Wednesday, January 17, 2018

Frank Pasquale—From Territorial to Functional Sovereignty: The Case of Amazon (AMZN)

Professor Pasquale has a very interesting way of looking at things, we are fans. *

From Law & Political Economy:
Economists tend to characterize the scope of regulation as a simple matter of expanding or contracting state power. But a political economy perspective emphasizes that social relations abhor a power vacuum. When state authority contracts, private parties fill the gap. That power can feel just as oppressive, and have effects just as pervasive, as garden variety administrative agency enforcement of civil law. As Robert Lee Hale stated, “There is government whenever one person or group can tell others what they must do and when those others have to obey or suffer a penalty.”

We are familiar with that power in employer-employee relationships, or when a massive firm extracts concessions from suppliers. But what about when a firm presumes to exercise juridical power, not as a party to a conflict, but the authority deciding it? I worry that such scenarios will become all the more common as massive digital platforms exercise more power over our commercial lives.
A few weeks ago, the Friedrich Ebert Stiftung (a think tank affiliated with the Social Democratic Party in Germany) invited me to speak at their Conference on Digital Capitalism. As European authorities develop long-term plans to address the rise of powerful platforms, they want to know: What is new, or particularly challenging, in digital capitalism? 

My answer focused on the identity and aspirations of major digital firms. They are no longer market participants. Rather, in their fields, they are market makers, able to exert regulatory control over the terms on which others can sell goods and services. Moreover, they aspire to displace more government roles over time, replacing the logic of territorial sovereignty with functional sovereignty. In functional arenas from room-letting to transportation to commerce, persons will be increasingly subject to corporate, rather than democratic, control. 

For example: Who needs city housing regulators when AirBnB can use data-driven methods to effectively regulate room-letting, then house-letting, and eventually urban planning generally? Why not let Amazon have its own jurisdiction or charter city, or establish special judicial procedures for Foxconn? Some vanguardists of functional sovereignty believe online rating systems could replace state occupational licensure—so rather than having government boards credential workers, a platform like LinkedIn could collect star ratings on them. 

In this and later posts, I want to explain how this shift from territorial to functional sovereignty is creating a new digital political economy. Amazon’s rise is instructive. As Lina Khan explains, “the company has positioned itself at the center of e-commerce and now serves as essential infrastructure for a host of other businesses that depend upon it.” The “everything store” may seem like just another service in the economy—a virtual mall. But when a firm combines tens of millions of customers with a “marketing platform, a delivery and logistics network, a payment service, a credit lender, an auction house…a hardware manufacturer, and a leading host of cloud server space,” as Khan observes, it’s not just another shopping option. 

Digital political economy helps us understand how platforms accumulate power. With online platforms, it’s not a simple narrative of “best service wins.” Network effects have been on the cyberlaw (and digital economics) agenda for over twenty years. Amazon’s dominance has exhibited how network effects can be self-reinforcing. The more merchants there are selling on (or to) Amazon, the better shoppers can be assured that they are searching all possible vendors. The more shoppers there are, the more vendors consider Amazon a “must-have” venue. As crowds build on either side of the platform, the middleman becomes ever more indispensable. Oh, sure, a new platform can enter the market—but until it gets access to the 480 million items Amazon sells (often at deep discounts), why should the median consumer defect to it? If I want garbage bags, do I really want to go over to to re-enter all my credit card details, create a new log-in, read the small print about shipping, and hope that this retailer can negotiate a better deal with Glad? Or do I, ala Sunstein, want a predictive shopping purveyor that intimately knows my past purchase habits, with satisfaction just a click away?
As artificial intelligence improves, the tracking of shopping into the Amazon groove will tend to become ever more rational for both buyers and sellers. Like a path through a forest trod ever clearer of debris, it becomes the natural default. To examine just one of many centripetal forces sucking money, data, and commerce into online behemoths, play out game theoretically how the possibility of online conflict redounds in Amazon’s favor. If you have a problem with a merchant online, do you want to pursue it as a one-off buyer? 
...MUCH MORE (the good stuff)
Jan. 5, 2018
Corporations Aren't People, Corporations Are Sovereign
Or at least they might be.
In Nebraska,
Part of Nebraska.
From the Lincoln Nebraska Journal-Star:
Senator proposes sovereignty as a way to economic development 
*Previously from the P-Dawg:
March 2015
Nudge This: "The Algorithmic Self"

