape their customer experiences. By bringing together a more seamless, frictionless customer experience, accessibility, privacy, security and access to consumer data, businesses are able to drive digital transformation across day-to-day activities.
Against this backdrop, software with stronger security standards continue to play an ever more vital role in supporting society, protecting consumers and businesses from the increase in risks that rapid digitisation brings. Already, merchants can deploy PIN on Mobile technology from companies like MYPINPAD, onto their smart devices to speed up the digitisation process many are now tackling.
Essentially, opening up universal payments and authentication methods that feel familiar, for both online and face-to-face transactions, will be key to opening up a world of possibilities when it comes to redefining how businesses engage with consumers.
Brexit responsible for food supply problems in Northern Ireland, Ireland says
LONDON (Reuters) – Food supply problems in Northern Ireland are due to Brexit because there are now a certain amount of checks on goods going between Britain and Northern Ireland, Irish Foreign Minister Simon Coveney said.
British ministers have sought to play down the disruption of Brexit in recent days.
“The supermarket shelves were full before Christmas and there are some issues now in terms of supply chains and so that’s clearly a Brexit issue,” Coveney told ITV.
The Northern Irish protocol means there are “a certain amount of checks on goods coming from GB into Northern Ireland and that involves some disruption,” he said.
(Reporting by Guy Faulconbridge; Editing by Tom Hogue)
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