Now it is official

Last November, we wrote on how US tech firms with support from the US government, were moving into Cuba, occupying the country’s information sector ahead of any political détente with the US and threatening Cuba’s national sovereignty.[1] This week, US President Barack Obama made a three-day state visit to Cuba, the first US president to visit since President Calvin Coolidge in 1928.  On this “historic trip,” the US president didn’t go alone. Along with his family, Obama was accompanied by a phalanx of executives from US firms including Google, Xerox, Airbnb, Priceline Group, PayPal, Xerox, Stripe, and Kiva[2] – as well as nearly 40 members of Congress.[3]

Obama’s visit of course was not a spontaneous occurrence but, rather, a result of long  preparations by the US government and US industries, whose shared aim is to reintegrate Cuba into the US-led global capitalist economy.  Predictably, the president deployed the language of “universal human rights” and “democracy” in his address to the Cuban people[4]; however, the U.S. president actually was there to green-light US capital’s self-interested program.

The U.S. strategy, it is evident, is to exploit the promise of modernizing Cuba’s information and communication infrastructure, in order to re-annex chunks of the country’s economy.  Under the pretence of freeing the flow of information (obligingly symbolized by the superficially defiant Rolling Stones) it is actually U.S. capital that is to be set free, to work its will upon a small country that has stood up against the full measure of US power since 1959.  Obama sought to entice the Cuban people by stating that, “The Internet should be available across the island so that Cubans can connect to the wider world and to one of the greatest engines of growth in human history.”[5]  In reality, these are at most secondary considerations:  Obama was fronting for US business interests.  The US President thus brazenly announced that “Google has a deal to start setting up more WiFi and broadband access on the island.”[6] In actuality, Google is doing more than this; the search giant also is establishing a technology center equipped with glittering new capabilities, where Cubans will be able to gain access to the “free” Internet. Obama thus offered a tantalizing taste of a modernized high-tech US capitalism, hoping that this may go down better than military force ever did to bring Cuba back into the US orbit.

Assuredly, further flashpoints of conflict will need to be addressed.  The US Congress has not given any sign of curtailing the economic blockade of Cuba that was imposed in 1962.  On the other hand, the Cuban government has insisted on an end to the US occupation of Guantanamo – a transgression on national sovereignty that has persisted since the “Spanish”-American War.  We may hope that Cuba’s leaders still possess sufficient bargaining strength to put in place safeguards and restraints against this new attempt at what, in an earlier manifestation, was called “coca-colonization.”

[1] Dan Schiller and ShinJoung Yeo, “Uncharted Territory: Cuba’s information sovereignty & US digital capital,” Information Observatory, November 19, 2015.

[2] Todd Weiss, “More U.S. Companies Line Up to Seek Sales in Cuba After Obama’s Visit,” eWeek, March 23, 2016

[3]An American Invasion,” Economist, March 26, 2016

[4] “Remarks by President Obama to the People of Cuba,” Office of the Press Secretary, March 22, 2016.

[5] ibid.

[6]Google set to expand Wifi, broadband access in Cuba, Obama tells ABC,” Reuter, March 21, 2016

 

Apple’s Public Battle

Apple is in the spotlight for having kicked off a battle against the Federal Bureau of Investigation (FBI), after the FBI demanded that Apple unlock the encrypted iPhone belonging to San Bernardino, California shooter Syed Rizwan Farook. An encrypted iPhone means that nobody is supposed to be able to have access to the data on the device – including contacts, photos, emails etc. – unless the passcode is entered. The FBI is using a 227-year-old law, the All Writs Act of 1789, as legal justification for its request. By refusing the FBI’s demand that it make available a backdoor to get around its encryption, Apple’s CEO Tim Cook picked up the torch for privacy rights. Tech industry executives and privacy advocates rallied behind him; and the U.N. High Commissioner for Human Rights, Zeid Ra’ad Al Hussein, declared that Apple should be supported for acting as a beacon for privacy and freedom of expression.[1] The case then escalated further as the FBI’s parent agency, the US Justice Department, considered whether to bring a court case against the encryption used by Facebook’s WhatsApp – the world’s largest mobile messaging service.[2]

Is the tech industry’s stand a crusade based on political principle – a relinquishment of commercial self-interest by companies that are fired with public purpose?  How may we untangle the economic and political elements that are being expressed in this legal drama?[3]

Market-Driven Privacy Right

“At Apple, your trust means everything to us,”[4] proclaims the company in its privacy statement.  By showcasing that its products are secure from government’s hands, Apple has all but stolen the motto of one of its foremost rivals: “Don’t Be Evil.”  And in fact, through the FBI case, Tim Cook is attempting to differentiate Apple’s business model from that of Google and other competitors. On several occasions, Cook has reiterated that “our business model is very straightforward: We sell great products. We don’t build a profile based on your email content or web browsing habits to sell to advertisers.”[5] While he didn’t name-check Google, his statement was unmistakably aimed at the king of search, whose business is to sell ads predicated on user data.

