Rethinking Personal Data

As part of its 'midata' initiative to empower consumers, the department of Business Innovation and Skills has been consulting on a proposal to give the Secretary of State a general power that "might be exercised broadly or in a more targeted way" to compel suppliers to supply transaction data at a consumer’s request. In the interests of transparency, I've summarised my response to the consultation over on The Fine Print. As previously explained, I should disclose that I've been involved in the midata Interoperability Board from its inception in 2011.

Big Society: The Trend Continues

I must say I'm enjoying all this "Big Society" malarkey. The debate about what in the hell it means, the irony of Liverpool City Council complaining it doesn't have to fund its involvement (which is the point, after all), the claims that volunteering is in decline, the claims that volunteering is doing just fine.

Wavy Dave must be pleased that it's all travelling in the right direction.

Because the big idea in the "Big Society", if there is one, is really for the Tories to make political capital out of a number of trends that have been building and converging throughout the past decade. They know that faith in our institutions has been in decline, that various facilitators are enabling us to personalise retailing, entertainment, travel, finance, politics and now public services. They know that everyone (except investment bank executives) is focused on sustainability and how to achieve more with less. They know these trends are not going to ebb away any time soon.

But who cares if the Tories try to claim the credit? That's politics. I'm all for having more Big Society debates. The more we focus on the problems of how to deliver public services more cost-effectively and efficiently, the better.

Gen Y: Rise of The Pragmatists

On Wednesday I attended the launch of The Faith of Generation Y by Sylvia Collins-Mayo, Bob Mayo and Sally Nash, which the Daily Telegraph responded to on its front page on Monday.

Bob and Sylvie are friends (well of course, but also friends of mine), so this is a bit of a plug.

But in the course of the co-authors' presentation of some key findings, one of many interesting observations struck me in particular. Bob explained that Generation Y people are not so reactive to organised religion as their elders in Generation X, who tended to have had it forced on them as kids. Instead, Gen Y'ers are just as interested to hear what religion is and what it stands for, as any of the other spiritual messages out there. However, they aren't interested in whether the message represents the 'truth' in some dogmatic sense, but pragmatically whether it 'works'. So you will find a Gen Y person chilling out in a church because it is a chilled, spiritual place to be, rather than because he 'believes'.

Bob says this attitude is also encouraged by Gen X people as parents (and teachers?), who tend to be friends with their kids and tolerant or permissive of independence, critical thought and discussion, rather than more authoritarian or controlling as their own parents' generation tended to be.

I suspect this has at least two broad implications for all of our society's public and private institutions. First, while other research shows there has been a decline to low levels of trust in our institutions, this may be driven by and limited to Gen X'ers, as a result of the previous generations' tendency to trust in or tolerate institutions, regardless of how badly they perform. Secondly, Gen Y may be free of the emotionally reactive element of Gen X's attitude to institutions, but very focused on what those institutions stand for - what they promise - and whether those institutions 'work' or perform accordingly.

So if you thought the internet and Web 2.0 marked a revolution in personalisation, you ain't seen nothing yet.

4891: Orwell Had It Backwards

Thanks to George Orwell's Nineteen Eighty Four, and the film adaptation, most of us over 20 have grown up with the threat of an omniscient, totalitarian Big Brother looming over us.

While this is a tragic reality for the residents of a few countries, for most it is not.

Yet many of us are obsessed with our own privacy, imagining it as a defence to control by organised crime lords, governments, a "New World Order" or Facebook. Others relish the illusory voyeurism in the melodramatic Big Brother television series, and the phoney 'privacy battles' conducted between celebrities and the tabloid media by agents and public relations advisors for commercial gain.

But it is actually the overwhelming dislosure of information about ourselves that defies control by any single institution (as does the inherent unpredictability of human behaviour). The Chinese government, in particular, seems to understand this. Sharing our preferences, desires, fears and concerns (if not our birth dates and passwords) via social, retail, political and other facilitators enables us to gain greater personal control of our own lives. That process results in services adapted to our own actual or desired behaviour rather than a service provider's bottom line or a political party's dogmatic manifesto. There are literally millions of examples of this dynamic at work. But consider how:

• The UK recently opted for a coalition government amidst scaremongering by 'big media' and the major political parties.
• Newspapers complain about our 'promiscuity' when it comes to their content, and our refusal to pay for that content online.
• Sharing more personal data often results in better markets, e.g. in consumer credit.
Our networks are always changing, both within platforms and between platforms - we create new networks and still newer ones, and leave old networks very quickly.

Of course, George Orwell was writing a cautionary tale rather than necessarily predicting the future, so we at least have him to thank for a vivid image of how society must not be allowed to develop. In the meantime, we should go on sharing information about ourselves, even if only as a last defence to totalitarian control.

