A report published in August by London’s Institute for Public Policy Research gets one big thing right but an even bigger one wrong.
The author — former Jeremy Corbyn advisor James Meadway — is right to assert that electronic data storage is changing the world.
“The collection, storage, analysis, and application of data will become the dominant feature of economic and social life within the next few years,” Meadway writes. “Approximately 25 quintillion bytes of data are created every single day, and that volume is growing exponentially. .. in 2017, at least 90 per cent of the world’s data had been created in the previous two years.”
The results include greater capacity for manufacturers and service creators to tailor their offerings to consumer needs. This can be seen as a good thing. There are also increasing concentrations of wealth and market power. That is a bad one.
Meadway’s summary of the implications of big data is in line with what’s been said for at least two decades. So he’s right there.
Where he’s wrong is in his depiction of the role of value creation in data collection and deployment.
Meadway uses the word value more than 60 times in the report. Here are four examples
“…the same piece of data can be used over and over again, in multiple applications by multiple users, without damaging its fundamental value.”
“…the value of any single data point can be minimal, but the fact that it is unique – and still contains meaning – means that in aggregate it can become immensely valuable.”
“…while personal data is immensely valuable for the individual, it is generally valueless for wider society until it is aggregated.”
“…the more data is organised and compared with other datasets, the more value it can hold.”
These sentences involve conflicting and even contradictory conceptions of what value is and how it’s created.
The report suggests that individual pieces of data have a fundamental value, but it’s also subjective because information about me is more valuable to me than it is to others.
Data’s value increases the more it’s associated with another piece of information and is also influenced by how it’s organised as well.
It’s all a bit confusing, to say the least.
But this is forgivable. No one has yet been able to explain how information creates value.
The solution is to return to first principles and recognise, as Economics 2030 does, that value is exclusively created by constructive human interaction.
Data and information — like energy and steel in manufacturing — have no value if they’re not supporting value-creating people at work, in the community and at home.
Only people create value.
Let’s think of an example of how this works with information.
If you know the oil price will double tomorrow to $80 a barrel from $40 and no one else does, that single piece of information (comprising just two integers) can generate an enormous amount of profit, but only if you can use it.
If you can’t, the information’s worth nothing.
It’s the same bit of information in the hands of the same person. But there are radically different economic outcomes.
This example shows information has no fundamental, intrinsic or objective value.
There is no determinate way that combination or aggregation can influence value either.
Even if you have the entire price time series for every grade of oil since 1859 (as well as tomorrow’s one) whether you can use it or not will determine its value.
If you can, it’s infinite. If you can’t, it’s zero.
That might suggest attempts scientifically to study data industries are pointless.
It’s a will-o’-the-wisp that is beyond scientific inquiry.
But that too is an unsatisfactory conclusion.
As Meadway reports, the four listed companies with the highest market capitalisation on the planet at the end of 2019 were: Apple, Microsoft, Apple and Amazon. All make a profit from capturing, storing and using information.
These behemoths and other data corporations are exercising growing influence on output, employment and investment everywhere. So even if you’d like to ignore information industries, you can’t.
A better approach to the value-creation process in data is needed.
It’s obvious that information only has the potential to support value creation.
Actual value creation occurs when the possessor of information has the capacity to interact with another human being in a constructive way.
Data is useful but people make the difference.
In the oil information example, you will have to deal with a supplier of oil today and a buyer of oil tomorrow either directly or indirectly through a broker or another intermediary.
You’ll need people to support how the transaction’s financed and executed and others who have access to facilities where oil can be stored for as long as it’s necessary. You’ll require the help of people who can deliver it and deal with all the administrative, legal and tax issues transactions in oil entail.
The fact that value creation in information requires constructive human interaction applies to all sets of data, whether it’s a bus timetable, blood pressure readings, earning levels, or knowledge in the heads of teachers.
That insight provides the explanation why Apple, Amazon and Alphabet are stock market favourites.
It’s not because of the data they command. It’s the capacity they have to use their relationships with customers to make money out of it.
Of course, they couldn’t make a penny without data and the abality to manipulate it. But it’s in the relationship with customers that value resides.
This way of looking at information industries depicts people as the masters rather than the powerless subjects of vast databases.
Meadway calls for new institutions to support the development of ways data’s value can be captured and shared for the public good.
But that’s unnecessary.
In the UK, more than 90 per cent of school students attend state schools. The overwhelming majority of patient interaction with health care providers is in the NHS. Mass transport across the UK is mainly done by public service providers.
Most of the data most people generate as a result of interactions with most tangible and service industries is already publicly-available, though only a fraction is usably stored.
In other words, the relationship, where value creation actually occurs, is already in place in the form of people’s engagement with a wide range of public service providers.
The value creation process based on data is flourishing in the public sector. But the public sector is not properly attaching value to the huge range of relationships it has with practically everyone in the UK.
That is why the private sector is so enthusiastic about privatisation. It’s the big new horizon for profit in an economy which is slowing and producing declining prospects for high rates of return. And that potential does not reside in the data but in the relationship between public sector providers and the people they serve.
What’s required first isn’t a new institution or the assistance of data management service providers. It’s a clear appreciation of where and how value is created.
Once that occurs, everything else is obvious.