Google, for its part, requires full encryption for Android phones and promotes end-to-end encryption in Gmail, ads platforms and other products; and Google also retains access to copious quantities of user data to exploit for its profit making.[6] Vint Cerf, Google’s Chief Internet Evangelist, confessed that:

We couldn’t run our system if everything in it were encrypted because then we wouldn’t know which ads to show you. So this is a system that was designed around a particular business model.[7]

Yet Google, like Microsoft and several other big tech companies, had little choice after Apple took on the FBI but to join Apple’s side.[8]  Though they are exposed, because the rely so heavily on user data, the risk of appearing to be a stooge of the US government was too great.

Cook tries to emphasize that, because Apple generates a majority of its profits by selling devices, not selling ads like Google, its economic interests align the company with privacy rights. This is, however, a convenient fiction. Apple not only collects lots of personal data through its App Store, but also has acquired Twitter’s fire hose of tweets to gain commercial access to particular types of behavior- and language data. Apple also has experimented with building its own ad-based businesses, attempting to figure out ways to tap into the gigantic and lucrative ads market. It was only after a five-year effort to monetize apps and challenge Google on the mobile ads front that Apple abandoned this business.

This said, it is in Apple’s commercial self-interest to proclaim its support for privacy rights. In 2014, Apple generated more than $130 billion from the sale of its iPhones and iPads, compared to $11.8 billion for Google’s mobile search revenue during the same year. In light of this, Apple’s strategy was refocused. For both offensive and defensive purposes, it began to promote ads-blocking apps on its devices.[9] Well before the current face-off, in other words, Apple began to sell privacy as a marketing feature – exactly as the US Government has recently charged.[10] Privacy is a business strategy rather than a political principle.

That Apple is not in fact acceding to principle is evident from developments touching a different corner of its global business. At the same time that it is loudly challenging the US government, Apple is willing to dance around to please the Chinese state by agreeing to comply with government security checks on all Apple products sold in China.[11] In 2014, after being criticized for iPhone’s national security risk by the Chinese media, likewise, Apple moved its Chinese consumer data to a Chinese facility operated by state-run China Telecom.[12] But the Apple-FBI drama possesses ramifications that go beyond all of this.

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What is CFIUS?

Comes now, the news that Tsinghua, a Chinese tech company, has abandoned its $3.8 billion plan to become the largest shareholder in the U.S. data storage group, Western Digital.[1] Two months into 2016, this marks already the second time this year that a planned Chinese investment in a tech company has collapsed.[2]  In both cases, the precipitant has been the threat of action by the Committee on Foreign Investment in the United States (CFIUS).[3]

CFIUS, created by an Executive Order issued by President Ford in 1975, operates, according to a legislative report, “in relative obscurity.”[4]  Yet it is charged with a vital purpose:  to review transactions that might confer control of an existing company by a foreign interest – purportedly, to determine the prospective effect of such deals “on the national security of the United States.”[5] CFIUS was initially established in response to concern about increasing investment in American portfolio assets (Treasury securities, corporate stocks and bonds) by the Organization of Petroleum Exporting Countries (OPEC) countries.[6]

Chaired by a representative of the US Treasury and based in that Department, CFIUS is composed entirely of delegates selected from the Executive Branch.[7] It operates within the military-corporate nexus. The U.S. Department of Treasury states that “if CFIUS finds that a covered transaction presents national security risks and that other provisions of law do not provide adequate authority to address the risks, then CFIUS may enter into an agreement with, or impose conditions on, parties to mitigate such risks or may refer the case to the President for action.”[8] The mere threat of a CFIUS review often has been sufficient to put an end to an intended investment.

Which are the criteria that CFIUS relies upon to render its determinations?  What sorts of documentation does it deem to be dispositive? Does it adhere to due process procedures and norms of democratic accountability?  What conception of “security” does it follow? [9]   Why, in short, does CFIUS exist?  In the absence of answers to these basic questions, we are forced to rely on accessible documentation.