Image from Online Social Networking

Inverting The Institutional Narrative

Fascinating to see big charities accuse big business leaders of putting their own interests first in objecting to Labour's planned increase in National Insurance. The charities insist that their own constituents - older people, lone parents and environmental groups - are all capable of great influence on the electoral outcome and we should be focusing the debate on them.

Either way, it's ironic that NIC changes - which will affect all taxpaying individuals - are being subverted by institutions seeking to draw the electoral battle lines around their own 'vested interests', rather than the needs of individual voters.

Another example centres on the rise of Google as a force in the consumer advertising market. Newscorp claims that Google is getting a 'free ride' on Newscorp's content. Local newspapers also claim to be victims. And Europe's big Telcos recently leapt onto the bandwagon, claiming that Google is getting a 'free ride' on their networks. I guess TV and other device manufacturers and electricity companies will be the next to climb aboard.

The problem with such narratives is they ignore the 'elephant in the room' - that individuals are ultimately responsible for each wave of service provider overtaking the last. You decide what to pay and to whom, and whether to pay at all. The real complaint for Newscorp, big telecos and the like, is an internal one. They've lost sight of their role in solving consumers' problems in favour of solving their own. They have ceased to be - and ceased to be rewarded as - facilitators. Unless they can regain their role as facilitators of people's actual and desired activities, they will die the lingering death of the spurned institution.

The institutional narrative dominates in our society, yet research shows faith in our institutions has plunged over the past few decades, and we have turned to direct action and single issue campaigns as an alternative to formal politics. A Eurobarometer poll also found that only "50% of EU citizens trust their local and regional authorities, a level slightly higher than for the European Union (47%). This level of trust in the local and regional authorities is considerably higher than the level of trust in national governments or parliaments (34%)."

So, while it is dominant, the institutional narrative is also misleading. To properly understand our motives at the ballot box or in favouring the rise of email over posted letters, or internet shopping over some high street retailers, or Google over Newscorp, and where that may lead, the narratives of history and current affairs - and of the future - need to be told from the bottom up, not the top down.

Simple, Low Cost Financial Services

It's been helter skelter this month, so no time to post. But a recent financial regulatory conversation has prompted me to draw together the threads from a number of earlier posts this year.

The current "problems" in the financial services markets - excessive fees and bonuses, lack of transparency, poorly understood products, the credit and pension crises - are, ironically, the result of existing regulation. To solve them, the clear objective of the regulatory regime should be to deliver simple, low cost financial products that are accessible to us all.

Excessive banking/investment fees, and related compensation ("fat banking"), are the result of funnelling investment opportunities and funding into a zone in which relatively few firms are permitted to operate. Of course, even within that small group of firms, there are a dominant few who get to charge even more for their services. Products become increasingly complex, less transparent and less well understood as these few firms struggle to get an edge on the 'competition' and quote 'stellar' returns, until risk becomes highly concentrated and there is actually very little effective competition at all. In this scenario, fee caps and taxes will be ineffective - the huge flows of investment funds and opportunities will always incentivise ways of getting round the curbs, or the practicalities of getting anything funded at all will sweep them away. As a result, funding costs will continue to rise, as will the incomes of the staff working for the annointed few.

One way to challenge this trend is to open up the investment 'funnel', and make the financial markets accessible to us all. That in turn means vastly simplifying the process for the average individual to invest/save in a fully diversified way. To meet that challenge, successful investment firms would have to race each other to demystify and simplify the funding/investment experience. Today, even 'thin' intermediaries, like discount brokers, still leave too much work to be done for the average person to engage with the financial markets. We speak of 'fund supermarkets', but these are Bond Street boutiques, not Sainsbury's.

Diversification is critical yet remains a black art. The list of asset classes is long, yet most assets cannot be invested in by the average person, even by putting money in the hands of managers who can invest more widely. All sorts of rules, policies and other restrictions limit the extent to which individuals as well as pension and other fund managers can diversify, and this must necessarily affect (and correlate) their performance. So our regulatory regime actually prohibits diversification, and creates a scenario where too many investors effectively adopt the same or very similar investment strategies. Instead, we need to make it very cheap and easy for each of us to 'buy' non-correlated assets from all asset classes so we don't blow our long-term savings on the same bunch of poorly-informed investments.

Individuals have spent the past decade using the internet to gain control of many consumer experiences, from holidays to entertainment. Low cost 'facilitators' have allowed us to unbundle flights and hotels, music tracks and other one-size-fits-all products to create our own personalised, lower cost alternatives. Similarly, we should be striving to produce a financial services market in which any person can add individual stocks and shares to a shopping cart that tells them the extent to which the selection is high risk and poorly diversified, either on its own or when compared to the buyer's existing portfolio.

