Oh, Brett, How Could You?

As the #MeToo Movement has gathered steam over the last year or two, I’ve made a point of keeping my mouth shut.

It’s not because I have no opinions.  (What, really?)

No, it’s because the treatment of women by men in our society is a subject that has all too often been hijacked by male voices.  Recently, this has been changing.  In the last couple of years, it has been female voices that have come to the fore, each one empowering others to speak up.  That’s a good thing, so best for me, and other men, to shut up and let it unfold.

Into this scenario we now see injected the more topical, but still important, question of the stacking of the United States Supreme Court by conservative judges.  The latest, and perhaps the most dangerous, is Brett Kavanaugh, scheduled to be the subject of a committee vote this week.

Kavanaugh’s confirmation is being put in jeopardy by an accusation that, thirty-six years ago, when he was 17, he attempted to rape a 15 year old girl at a drunken private school party.  That young girl, now Dr. Christine Blasey Ford, a Professor of Psychology at Palo Alto University, has reluctantly come forward to tell her story.   At first trying to keep her anonymity, she drew the matter to the attention of two elected officials in a private letter.  When the details came out, and it became a hot story, she gave up her secrecy and penned an op-ed in the New York Times.  She has also said she will appear before Congress if asked.

While there has been some puffing by various people about the timing of this, two things give one some pause.

The more obvious is that Dr. Ford submitted to a formal polygraph test, and passed.  Lie detectors may be less than 100% accurate, true enough, but the successful polygraph certainly increases the probability that she’s telling the truth (even if, depending on your own politics, her personal credibility wasn’t enough for you).

The less obvious confirmation of Dr. Ford’s account comes from Mark Judge, Kavanaugh’s high school friend, and the other boy in the room when the incident occurred.  While Mark Judge says he does not remember anything like the incident in question happening, he did write a 1997 book that describes in some detail the alcohol-fueled, hookup-focused culture of his – and Kavanaugh’s – high school years in a toney Georgetown private school.

As the heat on this story has ratcheted up, we also now have dueling supporter lists, letters from dozens of female character witnesses who knew Brett Kavanaugh when he was in high school, and either back his likely innocence, or back the likely truth of Dr. Ford’s story.

As with everything in Washington, this has devolved into the fine art of politics.  The intrigue is perhaps heightened by the fact that the story involves an important Bethesda Roman Catholic prep school, Georgetown Prep.   (Neil Gorsuch was a student there a couple of years before Kavanaugh.  Remember him?)  It also involves a Supreme Court candidate who spent his career wading through the Washington swamp, working for Ken Starr to impeach Bill Clinton, then working on the election campaign and in the White House of George W. Bush.

So let’s unpack this.

Any philosophy major (or scientist) will tell you that if you have a difficult question, on which you can’t tell if a hypothesis is correct, one way to work through it is to assume the hypothesis is true.  Then, assess the implications.

In this case, it is not a leap to assume Dr. Ford’s account is true.  Not only does the actual story appear to have pretty solid support, and a credible person recounting it.  In addition, the story dovetails with what we all know goes on regularly when teenagers and alcohol join forces.  Add to that the environment of an elite private boys school in the Eighties, and the instinctive reaction to Dr. Ford’s story is “of course”.

But assuming it’s true, what does that mean for Brett Kavanaugh?  Leave aside your political leanings for a second, and even your intuitive sense that he is a man who made his career sucking up to people in power.

If seventeen-year-old Brett Kavanaugh did in fact try to have sex with a fifteen-year-old girl at a private party in 1982, but instead screwed it up and just embarrassed himself and scared the shit out of the girl, does that disqualify him from being a judge of the U.S. Supreme Court today?

There are those who say that there can’t be any forgiveness, because if we just keep letting these things go, they will never stop.  Actions have consequences, as they say.  If it took a long time for his predatory actions to catch up to him, better late than never.  Now make him pay for what he did.

There are others who say that the stupidity of a drunken, horny seventeen-year-old boy is not news.  Indeed, if he had never done anything this idiotic in his life, you might wonder whether he was a real person.  If you look back at the people you know who came of age in that period, how many of them were truly innocent?

Further, Kavanaugh has had thirty-six years since then to demonstrate that he is not a sexual predator.  All evidence suggests that he has no such leanings.

It is at least arguable that, on the assumption that Dr. Ford’s account is 100% accurate, Kavanaugh’s confirmation should not be affected.  Old news.  Whatever he did as a stupid teenager, it is his life as an adult that should guide any assessment of his appointment.

But here’s the thing.  It isn’t really necessary to come to a conclusion on whether his drunken behaviour should affect his confirmation.  What is more important – and clearly relevant to his fitness for office – is his actions today, and his character today.

Today, what we know is that, with a straight face, he told senators that the incident described by Dr. Ford did not occur.  He didn’t say he couldn’t remember, or it happened differently.  He didn’t tell it from his perspective.  He didn’t explain.  He just said it was not true.

Kavanaugh’s response to questions about this incident was almost certainly a lie.

Congress, and the public, may not care very much whether judges were once stupid teenagers.  They should care a lot, though, about whether judges are honest.  They should care a lot about whether, faced with uncomfortable truths, judges try to avoid those truths by lies.  They should care a lot about whether a judge is able to be honest when being honest is difficult.

The focus of the discussion here should not be on #MeToo.  Sure, that is important, and the consequences of past improprieties have a lot of subtle issues that have to be addressed.  It is also important to society that we manage the evolution from a “female victimization” norm to a “female empowerment” norm in a way that achieves the better future, without simply choosing some new victims.

But the Kavanaugh case is not fundamentally about an attempted drunken rape in high school, many years ago.  It is about whether a proposed appointee to the U.S. Supreme Court has the fundamental honesty, integrity, and strength of character to tell the truth.

Even when it’s hard.

People who are afraid to tell the truth don’t make good judges.

  –  Jay Shepherd, September 17, 2018

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The Puppet Masters

Just when you think discussions about Donald Trump have reached the apex of breathlessness, a week like this happens.  Between the “gutless coward” who wrote the New York Times op-ed, and that icon of investigative journalism, Bob Woodward, teasing about his tell-all book, we are suddenly standing, wide-eyed, inside a dysfunctional White House.

Shock explodes around the world.  The orange monster flaps about, frothing at the mouth in anger.

Former President Obama, in a brilliant speech that put the somnolent current President to sleep (too many big words?), says that the way the White House is functioning is “not how our democracy is supposed to work.”

Of course, Obama is absolutely right.

But, hidden underneath all of this is the real truth:  none of this should be a surprise.

Since the day he took office – maybe even before that, before he was even elected – Trump’s role has been to be the brainless hand-puppet for Republicans and other conservatives that want to control implementation of a conservative agenda.  Whether you are talking about the cadre of enablers in the administration, or the supposedly fearful congressmen and senators on Capital Hill, all of them are simply using Trump as a tool.

Start with those inside the White House, and in the higher reaches of the administration throughout the government.

Much of the news analysis of the op-ed, for example, focuses on stories of officials thwarting the actions of the President.  They are portrayed as a resistance, fighting the good fight to save the country.

Whoa, there.  The real story in the op-ed is that the officials are supporting and enabling the 80-90% of conservative actions of the President that they agree with.  In many cases, these aren’t even Trump’s ideas.  (He doesn’t really have many ideas himself, after all.)  Those around him set him to chasing their preferred rabbit, then support his tweeting and fulminating while guiding the achievement of the result they want.