The writer,  Frank Pasquale, is a professor of law at the University of Maryland, and is the author of the forthcoming book The Black Box Society: The Secret Algorithms That Control Money and Information.
And, on the off chance Bloomberg View's Matt Levine should see this, 38 footnotes!
If Interested here are a couple more pieces by Pasquale:
Algorithims Are Judging You

And writing at the Guardian, "Uber and the lawlessness of 'sharing economy' corporates"

Media: "Facebook’s Motivations" (FB)

From S:
The trepidation — and inevitable outrage — with which much of the media has greeted Facebook’s latest change to the News Feed algorithm seems rather anticlimactic. Nearly three years ago I wrote in The Facebook Reckoning that any publisher that was not a “destination site” — that is, a site that had a direction connection with readers — had no choice but to go along with Facebook’s Instant Article initiative, even though Facebook could change their mind at any time. A few months later, in Popping the Publishing Bubble, I explained why advertising would coalesce with Google and Facebook; that is indeed what has happened, which is the real problem for publishers. Facebook’s algorithm change simply hastens the inevitable.

The story for media is for all intents and purposes unchanged: success depends on building a direct relationship with readers; monetizing that relationship (likely through subscriptions, but not necessarily); and leveraging Facebook as an acquisition channel for those long-term relationships, not short-term page views. If anything this change will help reader-focused publications: users will be more likely to see links shared by their friends, enhancing the word-of-mouth marketing that is the foundation of reader-centric publications.

What I find far more compelling is the question of Facebook’s motivation. Facebook CEO Mark Zuckerberg wrote on Facebook:
One of our big focus areas for 2018 is making sure the time we all spend on Facebook is time well spent. We built Facebook to help people stay connected and bring us closer together with the people that matter to us. That’s why we’ve always put friends and family at the core of the experience. Research shows that strengthening our relationships improves our well-being and happiness.
We feel a responsibility to make sure our services aren’t just fun to use, but also good for people’s well-being. So we’ve studied this trend carefully by looking at the academic research and doing our own research with leading experts at universities. The research shows that when we use social media to connect with people we care about, it can be good for our well-being. We can feel more connected and less lonely, and that correlates with long term measures of happiness and health. On the other hand, passively reading articles or watching videos — even if they’re entertaining or informative — may not be as good.
Based on this, we’re making a major change to how we build Facebook. I’m changing the goal I give our product teams from focusing on helping you find relevant content to helping you have more meaningful social interactions. We started making changes in this direction last year, but it will take months for this new focus to make its way through all our products. The first changes you’ll see will be in News Feed, where you can expect to see more from your friends, family and groups. As we roll this out, you’ll see less public content like posts from businesses, brands, and media. And the public content you see more will be held to the same standard — it should encourage meaningful interactions between people…
Now, I want to be clear: by making these changes, I expect the time people spend on Facebook and some measures of engagement will go down. But I also expect the time you do spend on Facebook will be more valuable. And if we do the right thing, I believe that will be good for our community and our business over the long term too.
Forgive the longer-than-usual excerpt, but there is a lot here. Zuckerberg:
  • Implicitly admits that time spent on Facebook may not “well-spent”, and cites research suggesting that many common activities on Facebook may not be good for you
  • Introduces the change as a shift in goals from delivering relevant content (a “perfect personalized newspaper”, as Zuckerberg called it in 2014)
  • Suggests that the time spent on Facebook may decrease due to these changes (sending Facebook’s stock down)
In an interview for the Daily Update, Vice-President of News Feed Adam Mosseri argued that this would benefit Facebook in the long run:
This change is primarily focused on doing right by our community, because we actually believe that by doing right by the community in the long run will be good for the business and so we just try to take a long term approach to any question like this.
I absolutely believe the last part of that quote: Facebook is taking a long-term view, and it would only make this change were it right for the business. I’m just not entirely convinced that Zuckerberg and Mosseri are telling us the entire story.

Facebook’s Believability
Start with Zuckerberg’s claim that this change will reduce “the time people spend on Facebook and some measures of engagement.” Mosseri said that would be mostly due to less time spent watching video, given that video content would likely be hurt by this algorithmic change.