Effectively pegging firms' reputations to their ability to estimate risk in this way, rather than generate 'stellar' short term returns on complex products, would in turn act as a further constraint on complexity and poor risk management.

Ethical Funding: The Death of 'Fat' Banking

It's just cost Yell Group £80 million in fees to secure £660 million in funding. Apparently this is because there are over 300 lenders involved. So I guess you could say it cost about £284,000 per lender.

At the other end of the spectrum, over at Zopa, borrowers pay £118.50 to borrow directly from hundreds of people at the same time, with no bank in the middle.

Somewhere in there is the real cost of enabling people and businesses to obtain funding. And the longer the banks continue to insist on such enormous rewards for their role, the harder others will try to remove them from the process, or otherwise curb their perceived excesses.

Since steering Zopa through the maze of financial regulation, I've become aware of many others who are also implementing alternative funding strategies that take banks out of the process. It's complex and time-consuming, but less so now that starving advisers are starkly aware of their own need to provide a faster, more cost-effective service in this area. Recent figures reveal that Ireland and Luxembourg are reaping the rewards.

The fact that I can't really discuss these alternative funding sources without interfering with their marketing obligations underscores why the banks are able to charge such high fees.

Intensive regulation - ironically designed to protect the financial system and taxpayers from the kind of events we've seen occur regardless - has funneled the world's investment funds and opportunities into a cloistered environment in which only a privileged few are trusted to connect them. Enormous rewards for those few are simply a bi-product of that regulatory framework. It is unsurprising that those rewards should remain high as the flow of investment capital runs dry in the face of intensifying demand from cash-strapped banks and corporations.

So there is further irony in the European Commission's plans to regulate the alternative investment markets. This should simply concentrate the number of intermediaries who can arrange funding, allowing them to increase their fees, yet fail to deliver any incremental protection from the risk of financial failure.

The attack on 'excessive' fees and bonuses actually challenges the notion that matching investment capital and investment opportunities should be reserved for an anointed few. To remove the fat, you need to turn the situation on its head. The authorities should be fostering (not necessarily regulating) the growth of simplified, transparent marketplaces that are substantially open to all, linking investors and issuers of stocks and bonds in a direct sense, albeit still facilitated by skilled, lean operators.

Such a process of simplification, with increased openness and transparency, is entirely consistent with the rise of directly accessible consumer marketplaces for consumer goods, travel, betting, entertainment, personal finance and trade finance during the past decade. In those marketplaces, the role of the facilitator has been to enable consumers to seize control of their own experience and keep much more of the value that was previously retained by 'traditional' product providers.

In this sense, the "democratisation" of the financial markets may be seen as very much a logical step, rather than anything terribly radical. It will be important to get the rules right - just as that has been critical to the success of many other consumer platforms already out there. But openness, fairness, transparency, and both governments' and taxpayers' determination to get out of this mess, ought to be reliable guides.

Why She Buys

Interesting tips from a book Why She Buys, by Bridget Brennan, posted on the Amazon Payments blog:

• don't hide your customer service number


• simple checkout process


• use trusted payment methods, confirm orders/shipment immediately by email


• have a decent returns policy


• recommend complementary items


• show examples of gifts


• allow zoom on product shots


• keep your site clutter-free


• be transparent about shipping costs

Reminds me of some research that challenged the idea that women aren't comfortable with technology. As others have pointed out that, sure it should be stylish, but it also has to work simply. That means minimising the need for instructions and cables like spaghetti.

Intel also found that women are very influential when it comes to the gadgets guys buy, and even spend more time online gaming than young men.

Oh, and check out GeekSugar, 'where geek is chic'. Hat-tip to AllWomensWeekend.

Music To My Ears

"Music has always been a matter of energy to me, a question of Fuel. Sentimental people call it Inspiration, but what they really mean is Fuel. I have always needed fuel. I am a serious consumer. On some nights I still believe that a car with the gas needle on empty can run about fifty more miles if you have the right music very loud on the radio." (Hunter S. Thompson, Kingdom of Fear)

Here are a few short playlists I'll be updating. You'll need to create and log-in to your own Spotify account to play them.

General:

http://open.spotify.com/user/sdjohns/playlist/6OHa58YlOVwHX61LyxrSgO

Blues:

http://open.spotify.com/user/sdjohns/playlist/18gCxm6JjY6Vq1QkiwWTgO

Acid Jazz:

http://open.spotify.com/user/sdjohns/playlist/5nluXO9035KNAicyxg2iD3

Conspicuous Thrift - Your 5 New Consumer Tactics

Hat-tip to none other than EU Commissioner Meglena Kuneva, whose recent post alerted me to the report of the McKinsey Global Institute on our highly effective responses to the credit crunch, at least as consumers.

