Submission on the final report of the Australian Competition and Consumer Commission’s Digital Platforms Inquiry

With Darcy Allen, Dirk Auer, Justin (Gus) Hurwitz, Aaron Lane, Geoffrey A. Manne, Julian Morris and Jason Potts

The emergence of “Big Tech” has caused some observers to claim that the world is entering a new gilded age. In the realm of competition policy, these fears have led to a flurry of reports in which it is asserted that the underenforcement of competition laws has enabled Big Tech firms to crush their rivals and cement their dominance of online markets. They then go on to call for the creation of novel presumptions that would move enforcement of competition policy further away from the effects-based analysis that has largely defined it since the mid-1970s.

Australia has been at the forefront of this competition policy rethink. In July of 2019, the Australian Competition and Consumer Commission (ACCC) concluded an almost two-year-long investigation into the effect of digital platforms on competition in media and advertising markets.

The ACCC Digital Platforms Inquiry Final Report spans a wide range of issues, from competition between platforms to their effect on traditional news outlets and consumers’ privacy. It ultimately puts forward a series of recommendations that would tilt the scale of enforcement in favor of the whims of regulators without regard to the adverse effects of such regulatory action, which may be worse than the diseases they are intended to cure.

Available in PDF here.

Facebook’s monetary revolution

With Sinclair Davidson and Jason Potts

With its new digital money, Libra, a Facebook-led global consortium has created the world’s first private international reserve currency.

Announced on Wednesday, this is no small thing. For the first time since the collapse of the Bretton Woods system there is a clear competitor to the US dollar for global dominance in the currency market.

For simplicity’s sake think of Libra as a return to the global gold standard. But rather than governments setting the rules and exchange rates, with gold being the underlying store of value, we’re seeing a private organisation setting the rules and a portfolio of relatively risk-free assets playing the role of gold.

To be clear – Libra is not a cryptocurrency like, say, Bitcoin; but it has many Bitcoin-like characteristics. It is a private money. It is not government money – ultimately fiat is backed only by the taxing powers of the state. Libra will be backed by tangible assets.

Rather than Bitcoin, Libra is more like PayPal, or WeChat Pay, on steroids – a payment gateway and a new money system all rolled into one. This is perhaps a good halfway house to introduce the world to the concept of non-government digital money.

The implications are huge. Facebook has disrupted digital money in a way central banks and the commercial banking system never could. Facebook has brand recognition that even the global banks must envy.

For those consumers who may baulk at using Facebook to transact, other large tech companies cannot be far behind with their own products. So what now?

We predict a large uptake in these digital money products. Largely because consumers tend to emphasise convenience. Libra will very quickly achieve global acceptance among consumers and merchants. If that prediction comes true, many other firms will launch their own competing monetary systems. In short, there is going to be a lot of competition in this space in the very near future.

The short-term consequences include the immediate disruption of the remittance market. Those companies charging exorbitant fees to move money around the world will see their rivers of gold drying up. Debit cards will also quickly become redundant – accelerating the move to phone-based tap and pay systems. The world’s “unbanked” will quickly become “banked”.

There are other immediate practical concerns. Within the next year, both Australian consumers and merchants will be wanting to use Libra. How will this be done? How will it be taxed? Will it be taxed? But any work that has been done so far on these questions has come in the context of Bitcoin and cryptocurrency – an extremely niche market. A general use private money has simply not been on the radar.

Those central banks that tolerate high rates of inflation will see disintermediation. Governments that pursue irresponsible fiscal policies will see even greater capital flight. Ironically the presence of a convenient, sound and private digital money will provide incentives to institutionally challenged governments to lift their game or lose total control over their domestic policy environments.

Every country in the world faces policy challenges from a viable private international reserve currency. Control over the monetary system lies at the heart of the modern economy. A viable alternative to fiat currency, with international mobility, undermines both the conduct of monetary policy and fiscal policy.