That in and of itself is certainly interesting; Zuckerberg has been pushing the importance of video on earnings calls for some time now, and no wonder: TV advertising money remains the proverbial gold-at-the-end-of-the-rainbow for all advertising-based tech companies. Is Facebook giving up on its leprechaun dreams?

I don’t think so, and not just because forgoing all of that potential revenue would be quite unbelievable....

AI: "Google moves into Shenzhen in latest China expansion" (GOOG; NVDA)

Not saying that Google's Tensor Processing Unit chips are a threat to NVIDIA (yet) but, at the same time NVIDIA's Mr. Huang was publicly stating the GOOG was no threat, his research peeps were saying "we should make those thingies."

From TechCrunch:
A month after announcing plans to open its first AI lab in China, Google is expanding again through a move into Shenzhen.
The U.S. tech giant has opened an office in the Chinese city, which borders Hong Kong and known for being a global hardware hub, according to an internal email obtained by TechCrunch. This isn’t a fully-blown Google campus, instead the company has taken up space within a serviced office starting this week.
“We have many important clients and partners in Shenzhen. We’re setting up this e-suite office to be able to communicate and work with them better,” a spokesperson told TechCrunch in a statement confirming the news.

Here’s the short email that was sent to staff:
Hello China Googlers,
I hope your 2018 is off to a great start! I want to give you all a heads up about a new workspace we’ve opened in Shenzhen. As you may know, we have a number of Googlers in China who travel to the Shenzhen area for business on a regular basis. We’ve heard a lot of feedback that there was a need for a space to work from while in the area—so, after a few months of scouting, we recently signed a lease for a serviced office in Shenzhen. The space opened this week and is now up and running. We’re hopeful this will provide Googlers with a comfortable base to work from in the area.
Shenzhen is home to Tencent, the $500 billion firm behind WeChat, and mobile giants Huawei and ZTE, while the likes of Alibaba and Baidu are also present. The city has a thriving maker community, which includes global hardware accelerator program HAX....MORE
If Interested see also:

November 2016
Artificial Intelligence: What Could Derail NVIDIA? A Lab in Shenzhen; A Basement in Moscow; An Office in Bristol (NVDA)
Novermber 2017
"Sequoia Backs Graphcore as the Future of Artificial Intelligence Processors" (NVDA; INTC)
Jan. 16 
"Can Chinese AI Chip Makers Compete with Nvidia?" (NVDA)

"Swiss town denies passport to Dutch vegan because she is ‘too annoying’"

From Yahoo News:
A Dutch vegan who applied for a Swiss passport has had her application rejected because the locals found her too annoying.

Nancy Holten, 42, moved to Switzerland from the Netherlands when she was eight years old and now has children who are Swiss nationals.
However, when she tried to get a Swiss passport for herself, residents of Gipf-Oberfrick in the canton of Aargau rejected her application.
Ms Holten, a vegan and animal rights activist, has campaigned against the use of cowbells in the village and her actions have annoyed the locals.
The resident’s committee argued that if she does not accept Swiss traditions and the Swiss way of life, she should not be able to become an official national.
Ms Holten told local media: “The bells, which the cows have to wear when they walk to and from the pasture, are especially heavy....MORE
The Swiss Bovine Special Forces are practicing air-mobile vertical insertion techniques should Ms Holten prove obstreperous:

Note identifying bell (and more disconcertingly, lack of diaper)

"Albert Edwards Warns Of ‘Surprise’ From The East, Explains ‘How To Call 10 Of The Last 1 Crashes’"

Via the Heisenberg Report:
We’ve been looking for surprises and one thing that can catch us out is if the Bank of Japan starts tightening. If it actually follows the Fed and the ECB and announces some sort of tapering.
This could be far more important than the Fed. A lot of major trends start with Japan. People don’t focus on Japan enough in my view.
That’s what Albert Edwards said earlier this month at SocGen’s annual strategy conference in London, and it’s notable for a number of reasons.

For one thing, implicit in the notion that Kuroda might one day soon decide to leave Neverland is the notion that Japan might just be achieving some measure of “success” when it comes to escaping the deflationary doldrums. This is something Edwards explores in his latest client note and happily, he credits our buddy Kevin Muir (The Macro Tourist) for the inspiration.