McKinsey reports that a third of the decline in Eurozone GDP in Q4 2008 was the result of reduced consumer spending. That's particularly signicant because consumer spending was the single largest factor fueling GDP growth during 2002-07.

They say our spending is driven by confidence, incomes, wealth, the availability of credit and cost of living. All these currently point downward, though the cost of living is obviously less of a problem as prices fall in line with declining demand.

The McKinsey report suggests our savings are a function the type of items we target for savings, the type of consumers we are (discussed below) and the tactic we choose (replace items only when needed, control spending, do-it-yourself, seek value and shop smarter).

McKinsey also say that a "cheap is chic refrain" has inspired the 'do it yourself' tactic. This is more confirmation that the Age of Conspicuous Thrift has dawned. This may also be shorthand for moral or ethical choices - 'green' sentiment and the 'counter-Veblen' effect ("preferences for goods increasing as their price falls, over and above the traditional supply and demand effect, due to conspicuous thrift amongst some consumers"). Do The Green Thing, for example, lists seven tactics for leading a greener life:

"1. You get from A to B without any C when you Walk The Walk
2. It’s delicious but it causes more CO2 than cars so go Easy On The Meat
3. Resist the urge to buy the latest and Stick With What You Got
4. Turn down the central heating and turn up the Human Heat
5. The art of wasting nothing and using up everything: All-Consuming
6. Instead of jetting your way around the world, Stay Grounded
7. Don’t leave it on or even put it on, Plug Out"

What type of items are we targeting for the most savings?

McKinsey say that of all spending categories, eating out has taken the biggest hit. Interestingly, however, electronic gadgets rank 13th on average - we'd rather an iPhone than a fancy meal. But if incomes drop by 20% gadgets rise to the 6th most likely to be cut. The least likely area to target for savings is insurance - perhaps reflecting higher anxiety about what the future holds.

What type of consumer are you? What are you tactics?

The report finds there are 4 consumer types: "party's over", "domestic downsizers", "food scrooges" and "basic bargainers". Of all categories, most people are "party's over" types and these have the largest impact on all spending (especially eating out, clothes, booze and fags). The other consumer types cut back more selectively using specific tactics. For example, "domestic downsizers" target equipment (cars, electronics and home furnishings) by 'replacing only when needed' and make 45% of their total savings on holidays, by simply controlling their spending. Electronic goods tend to fall prey to people engaged in 'controlled spending' and 'shopping smarter'.

What's the message to businesses?

Retailers will have to think carefully about how their offerings may fall victim to these tactics. McKinsey suggests assisting people to budget, pricing competitively and transparently, highlighting usage costs, incentivising the purchase of replacements, less wasteful packaging and promoting home-use/assembly of products. Those selling consumer equipment and holidays in the UK would do well to diversify into insurance, utilities, education or groceries.

I was in a chain store today, and the cashier left her station to take me to the shelves where I could get a 2-for-one item and add something else to cut my overall bill. I was stunned. But in a good way. I'll go back there.

Digital Britain

I should start my take on the "Digital Britain report" by making one thing clear: the fact that the government has issued the report is itself a Good Thing. The government does have a role to play in fostering and facilitating the growth of the digital world.

In that respect, the most important message in the whole document is this:

"We are at a tipping point in relation to the online world. It is moving from conferring advantage on those who are in it to conferring active disadvantage on those who are without, whether in children’s homework access to keep up with their peers, to offers and discounts, lower utility bills, access to information and access to public services. Despite that increasing disadvantage there are several obstacles facing those that are off-line: availability, affordability, capability and relevance."

However, the terrible news is that the detail of the report is merely a cascade of top-down recommendations to institutional problems, rather than a genuine attempt to clear the obstacles to every one of us seizing control of our dealings with government, banks, utilities, broadcasters and others.

Take the word "relevance" in the above quote, and consider the following passage that Technollama has extracted:

“The popularity of X-Factor and Britain’s Got Talent shows the enduring drawing power of content-creating talent that few people possess. The digital world allows more of that talent to find its way to more consumers and admirers than ever before. But it is not wholly democratic: some have the talent to create content; many others do not. As throughout history, there need to be workable mechanisms to ensure that content-creators are rewarded for their talent and endeavour. And the need for investor confidence is key. User generated videos can be hugely popular, but there remains a healthy appetite for big movies costing many millions to produce.”