CFIUS is obligated to report to Congress annually.  However, full discussion of its activities remains secret:  only redacted versions are available to the public, and these are substantially belated.  From its most recent report, filed in 2015[10] but detailing its activities between 2009 and 2013, we glean that companies filed 480 notices of transactions that CFIUS determined were covered by its mandate. Among these, CFIUS investigated forty percent of the deals that entered its system – 193 transactions.  Its targets came from a range of industries.  More than one-third of them involved manufacturing; and an additional one-third covered companies based in finance, information, or services.  The computer and electronics subsector made up the largest portion of manufacturing notices; and the bulk of finance, information and services notices (over two-thirds of them) originated in professional, scientific and technical services – notably, computer system design; telecommunications; publishing; and data processing.  Acquisitions by investors from China accounted for the largest single share of CFIUS notices – though its attention was also drawn to transactions involving investors based in Britain, Japan, France, Canada, and Germany. Telecommunications, software, and technology transactions were among those sectors for which CFIUS’s review resulted in legally binding mitigation measures in 2013.[11]

What may we conclude?  Demonstrably, CFIUS is a major U.S. policymaker – meriting far more critical scrutiny than it has obtained.  Equally certain, CFIUS has granted a high priority to deal-making within the international information industry.  As those who keep up with the Information Observatory will recognize, information constitutes a rare growth pole in today’s depressed world economy; and CFIUS’s job has seemingly come to involve an effort to ensure that U.S. business interests retain a pole position with respect to this industry within the U.S. market.  No less evident, finally, CFIUS has been targeting China.  Going forward, the global contest to appropriate profits from information is all but certain to involve China more and more – and, again, CFIUS intends that the U.S. should retain its advantages.  CFIUS actually has played a significant background role in US tech policy for years.  The Internet equipment maker Huawei’s repeated unsuccessful attempts to penetrate the US market for network gear testify to its effectiveness.

A Committee on U.S. Foreign Investment, that is, on U.S. companies’ own deal-making outside the United States, might possess much greater relevance for the actual security of the U.S. populace than CFIUS. Under present political circumstances, of course, the establishment of such an agency seems unthinkable.  Circumstances, however, may change.

[1] Arash Massoudi, James Fontanella-Khan and Shawn Donnan, “Tsingua Pulls Western Digital Deal over US Scrutiny Fears,” Financial Times,  February 24, 2016.

[2]  See Don Weinland, Arash Massoudi and James Fontanella-Khan, “China deals collapse amid regulatory fears,” Financial Times, February 17, 2016,

[3] See James K. Jackson, The Committee on Foreign Investment in the United States (CIFUS), Congressional Research Services, February 19, 2016.

[4] Ibid.

[5] U.S. Department of the Treasury, “The Committee on Foreign Investment in the United States (CFIUS).”

[6] Jackson, “The Committee on Foreign Investment.”

[7] Consists of nine members: the Secretaries of State, Treasury, Defense, Homeland Security, Commerce, and Energy, the Attorney General, the United States Trade Representative, and the Director of the Office of Science and Technology Policy.

[8] Treasury Department, “Process Overview.”

[9] According to one legal scholar, “Neither the statute nor the implementing regulations provide a definition of “national security,” but they do contain a non-exhaustive list of factors that may be considered when determining whether a threat to national security exists. These factors include domestic production needed for projected national defense requirements, the capability and capacity of domestic industries to meet national defense requirements, the control of domestic industries and commercial activity by foreign citizens as it affects the capability and capacity of the United States to meet national security requirements, the potential effects of an acquisition on sales of military goods, equipment, or technology to countries supporting terrorism or raising proliferation concerns, and the potential effects on U.S. technological leadership in areas affecting national security.”  See George Stephanov Georgiev, “The Reformed CFIUS Regulatory Framework: Mediating Between Continued Openness to Foreign Investment and National Security,” Yale Journal on Regulation (25), 2008: 127-28.

[10] Committee on Foreign Investment in the United States, “Foreign Investment in the United States: Annual Report to Congress,” Issued February 2015.

[11] Ibid.

Cause for celebration on the 20th anniversary of the Telecom Act?

This week marks the 20th anniversary of the U.S. Telecommunications Act of 1996.  Celebrations have been sighted in and around Washington, D.C.[1]

Helpful clarification of the substance of the Telecommunications Act of 1996 was provided by Patricia Aufderheide in 1999.[2]  Ostensibly passed to support and strengthen market forces in networking, and signed into law at the height of the competition fever that had gripped the citadels of American power, the legislation was part of a more encompassing structural transition.  The early 1990s, when about ten giant local- and long distance carriers ruled U.S. networking, turned out to be the last gasp of a tightly bounded industrial giantism.  This circumscribed mode of ownership and control was, however, now rapidly supplanted. A much wider range of participants together constituted the giantism that followed:  proprietary intranets, operated by big companies based in every economic sector; content delivery networks, operated by the likes of Amazon, Google, Facebook, and Microsoft; and a scattering of huge backbone Internet providers.  One might say that capitalism in communications had been opened to capital at large.