“A big hat tip to the excellent Kevin Muir at The Macro Tourist who got me thinking about Japan,” Edwards writes, in a note dated last Wednesday. “Could things be going so well in Japan that an unexpected tightening causes the yen to surge at a time when almost all investors, including myself, expect neverending yen weakness?” Albert goes on to ask.

The first chart Edwards presents in the note shows that although inflation itself is still of course “subdued” in Japan (and we use the scare quotes because that’s an understatement), the deflationary mindset may finally be dissipating in what I guess is a testament to Kuroda’s contention that “what we need is a positive attitude and conviction.”
Say what you will about Kuroda, but one thing you can’t say is that he lacks “conviction” and it would be hard to argue that he doesn’t harbor a “positive attitude”.

Edwards goes on to note that while the market is laser-focused on i) what the blockbuster econ numbers coming out of Europe (factories can’t even keep up with demand at this point) might mean in terms of the ECB potentially deciding not to extend APP beyond September and ii) what Trump’s tax bill may mean for a revival of the stateside reflation narrative, no one is paying attention to Japan where “a change in the deflationary mindset may yet be at hand.”

Of course vanquishing the deflationary mindset has the potential to become a self-fulfilling prophecy by pulling forward consumer spending. Maybe Kuroda’s “think happy thoughts” approach wasn’t so stupid after all.

Albert does note that wage growth has yet to pick up despite a tightening Japanese labor market, but he also reminds you that “rising hours worked means income growth is growing by 2% yoy in nominal terms [and] unlike the US and UK, income growth is outstripping consumer spending by a wide margin and the savings ratio has risen.”
The implication: a sustained increase in consumer confidence could very well lead to an uptick in consumer spending which could in turn boost GDP further (and hell, if Nomura is right, “Mrs. Watanabe” could be emboldened to spend more by virtue of the ~¥3.2trn in unrealized Bitcoin profits “she” is sitting on)....

Shipping: Today's Word Is 'Overcapacity'

Two via gCaptain, January 10. First up, from Bloomberg:

More Mega-Ships Are a Big Problem for Cargo Carriers
Container shipping companies are bracing for a challenging year — they will have more space available for carrying goods than the amount of cargo that’s out there.

Corrine Png, chief executive officer of research firm Crucial Perspective, estimates freight-carrying capacity on container ships will rise 5.9 percent this year, outstripping demand growth for the first time since 2015.

That’s largely because more than 40 huge container vessels ordered at least two years ago are ready to be delivered for service, creating an abundance of ship stowage. With some of the space expected to be left empty, container lines could be forced to charge lower fees for shipping goods, even as they try to overcome years of accumulated losses in an industry downturn that has seen at least one company collapse.

More than 90 percent of global trade is transported by sea. The five charts below show what’s in store for shipping companies.

1. More space to carry goods: As more large vessels are delivered and put into service in 2018, ships’ cargo-carrying capacity is expected to expand the most in three years....

And from The Loadstar:

Carriers Beginning to Postpone ULCV Deliveries Amid Overcapacity and Softer Demand
Where contracts allow, ocean carriers are starting to postpone deliveries of new ultra-large container vessels (ULCVs) in the face of the return of the twin challenges of cellular overcapacity and softening demand.

Alphaliner claimed today that Cosco has deferred 10 of the 28 ULCVs it was due to receive this year to 2018 and Yang Ming has pushed back delivery of three 14,000 teu vessels into next year.
Despite these deferrals, Alphaliner calculated there would still be some 1.5m teu of newbuild containerships entering service this year of which 1.2m teu is slated for delivery before the end of June.

And it forecasts that January will be a record month for deliveries, with no less than seven 19,000-21,000 teu vessels expected to join the global fleet – equating to an extra 250,000 teu of capacity.

They include the 21,413 teu OOCL Indonesia, the CMA CGM Antoine de Saint Exupery (20,776 teu), MOL Treasure (20,182 teu), Cosco Shipping Taurus (20,119 teu) and Marseille Maersk and Manchester Maersk sister ships (each 20,568 teu)....


Jan. 4
Global Fleet Capacity to Bulge as More Containerships are Delivered in 2018; Baltic Dry Index Down 21%, Hyundi Heavy Up
I'm going to have to learn how to say "Boom-and-bust cycle" in Korean..... 

IEEE Spectrum Top Tech 2018

From the Institute of Electrical and Electronics Engineers:

Here are some of the technologies you’ll be reading about this year
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