It's a sad reflection on the government's understanding of digital Britain, that "X-Factor" and "Britain's Got Talent" are not only seen as "relevant", but also epitomise Britain's "content-creating talent". It is deeply insidious for the government to claim that the digital world is "not wholly democratic". This is view of the online world is simply false. The digital world is much, much more important, relevant and creative than is suggested, and hugely democratic - much more so than this government would like. Television and user-generated video platforms are merely a part of a co-operative mix of many different types of web site that are increasingly inter-linked and intertwined, enabling access to a huge range of content in different formats from different people at different times on different platforms and networks, depending on where people are and what they're doing. "X-Factor" is just one pixel on a much larger screen.

So let's not allow a few television shows to be the Trojan horse for a bunch of protectionist measures for Britain's beleaguered entertainment institutions.

Just because television has "gone digital", does not mean that TV content is a proxy or yardstick for all digital content. Similarly, the fact that a few record companies have made uncorroborated guesses that they'll make £1bn less in CD sales over the next 5 years, must not colour our view of file-sharing or distract us from understanding the value of Net Neutrality. Their digital music sales increased by 28% in 2007, after all. And they aren't the only people relying on the digital media to release music. Furthermore, several studies on the impact of file-sharing appear to negate the assertion that file-sharing adversely affects creativity.

It is great that the government has demonstrated a willingness to foster the growth of digital Britain. But it is also extremely disappointing that the "vision" is for us all to be glued to a screen watching wannabes singing other people's songs.

FYI, I've extracted the government's proposed "Actions" below, and may comment in more detail on some of them later:

• The Government will look to Ofcom to formalise the Consortium of Stakeholders to drive a new National Plan for Digital Participation.


• The Government will ask the Consumer Expert Group to consult and report on the specific issues confronting people with disabilities’ use of the Internet in Digital Britain.


• The Government will write to the Channel 4 Board asking it how it can further contribute to driving Digital Participation.


• In order to ensure the delivery of the Universal Service Commitment, we will establish a delivery body – the Network Design and Procurement Group – at arm’s length from central Government.


• The Caio Report recommended relaxation of regulations on the installation of overhead lines to lower deployment costs.The Government proposes to launch a consultation, by Summer 2009, on the impact of any amendment to the Code governing this.


• The Government intends to consult on the proposal for a general supplement on all fixed copper lines for a Next Generation Fund.


• The Government will have an independently produced guiding technical arbitration on the timing and cost of 900 refarming (and other related issues), paid for by an industry fund.


• The Government will work with manufacturers so that vehicles sold with a radio are digitally enabled by the end of 2013.


• On Digital Radio, the Government has asked Ofcom to consult on a new map of mini-regions.


• Alongside the Digital Britain Final Report the Government is publishing a community radio consultation seeking views on changes to the current licensing regime.


• Alongside the Digital Britain Final Report, the Government is consulting on a proposal to legislate to give Ofcom a duty to take steps to reduce copyright infringement.


• The Intellectual Property Office is considering the scope to amend the copyright exceptions regime in areas such as distance learning and the preservation of archive material and intends to announce a consultation on these later this year.


• The Government launched its copyright strategy


• The Government intends to consult on legislative reform in respect of orphan works.


• The Technology Strategy Board will lead and coordinate the necessary investment for Next Generation Digital Test Beds and has allocated an initial budget for £10m for this purpose.


• The Government will consult openly on the option of a Contained Contestable Element of the Television Licence Fee, carrying forward the current ring-fenced element for the Digital Switchover Help Scheme and Marketing (c.3.5% of the Licence Fee) after 2013.


• We will take the views of the Channel 4 Board on the draft updated statutory remit for C4 Corporation as set out in this Report.


• The OFT will amend its guidance to ensure that in cases relating to local and regional newspaper mergers raising prima facie competition issues the OFT will ask Ofcom to provide them with a Local Media Assessment.


• The Government is inviting the Audit Commission to undertake an inquiry into the practice of local authorities taking paid advertising to support information sheets.


• Commercial public service broadcasting liberalisation, including regional news, analogue licences and advertising minutage


• The Technology Strategy Board has assigned an initial budget of £30 million to advance Digital Britain related innovation.


• The Government will carry out a major test in late 2009 of our ability to manage and recover from a major loss of network capacity.


• The Information Commissioner’s Office plans to consult later this year on a new code of practice in relation to “Personal Information Online”.


• The Government will consult on the penalties that Ofcom is able to impose for contraventions of the Communications Act 2003 and, in particular, the level of the fine it can impose in relation to persistent misuse cases.


• Led by the Contact Council, chaired by the Cabinet Office, Government will take forward proposals for developing a Digital Switchover of Public Services Programme starting in 2012.


• We propose that DCMS, BIS and Ofcom carry out an assessment, to be completed by the end of this year, of the opportunity for bringing together some or all of the delivery agencies either into one body or through a federated structure to achieve economies of scale and greater operational efficiency.