No doubt governments and their regulators will be looking very closely at Libra. They may treat it as a threat. But it is an opportunity for a forward-thinking government. It should come as no surprise that Libra is being set up in Switzerland. They have sensible laws relating to financial matters. The question we should be asking is why Australia isn’t being considered as a location for these products?

Australia should consider becoming a currency haven. Not only should a suite of policies be developed that facilitates the use of a private international reserve currency within Australia, a suite of policies that attracts the providers of such currencies to Australia should be considered. The use of Australian markets to purchase the underlying assets should encouraged and especially the inclusion of Australian assets in those portfolios should be encouraged.

With the announcement of Libra, the global monetary system – and arguably the structures of global financial capitalism – changed irreversibly. And just 10 years after the invention of Bitcoin and blockchain technology. The rate of disruptive innovation is only going to accelerate.

How well Australia adapts to this change will be determined over the next six months. Libra is coming in 2020. Regulatory obstruction is simply not an option.

Submission to the Australian Competition and Consumer Commission’s Digital Platforms Inquiry

With Gus Hurwitz.

Executive summary: The analysis in the Australian Competition and Consumer Commission’s Preliminary Report for the Digital Platforms Inquiry is inadequate in several ways, most notably:

  • It mischaracterises the relationship between changes in the economics of media advertising and the rise of digital platforms such as Facebook and Google.
  • Its analysis of the dynamics of media diversity is misguided.
  • Its competition analysis assumes its results and makes unsupportable claims about the division of advertising markets.
  • It is recklessly unconcerned with the freedom of speech consequences of its recommendations.
  • It fails to recognise, and proposes to supplant, the ongoing social negotiation over data privacy.
  • It provides a poor analytic base on which to make policy recommendations, as it applies a static, rather than dynamic, approach to its analysis.

There is a real danger that if the policy recommendations outlined in the preliminary report were to be adopted, Australian consumers would be severely harmed.

Available here.

The cyberbullying moral panic

With Simon Breheny

Bullying among children is a serious problem. At its tragic worst it can lead to suicide. But it is a serious social problem, not a technological one.

Earlier this year, the Coalition government released a discussion paper ‘Enhancing Online Safety for Children.’ The proposals contained within the discussion paper have been drafted with the intention of tackling cyberbullying — that is, bullying using digital technology. Unfortunately they will do nothing to solve the bullying problem. And, by establishing a ‘Children’s e-Safety Commissioner’ with powers to take down material from social media websites, it will increase government control over the internet and clearly threaten free speech.

The discussion paper outlines three key measures the government aims to implement to address cyberbullying: the establishment of the Children’s e-Safety Commissioner; developing an effective complaints system, backed by legislation, to get harmful material down fast from large social media sites; and examining existing Commonwealth legislation to determine whether to create a new, simplified cyberbullying offence.

The key plank in this policy is the creation of a new power to ‘get harmful material down fast.’ This is an explicit censorship power. Pure and simple. And it’s a particularly disappointing development coming from this government. In a speech to the Samuel Griffith Society in 2012 entitled ‘In Defence of Freedom of Speech’, then Opposition legal affairs spokesman Senator George Brandis said:

The measure of a society’s commitment to political freedom is the extent of its willingness to respect the right of every one of its citizens to express their views, no matter how offensive, unattractive or eccentric they may seem to others.

The proposed establishment of an e-Safety Commissioner is not a policy that lives up to Brandis’ high-minded rhetoric. Indeed the proposal moves Australia in precisely the opposite direction. If the Coalition’s e-safety policy is implemented, this government will be doing more to restrict free speech than it is to defend it.

Several concepts used in the discussion paper are ambiguous. The term ‘harm’ is itself a term that describes a broad range of conduct, from the very serious to the trivial. Whenever the basis of a bureaucratic power is vague it gives discretion to public servants. In the case of the e-safety commissioner, it means that none of us can be sure whether we’ll be censored for something we say online.