It’s not like this is the first time a President has been managed by his handlers, of course.  It was widely suspected that Dick Cheney was the final arbiter in the George W. White House, and rumours routinely alleged that Ronald Reagan allowed himself to be heavily influenced by the big brains around him.

Trump is different, though, in two ways.

First, he is noticeably less intelligent than virtually all previous Presidents (combined? – surely not).

Second, he thinks he’s actually in charge.  Unlike Bush and Reagan, who preferred to be part of a larger group making decisions, Trump is a puppet that doesn’t actually know that’s what he is.  He believes, like Pinocchio, that he’s a real boy (but with no happy ending).

The reason this should be no surprise is that Congress has been doing the very same thing since Trump was elected.

We see this, for example, in the fact that the only legislation getting passed, and the only approvals taking place, are the things that the Republicans already wanted.  Trump’s blatherings about this and that have not had any influence on what is actually being done, either in the House or the Senate.

Tax cuts for their wealthy donors?  Check.

Stack the Supreme Court and federal judgeships for decades to come?  Check.

Clamp down on immigration, in a nation of immigrants?  Check.

Build the wall?  Wait a minute.

This translates to the current election period as well.  Why, oh why, are seemingly principled candidates (OK, I said “seemingly”) loathe to distance themselves from the most outrageous of Trump’s rhetoric?  The prevailing view appears to be that they fear he will use his electoral base against them.  They are, on this theory, sucking up to the schoolyard bully, too afraid to fight back.

That’s not what’s happening at all.  Their willingness to support Trump while on the campaign trail is because they like having him around.  Yes, he’s an idiot.  But, he’s their idiot.

But then, you say, what about the “strange” silence of Republicans when it comes to the Mueller investigation.  Why don’t they simply shut it down?

The answer is simple.  The Sword of Damocles which is the Mueller investigation keeps Trump vulnerable and distracted, and thus helps conservatives control his actions.  Without the threat of being found out by the investigators, Trump might actually try to assert his constitutional authority.  He may not be smart enough to get very far, but he could certainly make it more difficult for those controlling him to achieve their own agenda.

This puppet master reality is also the reason why Jeff Sessions keeps his mouth shut when Trump treats him like garbage.  Sure, he probably doesn’t like being excoriated publicly, but he still has a “boss” that he can manipulate freely.  In the end, Sessions gets whatever he wants from the President, so he’s willing to put up with some tantrums. (Sounds like a Dilbert comic strip, if you think about it.)

The funny thing about this is that, when Trump rages about the “deep state”, he’s not wrong.  There is a deep state at work here, and they are trying to limit what he is able to do as President.

The twist is that it is his own guys doing it.  It’s not the Democrats.  They’re not the ones whose goals are being pursued.  The deep state in this case is a conservative cabal.  The meetings of conspirators in the fancy restaurants of Georgetown are not New York liberals.  They are Midwest and southern conservatives.  You thought Mitch McConnell is spineless?  No, he’s evil.

Ah, but then there’s the other twist.

The conservatives are not the only puppet masters.  Remember Putin?  He is also still trying to manipulate Trump, but with different goals in mind.

Now, from a purely practical point of view, the Washington conservatives are apparently winning this battle of the puppet masters, at least in the short term.  That tussle is not over, though.  Putin is biding his time.

After the mid-terms, there will likely be disarray in Washington, as the Democrats either control Congress, or deadlock it.  Congressional attacks on the President will ramp up, and he will be under more dangerous fire from the progressive side.  The conservative agenda will be (mostly) stymied, Congress and the Supreme Court will be politically opposite (but with narrow majorities), and the United States will be in a relatively weak position on many fronts, both domestic and foreign.

How will Putin take advantage of that situation?  He has many options, but his foundation has been set already.  Trump is his guy whenever Putin decides to activate him.  The Russian President has his hand ready to slip inside his custom-designed Trump hand-puppet, and his goal won’t be to Make America Great Again.

  –  Jay Shepherd, September 8, 2018

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Enemy of the People

The role of the press – or, as some put it, whether they are the “enemy of the people” – is a live issue in today’s society.

No, no, you say.  This is not an issue for society at large.  It’s just an issue for a certain American president and his ilk.

Ah, but that’s not really true.  Perhaps for Mr. Trump and crew CNN is the enemy of the people, but for others it is Sean Hannity, or – perish the thought – Alex Jones.

The fact is that, as we all have increasingly easy access to great quantities of information, the identities, biases and agendas of those who deliver and analyse that information become a bigger issue.  The American president prefers to speak to the people directly, without the filter of the press.  In years past, that wasn’t possible, but today it is.  Does that mean the role of the news “middlemen” is a thing of the past?

It seems intuitive to ask the question:  “Who are these self-appointed talking heads that think their opinions on current events have value?  Why should be listen to them, when we can get our information directly, untainted by their views?”

The answer lies in curation.

Most of the things we learn that are of value are part of a larger process in which extensive amounts of information are reviewed by intermediaries, usually experts in a field, then packaged and explained for the rest of us.

Go to an art gallery.  Is this just a random collection of paintings?  Certainly not.  A person (or maybe many) with a specific expertise in art has selected the paintings that hang on the wall.  First, he or she has amassed a collection, which is already a tenth of one percent, or less, of the best available art.  Second, the curator has consigned 95% of that collection to the basement storage areas, while showing only the most interesting 5% on the walls of that gallery that you love so much.

Without a talented, inspired curator, we would not go to that art gallery.  Most of the art work on the walls would be lower quality, because it did not have the benefit of an expert’s eye in the curation process.   Even what was shown would not be as attractive, because the curator’s expertise in presentation would be missing.

There is a lot of art out there.  We get to see the good stuff because of the work of curators.

Museums, ditto.  How many dinosaur bones do you think there are?  Several gazillion, and more being found every day?  At least.  When we show up at the museum, a tiny fraction of the available dinosaur bones is on display, curated and presented by an expert paleontologist.

Now, we usually think of curation as being unique to museums, art galleries, and the like, but the actual concept of curation is about the organization, prioritization, presentation and analysis of information in a manner that people can understand.

Take a more mundane example.  The periodic census generates a lot of raw data, but it is almost completely useless in that format (even to experts).  It could be very useful, in many aspects of society, business, politics, etc., but not as raw data.  We collect it to use it.  We have to make it usable.

Enter the curators.  Depending on the area of expertise, curators take that data and select parts that are relevant to their goals.  An expert in marketing will select categories of data that are known to influence peoples’ purchasing preferences.  That expert will package that information into charts, graphs and tables, and will highlight relationships between the data categories.  Retailers, mall operators, advertisers, and others will use that curated information to make product development and marketing decisions.  They use it because the curators – the experts – have made the information usable.

That same data set is available to policy-makers, but they can’t use it without curation either.  Economists, for example, will select, collate, correlate, and present components of the data to allow policy-makers to understand problems in society, and test how they can be solved.  Without the curation by economists (and other experts in aspects of this field), the policy-makers would be frozen in their tracks by the quantity and inaccessibility of the data.

That’s what curation is all about:  making information accessible.  Just as a teacher in a classroom provides a limited subset of information to the students – curating that information – so in most other areas of our society the information we use in our daily lives is curated by experts.