Event Promo: Role of Social Media in Financial Services

On 16 June, the Financial Services Club is hosting a discussion about the role of social media in financial services. A senior central bank spokesperson commented that the event should be of special interest to banks:

If you wish to attend, members should register here and non-members should register here. Non members are invited to attend this and other events at the special rate of £95.00, plus vat, refundable if the individual subsequently becomes a member of the Club. Drinks and canapés are included and there will be an opportunity to network.

The Story of Zopa

Giles Andrews, Zopa's Managing Director, explains how the social lending marketplace evolved. Hat-tip to P2P-Banking.

Giles Andrews from Zopa from The IPA on Vimeo.

Travels in the Blogosphere

It's been a mad week, with my spare time absorbed by an article on the behavioural targeting of internet advertising and responding to a cascade of blogs. Highlights being:

• commenting on Dave's report on SEPA's 50 year plan;



• observing the link between the "Bauman-esque negotiation between moral ideals and the problems and needs of everyday life" and sustainable capitalism;



• debunking the notion of "mass personalisation", which is about as oxymoronic as you can get;



• cheering the Tories' promise to make legislation more accessible, and wondering what on earth the recently re-labelled "Digital Engagement Team" at the Cabinet Office has been doing;



• pushing for publication of MPs and Peers' expenses at mySociety, writing to my MP and wondering what on earth the recently re-labelled "Digital Engagement Team" at the Cabinet Office has been doing;



• and of course eagerly awaiting Blawg Review #214.

I've also updated my own posts on:

• Swinegate;



• Something Decent to Read; and



• Coping with the risk of a spike in mortgage rates.

I suspect that's enough havoc for one week, but I reckon there's more to come...

Private Sheriffs in Cyberspace, Counter-Regulation

Last night I attended the lecture by Professor Jonathan Zittrain on "The Future of the Internet: Private Sheriffs in Cyberspace", organised by the SCL organised in collaboration with the The Oxford Internet Institute. Jonathan is a Professor at Harvard Law School, Co-Founder and Faculty Director of the Berkman Center for Internet & Society, a great intellect and a fabulous speaker.

As the title suggests, Jonathan was highlighting the role of private rule-makers in the development of Internet-based services. Helpfully, he suggested a quadrant on which you can place rule-making for all scenarios. On the vertical plane, one considers whether rules are decided "top-down" by a dictator or small group of individuals, or evolve bottom-up amongst all interested participants. On the horizontal plane, one considers whether the rules are handed down and enforced via a single hierarchy or via a polyarchy of different people or agencies. I've re-drawn it here for the purposes of discussion, and hope Jonathan doesn't mind:

You can plot various examples on the chart, with a totalitarian regime being in the upper left corner, and Wikipedia being in the lower right.

Interestingly, Jonathan suggests that the likes of Google, Apple and Facebook are top-down rule makers, because their site terms and policies are all decided by the company and not the users of their services, albeit those companies tend to be very responsive to bottom-up pressures. He cites the exclusion of certain lawful, though potentially offensive, applications from the iPhone and Facebook platforms as examples of decisions that might not be consistent with previous decisions, nor deemed constitutional in the public environment. He queries whether, in time, these might result in some alternate form of regulation and considers what that might entail.

My sense is that this scenario is not quite so clear cut, since the evolution of services or platforms provided by those companies (read iPhone apps in the case of Apple) seems primarily based on user participation, feedback and complaint, rather than board or departmental decision-making. I'm not even sure that, when push comes to shove, those companies necessarily triumph. There are significant instances where - to their enduring credit - each of those companies backed down and modified services and terms in the face of widespread user vitriol.

However, it is true that in general terms, at least before push comes to shove, such firms are the 'sheriff' of their own platforms. And it is conceivable that there could be a substantial gap in time, and a significant amount of individual consumer detriment - mild or otherwise - before any arbitrary, inconsistent or harmful exercise of corporate discretion is corrected by some kind of mass user "action". But of course this phenomenon occurs even in the context of highly regulated businesses all the time - e.g. retail financial services, as Financial Ombudsman statistics demonstrate. Offline retailers and distributors also decide not to distribute certain products on their own whim, or due to informal pressure from certain interest groups.

So the responsiveness of a service provider to its users, and the legality of its behaviour, does not seem to be a function of how that service provider or its services are regulated. But is users' trust or faith in the provider a function of the type of regulation that applies to the service?