The proposed regime carries some very serious risks. The commissioner will not be infallible. There will be mistakes, and content that should never have been taken down will be removed by the government.

We’ve seen this before. In June last year, the Australian Securities and Investments Commission admitted that it had accidentally blocked 250,000 websites in an attempt to tackle online scams.

Those who cannot remember the past are condemned to repeat it. The risk of inadvertent removal of material is serious. But perhaps even more concerning is the idea that the government should grant itself this kind of power at all. It’s not the role of government to judge what is and is not acceptable social discourse. Those important decisions must be reserved for rational, free individuals.

And like any government initiative there is the risk of scope creep. What starts as a small censorship regime grows into a large censorship regime. In a liberal democracy there is only one acceptable level of censorship: none.

On the flip side, it will be impossible for the e-Safety Commissioner to protect children from all cyberbullying. Lines have to be drawn somewhere. And wherever the government creates that threshold there are going to be children who will be the subject of bullying that is not caught by the government’s cyberbullying regime. Additionally, no matter how carefully this policy is implemented there will be cases where the commissioner will fail to remove legitimately harmful material.

Of course, that won’t stop parents from trusting that the government is putting an end to cyberbullying. Governments love to pretend they have everything under control. And many parents will trust that the commissioner has covered the field. But the risk is that the existence of this program provides a false sense of security. Parents will rely on the government to protect their children. This attitude is instinctive — the government is taking more responsibility so I don’t need to take as much.

This attitude has a dramatic impact on consumer behaviour. Parents who rely on the e-safety commissioner no longer direct capital towards free market answers to cyberbullying. This outcome is a direct result of the government intervening in an area where government action is unnecessary. Implementing a government-run online safety program creates perverse incentives that lead to fewer privately developed solutions.

There are a very broad range of tools available to parents, teachers and schools which can assist in effectively targeting cyberbullying.

The most important mechanism that exists to deal with cyberbullying is direct reporting to the social media networks themselves. It’s in the interest of social media sites to have highly developed reporting mechanisms in place. Facebook allows users to report violations of its statement of rights and responsibilities. The statement contains an explicit reference to bullying: ‘You will not bully, intimidate, or harass any user.’ The outline of Community Standards expands on its uncompromising stance: ‘Facebook does not tolerate bullying or harassment. We allow users to speak freely on matters and people of public interest, but take action on all reports of abusive behaviour directed at private individuals. Repeatedly targeting other users with unwanted friend requests or messages is a form of harassment.’

Twitter, LinkedIn, Pinterest, Google+, and other social media sites likely to come under the purview of the government’s commissioner have all developed similar policies.

Distinct from internal reporting tools, there is also a growing range of anti-cyberbullying software available to parents. The number of programs available is impressive. They range in scope, complexity, format and price, and can provide a remarkable amount of parental control.‘CyberSynchs’ is an application that identifies bullying and other inappropriate behaviour, and then sends a report to parents. Trend Micro’s ‘Online Guardian’ allows parents to monitor their children’s social media traffic for pre-programmed key words and phrases.

There are hundreds of these products currently available. And more are being developed all the time. Primary and secondary schools also install filters at the network level. These are the solutions that are available to parents seeking to protect their children from cyberbullying.

There are also a number of existing legal remedies that cover the same or similar conduct as that targeted by the government under the e-safety policy. Violent threats; menacing, harassing or offensive conduct online; stalking; and unauthorised access to accounts are all criminal offences.

The truth is that cyberbullying is bullying. It’s awful. It’s damaging.But cyberbullying is no more or less a problem than run-of-the-mill playground bullying. The same approach should be used for both. Parents are more in tune with the emotional disposition of their own children. They know better than any government-appointed commissioner how their child will react to incidents of bullying, and they know best how to deal with it. Parents are the best anti-bullying advocates their children will ever have.

The proposed Children’s e-Safety Commissioner is a policy born of lliberalism. It patronises parents, and it infringes freedom of speech. The government should not proceed with its e-censorship proposal.