How about an even more mundane example:  corporations.  The Board of Directors of a company is charged with the responsibility to direct the business and affairs of the company, but the quantity of information available to inform that task is far beyond what they could actually handle.  They rely on management to provide briefing notes, memos, and other summaries and subsets of that broader quantity of information.  Management curates the information available to the board.

It goes further.  Management doesn’t have all of the information either.  They rely on people that report to them, and sometimes on executive information systems (computer programs) to curate the information that they have.  They can’t look at everything either, so someone has to provide them with a manageable, and accessible, set of information.

Professionals are the ultimate curators:  lawyers, doctors, architects, engineers, etc.  Certainly professionals do things with the information they have, of course, but a big part of their role is to synthesize the mass of information they have in their field of expertise into the things that matter, and then to understand and explain how they matter.

I’m a lawyer.  How many thousands of cases have I read?  (OMG, it is impossible to fathom.)  When my client (or a judge or other adjudicator, for that matter) asks for an explanation on what those cases say, I can’t tell them to go read the cases.  I have to curate that data, and provide it to them in a summarized and accessible form.  And, I have to add my analysis of the meaning of that data.  That’s what curators do.

(Just in case you wonder, yes the “law” available to me is also curated before I even see it.  There are millions of legal cases relevant to me, but only thousands are reported, and only hundreds are summarized and commented on by other experts.  After all that, I then have to add my analysis.  I can’t read all the law, just like you can’t read all the sports statistics, as much as you might try.)

So that brings us back to the press.  Remember the press?  This article is about the press.  (That was Arlo Guthrie you were channelling right there:  “Remember Alice?  This song is about Alice.”)

You don’t complain when a lawyer explains the law to you.  The lawyer is an expert.  That’s their job.  Similarly, you don’t complain when an art gallery only shows 5% of their collection, and 0.01% of the available art.  That is their job, and they are experts in the field.  What would the world be like if we didn’t have people to select, collate, correlate, and analyse information?

So why would you complain if the press does the same thing?  There are millions of events happening all the time.  Someone has to figure out which events are noteworthy, find a way to communicate them, and provide analysis on why they matter.  That is a special expertise.  Someone has to do that.  Why can’t it be Anderson Cooper of CNN, or David Brooks of the New York Times, or even Alex Jones of InfoWars?

The answer – no surprise – is trust.

You see, when we accept the curation of various categories of information by art gallery owners, or paleontologists, or economists, or even lawyers (all of whom have biases), we rely on a system in place to ensure they give us good quality curation.

When you go to an art gallery, the quality of the paintings on the walls is attested by the reputation of the gallery.  The curators may change from time to time, but the Art Gallery of Ontario will always have high quality art on display.  You know that because the AGO wants to protect its reputation, so it hires only the best, most qualified, and most talented, curators.

Reputation is a market concept, and for many curators the market establishes the value of their work.

A board of directors uses a slightly different approach to ensure management provides well-curated information, but it is still part of the same system.  The board looks critically at the information, and sometimes tests it for accuracy and completeness, but mostly the board considers whether the results of their decisions are what they expected.  If a board’s decisions have negative or other unexpected consequences, they will look at the information on which they made those decisions to determine why that happened.  If the information was poorly curated (incomplete, misleading, low quality, etc.), management will be in deep doo-doo.

Feedback loops – the consequences of relying on information – are another way in which the curation of information is tested and rated.

When professionals provide information to clients and others, a combination of similar tests applies.  To some extent, we know which professionals are the best at what they do through the marketplace.  People have reputations.  As well, when providing information, professionals know that other professionals will be looking at that information, testing whether they agree, whether it is good information.  Some lawyers win more cases than others.  Some architects have buildings that work better than those designed by others.

We trust most of the curated information that is provided to us because there are checks and balances, through the market and through verification procedures, that allow us to identify the best quality information.

Can we trust the press in the same way?

The fact is that individual members of the press start (at least theoretically) with an expertise in understanding current events, and a desire to get to the truth.  Those are the key elements in effective curation of the news.  Just as the lawyer wants to get to the right answer, and has the training to do it, so too does the typical reporter.

On the other hand, members of the press also have their own biases and motivations, not all of which are consistent with complete objectivity and truth-telling.  Further, the companies that deliver the news – the New York Times, the Washington Post, CNN, FoxNews, etc. – are private companies with owners that have their own points of view (and in some cases, their own agendas).

Perhaps more important than either of these things, press vehicles are in business to make a profit, much of which depends on providing their viewers or readers with information that is truthful, sure (maybe), but also entertains.  Which is more important is not always clear.

All of that means the press is not a monolith, with all members of the press being worthy of the same level of trust.  Rather, some can really be trusted, and others, not so much.

There is a risk, of course, that we will simply trust those that say the things we want to hear, and distrust those who don’t.  That’s what the American president (and all those who rely on demagoguery) would like us to do.

We know in our hearts that is stupid, while at the same time understanding our tendency to do just that.  We know that when a lawyer says we have a great case, the fact that we want to hear that should not be a factor in how much we trust that opinion.  We have learned the hard way that believing what we want to hear – instead of insisting on the truth – often has negative consequences.

As with other curators, our first level of protection should be reputation.  Press outlets that speak the truth, over a long period of time, can be trusted more because of their history of doing so.  What you read in the Washington Post or the New York Times is simply more likely to be the truth than what you hear on InfoWars.  Reputation matters.

The second level of protection is consequences.  If you listen to CNN, and form opinions after hearing what their reporters and commentators have to say, what do subsequent events tell you about those opinions and conclusions?  Was the information CNN provided to you consistent with what happened, or were they out to lunch?  Was the opinion you formed a good one, or was it marred by poor input?

Sometimes you have to be patient with the consequences analysis.  Even conspiracy theorists can spin out their story for a while, before reality intervenes.  Sooner or later, though, those that have provided better information, and better analysis, will be right more often than their less able peers.  Much of current events analysis is about predicting the future.  Some people will be right more consistently than others.

Sorry, you wanted a more black and white answer?  It doesn’t exist.  Curation of the news, just like curation of any other body of information, has good practitioners, and bad.  And, there are only mushy, inexact ways to tell the difference between the two.

What is crystal clear is that we can’t live with the alternative.  Someone has to curate our information on current events, just as we need someone to filter and assess every other category of information we see and use.  The alternative is to let the newsmakers themselves, with their own obvious biases, curate (or should I say “spin”) our news.   Believe what Donald Trump says is true, rather than what a body of reporters says is true.

Hey, that’s what happens in totalitarian countries.  Why not here as well?

“Enemy of the people”?

Just saying.

–  Jay Shepherd, August 8, 2018

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Dotard vs. Little Rocket Man

I have been trying not to write about anything Trumpian.  I feel like he has already received more attention than he deserves, and yet everyone keeps piling it on.

But a Nobel Peace Prize?  Seriously?

Let’s recap.

The little rocket man, Kim Jong-Un, and the rich kid from Queens, aka the “dotard”, are not the best of buds.   They should be, I suppose.  They both built their power on the basis of what they got from their daddys.  They are both nuttier than fruitcakes.  They are both narcissistic and not very bright.  In some senses, it could be a friendship made in heaven.

Somehow, though, I doubt their upcoming meeting in Singapore on June 12th is going to be just two soulmates, kicking back and sharing fake news stories.

For Kim, his agenda is to trade his failed (destroyed, apparently) nuclear program for something of actual value, in this case access to goods and markets of countries other than China, particularly South Korea.  He also wants to show everyone that he is important enough to meet with the President of the United States.  In fact, to make POTUS come to him, rather than the other way around.  How good is that?