Jonathan looks at various models for keeping the private sheriffs honest, e.g. vicarious liability for harmful material of which the service provider is on notice (see PanGloss), public law constraints on municipal authorities and 'due process' requirements. But, crucially, he points out that when users start to feel powerless they look to top-down bodies for help - i.e. towards the top left of the quadrant - when perhaps the online world is demonstrating there are more trustworthy solutions to the lower left and right. To the lower left, Jonathan cites the adherence to the robots.txt exclusion standard, whereby researchers effectively agree not to interrogate certain parts of web publisher's domains. To the lower right, he cites the broad editorial body of interested participants in Wikipedia. Either solution might be safer than entrusting control to, say, government institutions that think nothing of bending or breaking the law under the guise of detecting crime, or the vague notion of "national security".

And here's the crux of the problem. When does a trusted service provider suddenly cease to be trusted to make and enforce its own rules?

To me, this seems to me to be answered by whether the service provider is perceived to be acting in its own interests or that of its users - or when it loses its "human effect", as I think Jonathan put it in answer to a different question. Here, the Wikipedia example is an interesting one. As Jonathan noted there is a constant preoccupation amongst the Wikipedia editorial community about what Wikipedia is and what it means to be a Wikipedian. This has also been touched on in the context of brands striving to be facilitators rather than institutions. Is this human element necessary for rule-makers and service providers to preserve users' trust in them?

As I've mentioned previously in a wider context, the rise of Web 2.0 facilitators that have enabled us to seize control of many of our own retail, political and other personal experiences has been accompanied by a plunge in our faith in our society's institutions. Are they causally related, or inter-related?

In this context, it is interesting to consider a shining example of a service provider and rule-maker that has utterly lost its way, and our respect: the UK's own House of Commons. Weeks of attention on MPs' excessive expense claims - widely viewed as a proxy for their attitude to the taxpayer generally - has forced the nation's legislators to reconsider how they themselves should be governed. And it's worth noting that much of that attention has been brought to bear via the Internet. Ironically, and in line with Jonathan's observation about where we look to when we feel powerless, the MPs are looking to the upper left quadrant in suggesting yet another Quango as an external regulator of their activities - a so-called "Parliamentary Standards Authority". That such a body needs to exist raises huge questions about the ethics of the body it is supposed to supervise.

But who on earth should comprise the members of such an authority? How could it bring about a positive change in the attitude of MPs to us, their constituents?

Which brings us to the notion that the private sheriffs of cyberspace may have a lot to teach their 'real world' counterparts about what it means to act in the interests of their users in order to retain their trust. This is a notion that I explored in an article for the SCL in May 2006, entitled "Counter-regulation" - a term I used to describe when the law requires offline businesses to implement the benefits of successful online business models. So, to borrow from Jonathan, perhaps MPs should be looking to the lower left and right of the rule-making quadrant for an alternative regulatory solution that could begin to restore a human element and raise the level of our faith in Parliament. And maybe our suspicion of Quangos as merely a means to reward government supporters with a nice cushy job would also be eased if the Quango in question comprised a very large, active group of UK taxpayers.

Phorm Town Meeting

By the end of Phorm's "2nd Town Hall Meeting" it became obvious that the company is still trying to launch a product with both hands tied behind its back.

It's structure means that Phorm's online behavioural advertising service will only be successful if internet service providers implement it, then successfully market it to individual users, advertisers and web site owners. At that point, the company says, advertisers will experience less wastage in advertising spend, content owners will find it easier to monetise content, web site owners can charge more for space, and end-users will see more relevant ads as they browse.

Exactly what this means in commercial terms is naturally unclear. And Phorm rightly points out that it would be wrong for it to release the details of ISPs' trials or take-up incentives likely to be offered to ISPs' customers, at least until the ISPs are good.. and... ready..... to...... launch....... After 7 years of development, Phorm says it has learned to be patient - a revolution in the internet space.

It seems fairly pointless to have public meetings to talk about offering "choice" when you have no product in the market and the meat of your proposition is under wraps for commercial or regulatory reasons. Nevertheless, Phorm chose the opportunity to engage in further damage limitation on the privacy front and to set the commercial context for its service with a rundown on the online advertisting market.

All the legal points have been made on the privacy front, and don't bear repeating here - though I'll summarise them at the SCL's Information Governance conference. Phorm seems to think they've all gone away, or will be made to go away by launch. Network opt-out was mentioned. Network opt-in is preferred, as is a way to block the service altogether, so that I don't need to store either their opt-in or opt-out cookies. Having to choose whether to store Phorm's opt-in or opt-out cookies is only a choice about how you use Phorm's service, not a choice between using its service and not. Phorm says the current cookie practices are less transparent than its own service will be. From a user standpoint this doesn't deal with the point that I can choose not to go to certain sites, and to clear their cookies selectively, but I can't as readily avoid Phorm's service - or choose to use it on some sites and not others - if it's being run at the ISP level. That "choice" doesn't feel very personalised at all, and personalisation is at the heart of how the web is developing. Phorm asks why the likes of [Google and Facebook] don't have "town meetings" to explain their privacy policies and settings, but I can't think of a venue big enough - and of course they do constantly explain and respond to privacy queries from their massive, global communities in a very public way, online, where everyone can participate.