Combatting The Cyberbully Myth

Why do we keep telling children that the law cannot protect them against severe cyberbullying? Time and time again politicians and the press claim that there is nothing police or parents can do if a child is being bullied on the internet, and that government needs to step in.

The parliamentary secretary for communications Paul Fletcher claimed this month that for children who were victims of bullying online, if sites like Facebook didn’t help, ”you really have no redress at all”.

This is gobsmackingly negligent. There are Commonwealth laws on the books that were written to do exactly that.

Section 474.17 of the Criminal Code makes it unlawful to use a carriage service – that is, telephone or internet – to menace, harass, or offend. The penalty can be jail.

Then, should the criminal code not be enough, there is defamation law (almost all acute cyberbullying involves defamatory speech), anti-stalking laws, laws against harassment and blackmail, and laws that protect people against threats and fears of violence to the person.

Indeed, some of these laws are excessively powerful.

Still, the fact is they exist.

The Abbott government is holding an inquiry into its election promise to establish a ”children’s e-safety commissioner” who is supposed to protect kids from cyberbullying.

This commissioner would have the legal power to force social media companies to remove abusive content from their sites in response to complaints from the public.

”Remove”, of course, is a synonym for censor. It’s bizarre that a government that promised to run a ”freedom agenda” would want to create a grand new bureaucratic body to censor the internet.

(Ironies abound. Tony Abbott announced this internet censorship proposal just a few days after he announced he would repeal section 18c of the Racial Discrimination Act because the latter was an unconscionable limit on the human right to free expression.)

But anything to help victimised children, right? Well, not if it won’t actually help them.

Bullying is a very serious problem. The harm of bullying should not be played down. At its worst and most tragic, it can lead to suicide. The desire that the government has to do something about bullying is irreproachable. But there are a lot of widely held misconceptions about the nature of cyberbullying.

First of all, there is no such thing as ”cyberbullying”. There is just bullying. The research evidence demonstrates clearly that people who are bullied online are also bullied offline. Of course, this makes intuitive sense. Bullying is a social problem, not a technological one.

In fact, the academic literature consistently suggests cyberbullying is less of a problem than traditional bullying. As a 2012 paper in Complementary Pediatrics put it, ”School bullying is more common than online bullying.” Furthermore, being bullied at school is more distressing.

It’s important not to take the very real bullying problem and turn it into a moral panic about technology.

Bullying is intentional aggressive conduct sustained over time that incorporates some kind of power imbalance – real or perceived – between the bully and bullied. Having a bureaucrat whose job it is to delete individual instances of abusive speech online won’t tackle the basic problem of children being cruel to each other.

Certainly not if a victim is subjected to sustained harassment the moment they return to the playground. Or if the abuse just migrates to less easily monitored websites.

A children’s e-safety commissioner would only offer adults a false sense of security that the bullying has been dealt with.

The major social media sites are doing an increasingly effective job at policing their own networks, and without the iron fist of the state supervising them. Facebook, the site with the youngest cohort, has developed rather extensive systems to report and ban abusive users.

Perhaps surprisingly, a more effective mechanism than reporting users for abuse is the humble unfollow and block. This neutralises the cruelty, therefore reducing the harm, and is necessary to develop coping strategies for young victims.

A lot of cyberbullying is apparently done by text message. Most mobile phones now have a feature that allows users to block calls and messages from certain numbers.

And in the case of severe abuse, there is always recourse to the law. Too often people use the word ”bullying” to describe serious criminal conduct including death threats and physical assault. But the biggest barrier to reducing the harm from bullying is the fact that many children simply don’t tell their parents or teachers what is happening. Too often adults don’t have a chance to help, to provide counsel or support.

So we have to educate parents to identify signs that their children are being bullied, and what can be done.

We have to educate children about the many institutional, legal, and technological resources available to support them.

But most of all, we have to stop this incredibly dangerous political falsehood that there are no remedies available for children who are being bullied, online or off.