For Trump, he thinks his agenda is world-wide respect, and thus success at the mid-term elections and in his own re-election bid a couple of years from now.  As per usual, he doesn’t actually care whether he delivers peace on the Korean peninsula.  He just wants any result that makes him look better than Obama, and Bush, and Clinton, and the other Bush, and everyone else that couldn’t achieve Korean peace.  Even everyone’s hero, Ronald Reagan, couldn’t deliver that.

To GOP governors and congressmen, fearful of decimation in the mid-terms, getting the little rocket man to agree to meet at all is reason enough for Trump to get the Nobel Peace Prize.  He has, in their minds, taken a key step in the direction of peace, one step further than anyone else.

Clearly, he has finally shown his inherent brilliance, that light he has so successfully hidden under a bushel for far too long.

On the other hand, we may have slid inadvertently into an alternate universe, and any moment there will be unicorns dancing on the head of a pin singing Kumbaya.

So perhaps it is worthwhile to step back from the breathless abyss, and think about the motives of the only person in this drama that really matters.

Xi Jinping, the President of China.

Forbes recently named Xi the most powerful person in the world, and there is not much doubt they are correct.  As President of China, and General Secretary of the Communist Party (and too many other titles to name), he is effectively the controlling leader in China.  Nothing happens without his approval.

Now, what Xi wants is to build the Chinese economy and power on the strength of its dominance in the Asian and African economies.  He knows that the ten ASEAN countries, as well as Japan, are afraid of Chinese economic hegemony, but if he is going to continue the growth of the Chinese economy he needs markets and allies (or client states, more precisely).

The only country really standing in his way is America.  Europe cannot get their act together to challenge China, and Russia, for all its bluster, doesn’t really hold a candle to China when it comes to economic power.  India, the only other potential pretender, is thirty years behind China.  Their day may come, but right now they are markets, not competitors.

The biggest threat to China would have been the Trans-Pacific Partnership, or TPP, which as originally conceived would have been a trading bloc, led by the U.S., and including some Asian countries (notably Japan, Malaysia and Vietnam), as well as Canada, Australia, New Zealand and some South American countries.  Thanks to Xi’s buddy Vlad over in Moscow, there is a new sheriff in the White House, and in January 2017 he withdrew the U.S. from the TPP.  While the remaining signatories are trying to move forward, a TPP without the U.S. is much less of a threat.

Xi is now in a position where he can push his trade links with other Asian countries, with scant resistance.  While Japan is still in TPP, Korea is not, nor are the Philippines, Thailand or Indonesia.

If you exclude Japan, Korea is the big prize there.  It is far and away the most developed economy in Asia, outside of Japan.  It has advanced technology, and strong links to the U.S., but is also China’s biggest trading partner.  Between the north and south, there are more than 75 million people, and particularly in the north there is both an available workforce, and huge demand for Chinese products.

It is not accidental that Kim’s willingness to meet with Trump (and with Moon Jae-In, the President of South Korea) sprang seemingly out of nowhere after Kim met with Xi.  North Korea has only two land borders:  with South Korea, and with China (except for a tiny bit with Russia).  The South Korean is currently closed to most trade.  The Chinese connection is the main source of any goods North Korea has right now.  China represents 83% of North Korea’s international trade.

What China wants, North Korea must do.

All of this talk about U.S. sanctions against North Korea entirely misses the point.  North Korea is not going to be trading with the U.S., sanctions or no sanctions.  North Korea has no money, and they don’t produce anything that the U.S. wants to buy.  The same is true of most other countries.  Trade with China, on the other hand, is critical to North Korea’s very survival.

Meanwhile, back in Washington, Trump is picking fights with Xi, imposing high tariffs directed at Chinese goods, and increasingly accusing China of being the enemy of U.S. prosperity.  Fueled by his MAGA rhetoric, Trump’s xenophobic approach to trade has his supporters happy.

For Xi, this is not a bad thing.

Tariffs on Chinese aluminum and steel?  China’s recent sales of aluminum to the U.S. amounted to a rounding error (0.019%) in China’s $2 trillion of exports in 2016China’s steel exports have been dropping overall, because they need more steel domestically as their economy grows.  Trump’s actions are not hurting China.

But Trump’s actions will hurt the U.S., as Xi well knows.  Making inexpensive imported aluminum and steel more expensive will increase overall steel and aluminum prices in the U.S., increasing the cost of American manufactured goods.  This will allow China to move some of its production to higher value-added products, in which it will now have a greater price advantage over U.S. products.

Further, higher domestic prices for goods in the U.S. will slow the American economy, and weaken the U.S. further.  If Xi can goad Trump into further protective trade actions (cancelling NAFTA, for example, or continuing his war on the WTO), the costs to Americans, and the benefits for its trade competitors, will increase.

In short, right now Xi is winning when it comes to dealing with the U.S., and Trump is a big reason for that.

All of which says that Xi likes having Trump around.  Xi knows that he can manipulate Trump, who is not as smart – and certainly not as strategic – as Xi.  Having a puppet president to do his bidding is great for Xi.

What Xi doesn’t want is two things.

First, he doesn’t want a shift in the balance of power in Congress at the mid-term elections.  That might result in Trump being prevented from doing the bone-headed things that Xi wants him to do.

Second, he doesn’t want Trump to be a one-term President.  If he has Trump to deal with for another six years or more, he is confident he can, through Trump, do enough damage to the U.S. economy that Chinese dominance – at least in Asia and Africa – will be sustainable.  If Trump is not strong enough to withstand a re-election challenge in 2020, then from Xi’s perspective there is a good chance he will be dealing with a much smarter White House come January 20, 2021.

All of which brings us to Singapore in June.

What Xi wants is to prop up Trump, and the little rocket man is his instrument to do that.  If Xi can orchestrate some kind of deal between Kim and Trump, in which Kim gives up as little as possible (a nuclear program that has already collapsed), while Trump gives up something meaningful (some of South Korea’s military protection, and all of the North Korean sanctions), but Trump comes out of it looking presidential (wouldn’t that be something), then Xi strengthens Trump.

In the best of all possible worlds, what is looking like a shift in power at the mid-terms ends up being a razor-thin GOP Congress (both House and Senate).  Trump will not be able to anything completely crazy (no all-out wars allowed), but he will be given leeway to make whatever mistakes Xi wants him to make.

It would also enhance Trump’s re-election prospects.  Americans like to re-elect their presidents, unless they are really bad.  A Trump diplomatic victory in Korea may be just enough to make him electable again.

Of course, that is the primary plan:  save Trump, but at low cost.  There is also a backup plan.  If it is not possible to get Kim and Trump to make a deal, then at the very least increasing the destabilization of American politics continues to be a worthwhile goal.  The lack of a deal may have the beneficial effect of hardening the pro- and anti-Trump positions of Americans.  And, if there is further disarray in the U.S., Asian and African countries that would otherwise look to the U.S. as a strong ally may be more amenable to Chinese overtures.

Oh, and one other thing.  What about Korea?  Is it still possible to achieve détente between North and South Korea, even without a deal?

The answer is yes.  China is the biggest purchaser of South Korean goods in the world ($158 billion in 2016, more than twice as much as South Korea sells to the U.S.), and South Korea is the fourth biggest purchaser of Chinese goods in the world ($94 billion in 2016).  If Trump fails to make a deal, Xi has ample leverage on both North and South Korea to make a deal happen.