There is little cause for celebration about this, as a quick review of the events occurring this week makes plain. Lawyers, engineers, executives and policy wonks:  these were the chief participants. Ordinary folk are as removed from these lackluster events as they were from the legislation itself.  On the dreary occasion of Congress’s vote on Public Law 104-104, if memory serves, the only praiseworthy statement came from Congressman John Conyers, a trenchant opponent.  Notable was the exceptionally strong bipartisan backing for the measure; and this was attributable to the extensive support that it gained from corporate America.  Less interesting was the parade of self-congratulatory speeches that ensued, in which legislators, lobbyists, and academic parrots declaimed on the virtues of competition.  Gas-baggery ruled.

Today’s party-ers are cast from the same mold.  They don’t seem to include many working people, let alone any trade unionists.  That’s not accidental:  these are the people whose interests were further marginalized by the Telecom Act of 1996. However, the revolving door between industry and government is spinning as fast as ever, as regulators and lobbyists exchange places.  The Center for Responsive Politics lists literally dozens of individuals who have moved between the Federal Communications Commission (FCC) and industry.[3

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U.S. Dominance Over International Communications: A Status Report

Two stories jump out this week. One concerns the Internet’s coordinating mechanism, the other the pact that enables European data to be sent to the United States.  Seemingly discrete, at a deeper level they are organically connected. The underlying issue is whether challenges to U.S. power over the system of international communications will intensify – or be shunted aside.

We have written before about the “Safe Harbor” agreement, which had governed data- transfers between Europe and the U.S. and which was struck down by the European Court of Justice three months ago because it did not offer sufficient guarantees that Europeans’ personal data were protected from eavesdropping by U.S. intelligence agencies.  Would a new pact be devised, incorporating Europeans’ demands to strengthen privacy protections? What kinds of guarantees would be supplied?

An answer is now at hand. Although the prescribed negotiating deadline passed without agreement, two days late a deal was announced.[1] The US firms escaped the obligation to store their data in European lands; while, a new “EU-US Privacy Shield,” the European Commission declared, “will provide stronger obligations on companies in the U.S. to protect the personal data of Europeans.” U.S. companies wishing to import personal data from Europe “will need to commit to robust obligations on how personal data is processed and individual rights are guaranteed.” The U.S. Department of Commerce will monitor that companies publish their commitments, which makes them enforceable under U.S. law by the US Federal Trade Commission. In addition, “any company handling human resources data from Europe has to commit to comply with decisions by European Data Protection Administrations.” E.U. citizens will have access to an ombudsman located in the United States. And, “for the first time, the US has given the EU written assurances that the access of public authorities for law enforcement and national security will be subject to clear limitations, safeguards and oversight mechanisms. These exceptions must be used only to the extent necessary and proportionate. The U.S. has ruled out indiscriminate mass surveillance on the personal data transferred to the US under the new arrangement.”[2]

We will need to see during the months ahead just what level of protection the “Privacy Shield” actually offers. What’s interesting, though, is that considerable effort needed to be expended to reach even such a seemingly minimal agreement as this.  Intense negotiations were conducted at the World Economic Forum in Davos, involving both governmental functionaries and trade groups. Satya Nadella, the CEO of Microsoft, editorialized that the Safe Harbor agreement – with its guarantee that corporations may transmit personal data from jurisdiction to jurisdiction – must be supplemented with “additional agreements, that enable privacy rights to follow data around the world.”[3]  Google, by appointing as head of its global policy unit a onetime Obama Administration negotiator known for her calm, conciliatory style, reportedly was “burying its confrontational stance” in favor of more moderate international diplomacy.[4]  Facebook publicized a report that it had commissioned, to emphasize disingenuously that the U.S. had actually become more “privacy friendly” than Europe.[5]  Transatlantic data flows are simply too important to be left to the lower echelons.

Still, the data-hogging transnationals are not yet in the clear.  Europe’s national privacy regulators are slated to release their own decision tomorrow, February 3d, on how data should be moved between the two regions. And a clamor that the EC had sold out 500 million Europeans is already audible. It is possible that some nations’ data protection authorities will prove more vigilant than their colleagues in the Commission.  Thousands of U.S. companies, rooted in every sector, will be watching – eagle-eyed, we might say. No matter which way tomorrow’s decision goes, transborder data flows will still continue to constitute a crucial point of vulnerability for corporate capital.

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Free Markets In Action

Even when it isn’t election season in the United States, there’s a lot of noise made about “the free market” and “entrepreneurialism.”  Government, goes the refrain, simply needs to stand back to let the alchemy of capitalism proceed.  Already, the new year has disclosed two small but revealing news items that clarify the actual – contrary – reality.