Privacy pose shows the minister is off his Facebook

It must have felt nice for Communications Minister Stephen Conroy not to be the bad guy. Just for a little while.At a Senate estimates hearing last week, being peppered by questions finding even more flaws in his internet filter plan, Conroy seized an opportunity to direct a bit of fury Google’s way. And at Facebook, too – the minister was on a roll.

Conroy accused Google of the ”largest privacy breach in history across Western democracies” for its apparently accidental sampling of publicly accessible data from home wireless internet networks. Then he claimed Facebook had ”gone rogue” because the social network’s privacy policy was getting increasingly complex and confused.

”What would you prefer?” asked Conroy. ”A corporate giant who is answerable to no one and motivated solely by profit making the rules … or a democratically elected government with all the checks and balances in place?”

Sure, Conroy’s sudden, passionate defence of the privacy of Australian Facebook profiles could be totally sincere. But recall this: he is a member of a government that is about to install body scanners in airports. Body scanners aren’t ”mistakes”, as Google described its inadvertent over-collection of data.

They’re designed to peek under clothes and investigate the nude contours of travellers. Some are able to capture and store images. Now that’s a privacy problem to be worried about.

At least when a corporation breaches privacy, it’s relatively easy to deal with.

If you don’t like Facebook’s privacy settings, you can, you know, quit Facebook. It’s not hard: it’s in the ”Account Settings” tab on the top right corner of the site. If enough people do, Facebook will have to reform its ways, or go out of business.

And if you don’t like that your wireless network is unsecured for Google or your neighbours to look at, secure it.

Most Australians now run high-powered wireless networks in their house and use them for online banking. Perhaps a few minutes thinking about network security wouldn’t go astray.

Certainly, Google should be chastened by its blunder. If they have broken any Australian laws, then they should be punished.

But when the government runs roughshod over our privacy, that’s much more serious.

As Conroy was launching into Facebook, a genuine threat to privacy was winding its way through Parliament – healthcare identifiers, which form part of the government’s electronic health records plan. If it passes, every Australian will be allocated a unique number, and encouraged to store their health records in a government database. No information is as sensitive as health records. And these records will be accessible to half a million healthcare workers around the country. Indeed, that’s the point.

Ensuring information security in high-stress environments (like emergency rooms) or in busy retail environments (like a Medicare outlet) is no small task. It’s easy for computers to remain unlocked, or logged-in, even if just for a short time. So it won’t take very long for a serious compromise of security to occur.

In general, eHealth is a good idea. But what the government proposes is a universal, compulsory, centrally managed and bureaucratically controlled record system. Individuals will have no direct control over their own records. (Unlike, for instance, the private online health record systems available from Microsoft and Google.)

The eHealth scheme is an Australia Card for your embarrassing bowel problem.

Privacy problems are endemic to centralised government systems: 1000 Medicare employees have been investigated for spying on personal information in the past three years alone. That’s one in six Medicare employees.

There are problems in Centrelink too. In 2006, after a two-year study, investigators uncovered 800 cases of illegal snooping by 100 staff.

Now CrimTrac, the federal agency in charge of criminal databases (fingerprints, DNA, and criminal records) wants to control data from law-abiding citizens too (drivers’ licences, birth registries and passport photos), all matched up to the electoral roll and collected on a nationally accessible police database.

The CrimTrac head, Ben McDevitt, claimed police ”need to have access to the sort of data that is held by various governments in order to establish an individual’s identity”. He said some privacy may have to be sacrificed for better law enforcement: ”I don’t find that at all threatening or big brotherish.” How reassuring.

Facebook has been deeply stupid – abusing the trust of users, continuously changing their privacy settings, and playing fast and loose with personal information. The company has long seemed dismissive of many privacy concerns and it deserves to be harangued by the press and punished by the marketplace.

But at least you can quit Facebook if you’re unhappy. If a government department abuses your trust or compromises your privacy, you can’t do anything.