That step has always been available to China, of course, but there was never a compelling reason for China to make it happen.  A Trump failure in Singapore could be such a reason.

Maybe Trump should get the Nobel Peace Prize after all.  If after 65 years there is finally peace in Korea, and the main reason for it is that Trump is Xi’s perfect puppet, then he is still playing a key role, just as Charlie McCarthy did for Edgar Bergen years ago.

Shouldn’t that count for something?

   –  Jay Shepherd, May 20, 2018

Posted in International Affairs, Politics | Tagged , , , , , , | Leave a comment

Energy #23 – What’s Up With Orillia?

The City of Orillia has apparently decided to appeal the OEB decision refusing to approve the purchase of Orillia Distribution by Hydro One.

What’s up with that?

How We Got Here – the Transaction

Let’s start with some background.  On August 15, 2016, the City of Orillia and Orillia Power Corporation agreed to sell all of the shares of Orillia Power Distribution Corporation (the licensed electricity distributor) to Hydro One for about $41.3 million.  This was made up of a cash payment of $26.4 million, and assumption of debt of $14.9 million (of which about $10 million was debt owing to the City).

At the time, the price was a premium of $13.6 million over book value, but only maybe $3 or $4 million above fair market value.  Hydro One, as it often does, offered more for Orillia’s distributor than any other buyer could offer.  Money talks.

To look after the customers, Hydro One promised small rate decreases for a ten year period.  Then, all bets were off.

How We Got Here – the Approval Process

By law any purchase of a monopoly distributor has to be approved by the Ontario Energy Board, which essentially determines whether the transaction is in the public interest.  The OEB uses the “no harm test” to make that determination.

Under the “no harm test”, every acquisition is approved unless the OEB finds that the transaction will result in harm to the customers.  It is a very gentle approach.  There doesn’t need to be a net benefit.  Basically, the OEB says it will not interfere with private transactions as long as they are at least neutral with respect to the customers.

Hydro One and Orillia Power duly filed for approval in September, 2016.

But, there was opposition.

You see, this is not the first time Hydro One has acquired a small distributor.  In the 70+ past acquisitions, most of which had a similar initial structure, the customers of the acquired distributor eventually had a big increase in their bills (with a few exceptions).  Hydro One has a lot higher cost structure than other distributors.  (Ask your neighbours served by Hydro One about their bills, compared to yours.)

So, in this case the transaction was opposed by groups representing seniors, tenants, residential customers, and my client, the schools.  (Disclosure:  I represented the School Energy Coalition throughout this process.)

In the early years of Hydro One buying up small distributors, there was little opposition, so they were all approved easily.  The last three acquisitions, though, in 2011-2013, were opposed.  Customers saw the results of the first batch of consolidations (big rate increases), and wanted to stop Hydro One from doing the same thing to the residents of their town or city.

Customers in the Norfolk, Haldimand, and Woodstock purchases, however, were not able to convince the OEB that rates would go up substantially.  The best customers could achieve was a warning from the OEB to Hydro One that the acquired customers were expected to benefit over the long term from the purchases.  With that caveat, the transactions were approved.

The application to approve the Orillia transaction was different.

Before the OEB could approve the Orillia purchase, Hydro One filed a rate application to the OEB, on March 31, 2017, asking for new rates for all of its customers, including the customers in Norfolk, Haldimand and Woodstock.  Those newly-acquired customers, who had benefitted from five years of frozen rates after their purchases, would have increases in the costs for which they were responsible of 32% to 107%.

On average, the cost to serve those customers would go up in real dollars more than 20%.  That is, take the rates they paid prior to the purchases, plus inflation, and it was still going to cost Hydro One 20% more to distribute their electricity.

This was not because the actual local costs were going up.  Oh, no.  It was because the acquired customers were now going to have to cover some of the costs that had previously been paid by Hydro One’s other customers.  Those old customers would benefit, but those in the acquired areas?  Not so much.  After being promised big savings, it turned out they were getting nothing.  They were going to pay more.

Customer groups in the case estimated that the customers in Orillia would, if treated the same way, eventually have increases of 52% to 87% (or more).

When the customers opposing the transaction pointed this out, Hydro One did their best impression of the Wizard of Oz: “Pay no attention to the man behind the curtain”.  Their position was that the OEB adjudicators deciding their purchase case were not allowed to look at Hydro One’s evidence in the other case, which was also before the OEB.

How We Got Here – the First Appeal

The adjudicative panel, being careful, responded on July 27, 2017 by suspending the purchase application, but not refusing it.  In effect, the OEB said “Let’s see what happens to those Norfolk, Haldimand and Woodstock customers after the Hydro One rate application is decided.  Maybe it won’t be so bad.”

This was a problem for Hydro One and the City because, anticipating approval, they had allowed some Orillia Distribution staff to leave, and Hydro One was assisting with its management.  They really needed to get on with the transition to new ownership.  It is hard to operate a utility in limbo.

So, on August 14, 2017, they appealed.  (No, not this appeal.  The first appeal.)

That appeal, called a Motion for Review, is to a separate appeal panel of the OEB.  Basically, Hydro One and Orillia asked that the decision on their purchase application be made as soon as possible, not waiting for the decision in the rate application.  In support, in August and November 2017 they filed written evidence claiming that the Orillia customers would benefit from the purchase, and that there were terrible operational problems because of the delay.

After some back and forth, on January 4, 2018 the appeal panel of the OEB decided to allow the Hydro One/Orillia appeal.  They sent the case back to the adjudicative panel with instructions to make a decision on the purchase application without any further delay.

How We Got Here – The Final Decision

In the meantime, however, in December 2017 Hydro One suddenly “discovered” changes to the Norfolk, Haldimand and Woodstock costs as presented in their rate application.  The 20% real increase was reduced to 11%.

Still bad.  Just not AS bad.

Recognizing this new development, the adjudicative panel on the purchase application invited Hydro One and Orillia to file new evidence showing that the Orillia customers would not eventually get whacked.  Instead of doing so, Hydro One and Orillia simply reiterated their previous arguments.  No new evidence.

In their April 12, 2018 final decision, the adjudicative panel, after noting that they had given Hydro One the chance to file more evidence (and there was none), said that on the evidence before them there was a likelihood that the Orillia customers would be harmed by the transaction.  They therefore denied approval for the purchase (the first time Hydro One has ever been denied, as it turns out).

The OEB’s exact words are pretty clear:

“One of the key considerations in the no harm test is protecting customers with respect to the prices they pay for electricity service. …[T]he OEB will…consider the costs that acquired customers will have to pay following an acquisition (both in the short term and the long term).

[T]he OEB does not consider temporary rate decreases to be on their own demonstrative of no harm as they are not supported by, or reflective of the underlying cost structures of the entities involved and may not be sustainable or beneficial in the long term.  

The experience of the three acquired utilities in Hydro One’s current distribution rates case is informative. In the…proceedings in which Hydro One acquired these utilities, Hydro One pointed to savings that would be realized through the acquisition. Although these savings may well have occurred, they do not appear to have resulted in [lower] overall cost structures (and therefore rates) for customers of the acquired utilities. Material filed in the Hydro One current distribution rates case shows that some rate classes are expected to experience significant and material increases.”

In cases like this, the OEB has a straightforward (if often difficult) task:  protect the customers from harm.  They looked at the evidence before them, and did just that.

