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Understanding the economic value of your personal data

Your personal data is worthless – it's only when it's processed by the Facebooks or Googles of this world that it has business value

Much is being made of the manner in which those dastardly American companies are stealing all our precious data. They hoover it up, the Facebooks, Googles and the rest, make a fortune off it, and what do we get back? Nothing but access to the world’s information and a cat picture infrastructure. Surely something must be done.

That we do get the global library and the cat pictures shows the economics of the complaint isn’t quite right. We seem happy enough to allow them, whoever they are, to know about us in return for what we get. But there’s something wrong with the current debate on a deeper level too. The notion that the data itself is valuable – it isn’t.

Consider, just for a moment, something different: the recycling of the Earth’s precious and scarce natural resources. The value of one single plastic bottle or paper coffee cup that we throw away with such gay abandon, is negative.

The resources required to pick it up and get it to somewhere it can be recycled are greater than what can be gained from the process itself. But a pile of one million of the things at the location of a recycling plant has a positive value, as that collection and sorting has been done already.

The same is true of this supposedly valuable information about ourselves. The information about one person – the information that is picked up from our browsing, etc – is valueless.

To know that any individual bouncing around Europe, taking an interest not in cat imagery but of posting the local cuisine to friends on their chosen social media – the sort of thing that could be gleaned is not valuable to anyone in the slightest.

It is having that sort of information on hundreds of millions of people which has value. Data can then be mined and processed to, for example, inform menu decisions in a recipe book. What’s our likely audience for deep-fried chocolate bars? One or two unhealthy Brits? Mediterranean diet it is, then.

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To think that the original data is what is valuable is to think that Ford should only be charging us the value of the iron ore and rubber in our cars. Those do have a value but it’s pretty low compared to what we have to pay to drive off the lot. The point being that Ford Motor Company exists to process and add value to those raw materials. And so it is with the tech companies and the data all are so worried about.

A reasonable economic model for them would be that they take in something of no value – that scattered information we each hand over – with the purpose of the company being the processing and adding value. That is, it isn’t the data itself which is valuable, it’s the processing of it – which is why it is the company, the thing doing the processing, which gains the value being added.

This is why the ideas of those like computer scientist Jaron Lanier, that we should be paid the value of the information being collected, fail so badly. We are being paid that value already – the nothing that it is worth uncollated. And it’s a standard part of the normal economic model that gains should flow to those adding the value. Which is, here, those tech companies, not us.

Sucked out of Europe

Sadly though, this mistake seems to be misinforming an alarmingly large number of those who rule our lives. The European Union, for example, seems horrified at the idea that all of this information is being sucked out of Europe and Europeans.

We see constant references to valuable data and all that, and that this value must remain here - which is to entirely and completely miss the point of what is happening; it’s the processing which adds the value, not the raw material of the information itself.

Note that this is nothing at all to do with Facebook’s recent €110m fine from the European Commission for giving misleading information over the purchase of WhatsApp. That was justified on the same grounds as five years for perjury relating to an original crime with a six-month sentence.

Courts and regulation, whatever we think of the law or the regulators, work only if people tell them the truth. Thus if people mislead, lie, are economical with the truth, they are dinged if caught as they should be.

Bureaucratic obstacles

That my contempt for European bureaucrats is adamantine and total is well known, but I tend not to think they’re actually stupid. Which rather opens the question of what is it that they’re doing here? These demands on the tech giants make no economic sense given who is adding the value, so why are they being made?

My conclusion is simply that it’s the reflex anti-Americanism of all too many of the European elite. It’s not just the hamburgers and the movies which, zut alors!, have that crazy concept of both a script and a plot – well, most of them anyway – but the fact the Americans are over here and making buckets of money too. This simply will not do, and so something must be done. As market competition isn’t cutting it – whatever did happen to Quaero, the supposed European Google, anyway? – bureaucratic obstacles must be put in the way instead.

Other than that, there’s no sensible economic answer to the question of why there is such concern. Because no one can believe that the data itself is valuable - it’s the companies doing the processing of the data that are adding value, which is why they benefit from the value being added.

Read more on Privacy and data protection