The first concerns driverless cars.  Much ballyhooed, the major story has been whether the transition to software-powered vehicles will be shepherded by the big automakers – or by Silicon Valley.  The news peg, as we all have learned, is “disruption”: the competitive market in action.

Not so fast.  Consider recent disclosures that the U.S. Government will “expedite regulatory guidelines for autonomous vehicles and invest in research to help bring them to market.” The Obama Administration, it turns out, has pledged no less than $4 billion in its proposed budget for the next fiscal year, “to fund research projects and infrastructure improvements tied to driverless cars.”[i]  The relationship between government regulators and corporate carmakers is aptly described as “cooperative” – including with regard to vehicle safety as the National Highway Traffic Safety Administration (NHTSA) is ready to exempt carmakers from safety standards.[ii] Are driverless cars the answer to the environmental despoliation caused by automobiles?  An open-ended and inclusive public deliberation could give us the answer.  We won’t get it.  The objective of the Obama budget item is already taken for granted:  “to accelerate the acceptance of driverless cars on U.S. roads.”[iii]

Four billion dollars isn’t what it was; still, it’s a sum that would suffice to fund a lot of college scholarships for students from poor families – 49 million people are struggling to have enough food to eat in the US according to a report from the U.S. Department of Agriculture.[iv] But the government trough remains full, instead, for the big units of corporate capital – the ones whose executives so often pontificate about free markets and the evils of big-government.

Here’s another tidbit that imparts a comparable lesson.  It turns out that billionaire Michael Dell – of the eponymous PC company – has drawn on his investment fund to purchase a dozen or so mostly small U.S. television stations since 2011. Is Dell’s purpose to enter the broadcast market, and to innovate in ways that lead to further profitable success?  Not exactly.  His investment is based on his knowledge that the airwaves – the electromagnetic frequencies – used by these small broadcasters are going to be auctioned by the U.S. Federal Communications Commission later this year – bought, and then resold to big wireless operators like AT&T.

Dell acquired this whole lot of TV station frequencies for $80 million; he might be able to resell them to the government for as much as several billion dollars.  The several stations he acquired in Pittsburgh, for example, might garner as much as $1.47 billion; the $8 million he spent on KTLN in San Rafael California might win him as much as $370.5 million from the FCC.  And, the Wall Street Journal imparts, Dell “isn’t the only spectrum speculator.”  As might be predicted, likeminded predators hail from what is euphemistically referred to as the investor community: Fortress Investment Group and the infamous Blackstone Group in particular.[v]

Why couldn’t the airwaves simply be reclaimed by the government – what we so often term “our” government?  After all, despite storms of popular protest, they were preferentially allocated to commercial broadcasters without charge.[vi]  A fair reimbursement would be Dell’s purchase price for each station. This option, however, is not deemed worthy of discussion in mainstream policy discourse. Also off-limits is that the natural resource on which broadcasting, mobile telecommunications, and satellites each depend, the electromagnetic spectrum, is being transformed into a proprietary good rather than a public resource.  Is this its best use?

Often, inequality is characterized as a condition that is inexorable.  Some are rich, some are poor:  it’s always been so.  In fact, inequality is continually extended and enlarged via routine political-economic mechanisms.  The state plays an essential role in this larger process.  In communications and information, the state endows companies with franchises and rights of way, allocates spectrum, makes supportive R&D expenditures, and contracts for services with private providers.  Boondoggling and corruption of course are regular features.  This, however, should not obscure the fundamental structural reality:  Capital needs the state, no matter how often individual capitalists may protest its supposed incursions.  That’s the lesson of these two stories – the beat goes on.

[i] Bill Vlasic, “Administration Proposes Effort on Driverless Cars,” New York Times, January 15, 2016

[ii] Allisa Walker, “Everything You Need to Know About Obama’s Autonomous Car Plan,” Gizmodo, January 21, 2016..

[iii] Mike Spector and Mike Ramsey, “U.S. Wants to Steer More Driverless Cars,” Wall Street Journal, January 15,  2016.

[iv] US Department of Agriculture Economic Services, “Food Security Status of U.S. Households in 2014.

[v] Thomas Gryta and Kate Linebaugh, “Computer Mogul Michael Dell Stand to reap Billions from FCC Auction ,” Wall Street Journal, January 19, 2016.

[vi] Robert W. McChesney, Telecommunications, Mass Media, and Democracy: The Battle for the Control of U.S. Broadcasting, 1928-1935.  New York: Oxford University Press, 1993.