So What Now?

Under the OEB Act, there are two avenues of appeal available to Hydro One and the City.

They can appeal to an appeal panel of the OEB, if they can show that the adjudicative panel’s decision made an obvious error or is contrary to law.  This is what they did with the original appeal, and they won.  This kind of appeal is called a Motion for Review, and it must be filed no later than May 2nd.

Alternatively, they can appeal to Divisional Court, where they face the task of showing that the OEB decision was unreasonable.  This is very difficult to do, particularly when the decision hinges on the specialized expertise of the OEB.  Few appeals to Divisional Court are successful.  This kind of appeal must be filed no later than May 12th.

From the public statements of the Mayor, it appears that the City and Hydro One have chosen the Motion for Review approach, and will file by Wednesday of this week.

This is expected be a hotly contested appeal.

On the one hand, Hydro One doesn’t take kindly to losing cases at the OEB.  (How dare they!)

On the other hand, the decision of the adjudicative panel was pretty blunt, and it is hard to overturn a decision that is clear, and is driven by the evidence.  Given that, customer representatives will want to ensure that the benefits of this refusal decision, both for Orillia customers and for customers affected by future purchases, are not lost.

It is reasonable to expect that, based on past experience (and given that it is happening over the summer), the new OEB appeal panel will make its decision on the appeal within five to eight months, i.e. by the end of 2018.  Unless the OEB once more allows the appeal, this would leave the City again having to figure out what to do with its utility.

In the meantime, there will be a provincial election (in June), and perhaps by then a municipal election (in October).  There is certainly the potential that the regulatory process could affect the political process, and the political process could affect the City’s business decisions, and so on.

Of course, the City has other options, either instead of or in addition to an appeal.

The City could continue to own and operate Orillia Distribution, but right now that is not really a viable option.  The City has made clear that it wants to sell, and the utility has lost some key people.  It will lose more people before this is resolved.  How are you going to lure top people to work for a company that the shareholder doesn’t want to own?

That leaves two other choices.

First, the City could offer it for sale again, and there will clearly be interest.

EPCOR, for example, a large utility based in Edmonton, has agreed to buy COLLUS, the distributor that serves Collingwood and some other smaller communities, and has just been awarded the new gas distributorship for the South Bruce communities.  They are actively looking for other acquisitions, and they have bags of money.

Enbridge has for decades wanted to be in the electricity distribution business.  Now that they own Union Gas too, there are obvious cost savings available if they can distribute both electricity and gas in the same places (like Orillia).   They are also motivated to find businesses that are not carbon-driven, because they see the writing on the wall for fossil fuels.  They are not the lowest cost utility, but they are certainly more cost-effective than Hydro One.  (Everyone is cheaper than Hydro One.)

And, could Hydro One come back with a new, restructured bid?  Don’t rule it out completely.

Second, the City could make itself open to merger offers.  That will generate even more interest.

Alectra, for example, already serves Barrie, and is the second-largest distributor in the province.  They could offer the City a small percentage, but would take over the responsibility for the debt, and provide reliable long-term dividends.  (They might even be willing to buy for cash, but that is not as clear.)

Veridian serves Gravenhurst, as well as many other small and medium-sized communities in Ontario (like Beaverton, Sunderland, Ajax and Belleville).  They are also noted for their relatively low rates and strong connection to the communities they serve.  The City would have a larger percentage of Veridian, but would still have reliable long-term dividends.

Newmarket-Tay Power is in the process of acquiring Midland Power, and might be a good fit for Orillia if they can handle another merger right away.  The result would be similar to a Veridian merger, with a larger ownership percentage but perhaps with a little more risk.

Entegrus, based in Chatham, is always looking for merger or acquisition targets.  While they don’t serve any customers in the Orillia area yet, they may be interested in expanding their geographic footprint.

The bottom line is that the City of Orillia doesn’t need to own Orillia Distribution any more, if it doesn’t want to.  There will be suitors as soon as the City seeks offers.

In any case, probably in the long term the City will have to sell or merge.  As the sector evolves, it is increasingly difficult for smaller utilities to keep up with new technologies, and with the expectations of the customers, the government and the regulator.  The changes in the electricity markets in Ontario will present long term challenges, sufficient that most or all smaller utilities will eventually be sold or merged.

Conclusion

It is an interesting time for Orillia Distribution, and for the City of Orillia.

We can’t predict with certainty the result of an appeal, and we can’t predict who else will be ready to make offers.  What we can predict is that the next year will be a period of continued uncertainty for the City and its utility.

  –  Jay Shepherd, April 29, 2018

Posted in Energy | Tagged , , , , | 5 Comments

Critical Thinking

In the news this week, a grade 8 teacher in Texas was suspended for asking his students to list the positives and negatives in the lives of slaves.  Outrage filled the land (and the parents), resulting in much flapping about.

When I looked at the story, and saw that this took place at a charter school, I was a little suspicious.  Is it possible that this school was a front for white supremacists intent on destroying America?

Apparently not.  Great Hearts Academy has 28 schools in Arizona and Texas with 15,000 students.  Its philosophy is to give a classical liberal arts education, coupled with high academic rigour.  They don’t appear to have any history of Nazi leanings, and their Boards of Directors, while largely white males, are much respected community and business leaders.  No obvious nutbars on the boards.

Well, if the easy explanation – insidious racism – is not the likely one, then what was going on here?  As one of the parents is quoted as saying “What’s next?  The pros and cons of human trafficking?”

The answer is:  of course.

And the potential benefits of letting the homeless starve.

And why ghettoes have, throughout history, helped marginalized groups.

And the advantages and disadvantages of refusing medical care to drug addicts.

Should I go on?

This is not really a story about slavery, despite all the hype.  It’s not even a story about political correctness, at least not entirely.  It is certainly not a story about free speech.  (Teachers, in the classroom, don’t have free speech.  We give them responsibility for our kids.  That comes with expectations.)

The issue here is critical thinking.  The issue here is whether we want the next generation – those 12 and 13 year olds in this teacher’s class – to grow up believing things by rote, or to instead develop the ability to look at the nuances of every issue.  It is about whether kids should learn to face uncomfortable truths directly, or to hide from them.  It is about whether the next generation will tackle hard issues confidently, considering all the angles and finding the best path forward.

Yes, yes, I know.  Slavery was a bad thing.  (Actually, IS a bad thing.  You think it doesn’t still go on?  Of course it does.)  Anyone who has read my writing knows where I stand about racism, and about the subordination of people different from yourself, and about abuses of power, and so on.  You can accuse me of being too liberal, perhaps, but you certainly know what side I’m on.  (I am sometimes a bit…what’s the word?…forceful.)

But we don’t deal with the problems in society by being too offended to face them.  We don’t stop slavery by saying “Slavery?  Ewwww! Gross!”

One of the things our society is losing, perhaps, is our ability to look at things with a critical eye.  How many times recently have you heard people say that the solution to “fake news” or the influence of social media is a more discerning public?  How many complaints have you heard about the gullible believing Sean Hannity, or even Alex Jones (or Donald Trump, for that matter)?

If you don’t want the next generation to be gullible, you can’t wrap them in a protective blanket of political correctness, forcing them to believe the “right” answers by blind faith.  That’s how you raise robots (also sometimes referred to as “consumers”).  If you want them to be able to face life with their eyes open, and to handle the problems of the world, they have to learn how to look at all aspects of an issue, not just the pretty ones.

Let’s take slavery, for example.  Was it 100% bad?  Were all of the millions of people in the USA that owned slaves, or condoned slavery, evil incarnate?  Further – and a propos the teacher’s assignment – were the lives of the slaves 100% terrible?  Were there no redeeming features for those enslaved?

For some of my readers, their hearts are starting to race with anger and indignation.  How can you even ask those questions?  Don’t you understand?

My answer is, you can only “understand” if you ask exactly those questions.

Let’s take the two aspects of slavery I’ve questioned above.

First, if slavery was so completely bad, that implies that millions of people were terrible people.  We know that is not likely to be true, human nature being what it is.  So, we should be asking the question, how did slavery come to be accepted throughout a large part of the US (and Caribbean, and elsewhere), by people who believed themselves to be good people, and probably were?  What were the causes of that acceptance?  What were the good things that they thought were happening because of slavery?  How could intelligent people argue in favour of slavery?

Why do you have to ask those questions?

On the simplest level, it’s because slavery still exists.  Understanding why it happens is essential to eliminating slavery around the world.

On a higher level, though, understanding why millions of people accepted slavery will help us to understand why millions of people oppose the Paris climate accord, and why millions of people support a border wall, and why millions of people stand by while a genocide occurs (whether in Europe in the Second World War, or in Rwanda and Myanmar more recently).  How can we face those problems – and many others – if we never learn how to look at major issues from all sides?

Second, what about the slaves?  The teacher was preparing students to read accounts of their lives by former slaves.  He wanted them to open up their minds to what the writers were talking about, to understand what they were saying in a nuanced way.  Presumably (although I don’t actually know the teacher’s thinking), he wanted the students to face questions like: Why didn’t the slaves use their superior numbers, fitness and strength to rebel?  How was it possible for them to accept their lack of freedom, even form relationships and live their lives?  What did they think was good in their lives?

As those students get older, they will have to face the reality that some people fight against things they don’t like.  Others – many others – accept what life presents to them.  This is not simply because people are naturally more active or more passive.  It is also because of the subtleties of power, and how it is used by the powerful.

When you read about a cult, don’t you sometimes wonder just how stupid the cult followers must be?  Yet, throughout our society most people, at some point or another, accept things that are unfair, unjust, or offensive.  In fact, someone who fights every battle rather than letting things go is seen to be immature and perhaps even a little crazy.  A key part of growing up is learning the judgment necessary to choose your battles, and accept the rest.  (“Change what you can’t accept, and accept what you can’t change”, as they say.)

Understanding how the slaves lived their lives, and coped with their challenges, helps us understand how we all live our lives.

One of the things schools have taught for years is debating, although in many places it has fallen out of favour.

In formal debating – one of my favourite activities in high school – two teams are selected, and each is assigned the job of arguing for or against a proposition.  It doesn’t matter what you think personally.   If you are arguing against the issue, your job is to find the best arguments supporting that side.  If you are arguing for, it is the opposite.

Some of the best debates are those that require teams to argue for and against a controversial or difficult proposition, like the death penalty, or abortion, or apartheid, or even – wait for it – the existence of God.

Debating forces the student to understand not just the arguments on the side they personally favour, but also the arguments on the other side.  If I am opposed to the death penalty (I am), I should be able to argue in its favour just as vigorously as against it.  That way, I end up truly understanding the issue.  It also trains me to reach my own, rational, independent conclusions about difficult issues.

The legal system uses the same concept – the adversarial approach – to get to the truth in disputes.  Lawyers who do that kind of work take great pride in being able to argue cogently and persuasively for either side in a case.  The system relies on the tension between the arguments on both sides to force the truth – the right answer, in theory – to emerge.

While the adversarial approach is for sure not perfect – oh, my goodness, no – most of the time it works pretty well to achieve a just result.

Slavery is bad.  Yes, yes, I do agree.

A closed mind is also bad.  Preventing a child from learning how to think critically is also bad.  Raising a generation of consumers, blind to the issues and cynical about democracy, is also bad.

Slavery is bad.  But, the more we understand it, the more we understand why it happens, the more we understand how people accept things that are bad… the better we understand why slavery is bad, and how to prevent it from happening.

And, the better we understand how to deal with other difficult issues in our society.

  –  Jay Shepherd, April 22, 2018

Posted in Life Lessons, Politics, Social Change | Tagged , , , , , | Leave a comment

Regulating Facebook

Almost four years ago I wrote an article entitled “Fixing Facebook:  The Common Carrier Option”.  Since that time, the Facebook issue has become even more of a concern, with allegations that misuse of Facebook information influenced both the U.S. Presidential election, and the Brexit vote in Britain.

Mark Zuckerberg is now finding out what it takes to get paid the big bucks (and it isn’t a sweet smile).

Shameless self-promoter that I am, I reminded people of my earlier article, and to my surprise I got some follow-up questions.  In essence, people asked:  How would making Facebook a common carrier solve the data misuse problems we are now seeing?

This article is my attempt to answer those questions.

What Is the Problem?

Right now, people see the problem with Facebook (and Google, Twitter and others) as a privacy issue.  The push we are now seeing is toward regulating how those companies use the personal data of their customers.

But here’s the problem:  That’s their entire business model.  The primary reason Facebook is the most valuable company in the world is that it can sell targeted user information to advertisers, and it has a monopoly on that data (well, except for Cambridge Analytika, but that’s just a screw-up on Facebook’s part).

What Facebook says to advertisers is:  instead of throwing your ten million dollars in advertising “seeds” on random ground, hoping some of it will germinate, come to us.  Give us that ten million dollars.  We will plant your seeds on fertile ground, i.e. direct your advertising only to people who want to buy, not the world at large.  And, we can tell you who will want to buy.

Not only that, but we are the only ones who have that detailed user information about who will want to buy what, because we have a world-wide social media monopoly.

So, if you want to limit how Facebook uses their information, you want to basically destroy them as a company (and the pension funds and everyone else that are heavily invested in Facebook).  For following the rules, as they are currently written.  Even if that makes sense in the public interest, there is going to be resistance.

Finding another way to solve the problem might be worth a few minutes.

The obvious problem here is that one company has access to information that is valuable, but only by trampling on the privacy of the subjects of that information.  The most important aspect of the problem, though, is that the company with the information owns the market.  It has no real competitors, and any potential competitors have almost insurmountable barriers to entry.  Thus, it can do anything it likes.  Anyone who wants access to social media services has to accept whatever terms Facebook stipulates.

Past Monopolies

This is not a new problem.

Whenever someone has a practical monopoly, society steps in and regulates the monopoly component of their business.  Otherwise, as the economists tell us, those with the monopoly can charge “monopoly rents” for their product.  When there are no market forces at work, the company providing the monopoly service has free rein to choose the prices that people must pay for their service, and the terms on which it is provided.  (In the case of Facebook, of course, the “price’ is paid in access to information, but the concept is the same.)

Only one company delivers electricity to your house.  There is a logic to that.  It is not in society’s interest to have more than one company stringing wires all over the place.  In the early days of electricity, that happened.  Governments quickly understood that there was a natural monopoly.  One company should do it in each geographic area, and that company should be regulated.

Of course, it was only the wires that were the natural monopoly.  It took a while, but eventually society understood that many services relating to electricity, including generation, were not natural monopolies.  Companies could compete for those non-monopoly services, and when done properly that actually protects consumers better than regulation.

Another example was telephone service.  Competing companies could provide telephone service, but at a certain point customers wanted to be able to talk to everyone, not just the other customers of their particular communications provider.  Imagine if you were a Bell customer, and your telephone service only allowed you to talk to other Bell customers, but not to the customers of other service providers (wait, didn’t that actually happen at some point?).  Everyone had to be on the same system, which meant that telephone communications was divided into the function of access to the system (sales of phones, access services, etc.), and the function of physical communications between users (the “common carrier” function).  Most companies offered both.

Eventually, again, governments stepped in and said that companies that owned the communications infrastructure had to offer non-discriminatory access to any company that wanted to allow their customers to communicate with other people.  The “wires” became common to all.  Anyone could pay for access to the infrastructure system, and allow their customers to communicate with anyone else.

Opening up telecommunications revolutionized the ways people communicate with each other.  Many companies got involved.  It was no longer necessary to own infrastructure in order to offer phones, or communications packages, or even access to the system.  Any company that wanted access to the system for its customers paid a regulated fee to the owners of the wires (or fibre optics, or whatever), and their customers had full access.  (OK, OK, I’m oversimplifying.  It was a bloody battle, because the “ILECs”, the Incumbent Local Exchange Companies, didn’t want to give up their advantage.  Once the dust settled, they did give it up, and we all benefitted:  better phones, more comprehensive systems, more choice, broader access.)

How Do You Actually Achieve This Kind of Solution?

You could – as many are suggesting – solve the Facebook problem by regulating how they use data.  Basically, destroy their business model.  That treats the current problem as a privacy issue, and would – with a bludgeon – solve the problem, probably destroying Facebook and others in the process.  It would also hurt the many people whose lives are better because of their social media experiences.

A better approach may be to split the problem up into its two components:  monopoly and privacy.  Once we isolate the monopoly component, we have pure social media left.  If we can create real competition between social media providers, then the privacy issue can be dealt with in the marketplace.

How do you achieve that?

Step 1 is to split Facebook up into two companies, just as many telephone companies had to split up in the 80s and 90s.

SM Technology Inc. would be a company that owns the Facebook social media platform, including all of the connections with players on the internet.  It would be the technology company, in the old sense of the term.  It would be in the business of providing access to its technology to others, and continually adding functionality to that platform.

Facebook Advertising Inc. would be a pure social media company.  It would have a base of two billion users, and advertising clients that include most of the Fortune 500.  What it would not have is its own technology platform to offer to those customers or advertisers.  It would have to pay SM Technology Inc., the common carrier, to get access to that platform.

How is this different, you say?

The answer is that SM Technology Inc. is a monopoly entity that offers a social media platform at regulated rates to anyone who wants to use it.  It doesn’t sell advertising, and it doesn’t use the data it sees.  It has a platform, and it charges a fee to use it.  Full stop.

Facebook Advertising Inc. is a competitive social media company that only keeps its users if it offers them the services they want.  If LinkedIn, for example, wants to compete, it has equal access to the SM Technology communications infrastructure, and to succeed it has to differentiate itself based on the user experience it sells.  So does Facebook Advertising.  GoodReads, TripAdvisor, etc., can all offer a service that is specific to them, and compete with Facebook without discrimination.

Further, each social media provider will now have to compete not just on price, but also on user experience.  Every user, with any provider, will have full access to all other users of the common system, but not everyone will acquire their access under the same business model.  Are you willing to pay $20 per month for your social media access?  In that case, you get generic advertising, as on TV, but the advertisers will not be able to use your personal data to target you.  Are you willing to pay $50 per month for your social media access?  In that case, you are subjected to no advertising at all.  You just connect with other people on your own terms.

What will happen in the real world is that, once companies can provide custom-tailored social media experiences, all sharing the same platform and communicating with everyone else on the system, competitive offerings will become more finely focused.  Goodreads will offer a full and free social media experience to booklovers, and will disclose to users that the advertisers will have access to the reading histories of their users.  Their advertisers will not have access to any other user history information.  Many Goodreads users will say that is fine, thinking it is a fair trade-off to get a free social media experience.  They love their books, and they’re happy to share that information with advertisers.

The same will happen for travellers.  Some will say that their travel history is a fair trade for free social media, while others – particularly after getting a lot of travel-related advertising – will say I would rather pay the twenty bucks a month.

The point is that the customers will make individual choices.  What are you willing to give up for free social media access? Customers will find that you never have to give up 100% of your privacy, just some of it.  That question – $20 a month vs. limited information access – will be a key aspect of user decisions.  What part of my information am I willing to use as payment for access?  What social media community suits me, and is one that gives me access on terms I like?  Or, do I want to pay $50 a month and have complete protection?

No-one will have to give up all of their privacy in order to participate in social media.  That is one of the benefits of competition:  prices go down.  The amount of privacy you give up – the price of the service, in this context – will go down as well.

The competitive markets will unleash this level of choice, but only if we facilitate it by dividing the social media business between the natural monopoly function – the platform – and the services function, which is competitive.  As long as the common carrier is not one of the competitors, users can have full social media contact with everyone they know (or want to know), but choose who provides that service, and on what terms.

Other Implications

An interesting sidebar to this is the likely responses of the Facebook investors.  If you split up Facebook into regulated and unregulated components, all shareholders will get shares in both new companies.  Some will want the long term security of the common carrier. They will sell their Facebook Advertising shares to buy more SM Technology shares.  Some shareholders will want to participate in the upside of the social media offering.  They will sell the common carrier shares to buy more Facebook Advertising shares.

Of course, with the social media offering no longer protected by its monopoly status, Facebook Advertising will have to be creative and nimble in evolving its offerings to meet the needs of the users.  There will no longer be a single offering.  Facebook Advertising will offer several unique packages, with varying levels of cost and privacy, and probably branding them individually.  Each of those packages will be competing with other social media providers.

For the individual user, the current stark decision implied by the #DeleteFacebook hashtag – accept the evil Facebook rules, or give up all social media access forever – is gone.  If Facebook Advertising doesn’t offer information protection levels that satisfy you, someone else will.  Maybe you will have to pay something, or maybe you will have generic advertising, or maybe you will accede to limited information sharing.  In no case will you have to accept the use of your information, without your knowledge, to swing an election.

One other thing.  What about Twitter, or Google, or Instagram, or Pinterest (or WhatsApp, or Line, and so on)?

The answer is this.  For all but Google, they are variations on the social media experience.  Once the platform is opened up to all, they will each have competitors with access to the same platform that everyone uses for social media communications.  They will have to compete with those competitors, who will offer privacy protections of various types.  How long will Twitter last if a more protected version is offered through the (former) Facebook platform?  Not long, unless Twitter adopts the common platform and competes to protect their users effectively.

Google is the exception because they are mostly not a social media provider.  To the extent that they are (YouTube, for example), they will have to compete.  Their search function – until now the best in the world – will not be affected by social media competition, and will still dominate the market.  However, once users start to protect their information through greater social media choice, Google may find that its search competitors – DuckDuckGo and others – will start to gain more traction through increased user awareness.

Of course, if that doesn’t happen, then we have a further monopoly issue to solve.  Let’s cross that bridge when we come to it.

  –  Jay Shepherd, March 30, 2018

Posted in Politics, Social Change, Technology | Tagged , , , , , , | 3 Comments