Phorm also appears to be creating some kind of moral panic by saying that it is part of the solution to preserving the humble newspaper - not to mention journalistic integrity. Shock, horror: journalists are apparently being asked to insert certain keywords in their stories to help attract the right traffic to their newspaper's online ads. Apparently, if Phorm were implemented and used by [everybody] content publishers would not [have to] do this. But the newspapers I read from time to time don't seem all that averse to coupling themes and stories with advertising in their offline manifestations, so it's hardly the end of the world as we know it. And I don't see how newspapers can escape people's desire to see their content unbundled any more than the record companies could. Their challenge is to keep innovating, as Eric Schmidt told US newspapers yesterday. Phorm suggests that the major ad service operators (Google, Facebook et al) aren't entitled to their current or growing flows of advertising revenues. The market will no doubt decide, but this suggestion ignores how those companies finance their own core businesses, which millions and millions of people clearly find very compelling - apparently more so than limited bundles of "news". It also ignores the importance of search and online communities for newspapers' content, not to mention ad deals.

Ulimately, comparisons with Google and Facebook highlight the fact that Phorm is not a bottom-up phenomenon. It's something that will only happen if big telecoms providers say so, and that collides with the Web 2.0 ethos. This, coupled with the Orwellian privacy issues - whether real or perceived - makes Phorm's marketing job very much harder.

Beware Pleas Based on Moral Panic

William Patry made this excellent point in tonight's SCL Annual Lecture, specifically in connection with proposals to extend further the term of copyright: political appeals based on  moral panic are most often made where there is asymmetry in the information available: criminal law and copyright law being key examples. There is no evidence from the other side - the alleged perpetrator - unlike in cases where two sets of industry players are pitted against one another, which usually produces hard evidence pointing in each direction (e.g. competition law disputes). So the way is clear for, say, the security agencies or copyright owners to appeal for protection merely because it is "right and just" rather than to protect against any proven harm.

Such pleas may ultimately be futile, of course. Attempts by the music industry to deny access to music downloads neither prevented the rise of Napster and iTunes, nor prevented the steady demise of EMI. As I've also mentioned before, the root cause of music industry disruption is consumer dissatisfaction, not copyright violation.

William Patry's suggestion is to insist on an empirical approach to the issue of whether or not the copyright regime works, rather than a continued assumption that it's a property right that deserves protection at any cost. Only then will a proportionate response emerge. I share the view that in all regulatory matters - like business process issues - one must first define the problem and ascertain its scale before deciding whether or not to devote precious state resources to resolving it. At that point, legislators should insist on finding the root causes and implementing the best solutions to tackle them.

Attempts at providing empirical evidence on these issues in the file-sharing context, for example, have been pathetic. Claims that music providers will lose £1bn in CD sales over the next 5 years are disingenuous when their digital sales are increasing at the rate of 28% a year. And where is the evidence that extending the term of copyright will result in more copyright works that will yield satisfactory incomes for creators? Is it not possible that shortening the copyright term would result in a far greater volume of sales for more artists at lower prices to consumers?

The people should be told before any further extension to copyright is granted.

What Does "Sustainable Capitalism" Mean To You?

The latest series of stock market plunges has signalled capitulation by the last of the diehard, old-school capitalists. We've seen significant dividend cuts amongst old faithfuls. The chairman of a major bank has finally conceded that he can't also feasibly chair a major reinsurer, and the Financial Times has launched "Capitalismblog", the first post of which is "A Survival Plan for Capitalism".

This suggests we're moving through the 'acceptance' phase of the Credit Crunch "change curve", and starting to figure out how to adapt to a changed economy.

So what is the new reality, and how can each of us adapt to it?

Clues emerge from a number of converging trends:

• Politically, we still buy New Labour's twist on Thatcherite capitalism - it's okay for everyone (not just a some people, Madge) to make money, so long as it's not at the expense of people on lower incomes. But we've now learned that this too can be overdone. Mightily. So, we're hastily adding the words "within reason" and trying to figure out what that really means. But we are far from entering a new age of conservatism, or attempting to maintain the status quo (we're in a hole!). And we are certainly not keen on the ugly notion of a "no-growth economy". Nor should the desire to steady the financial system, by nationalising the banks if necessary, be seen as a vote for a centrally-planned economy or the mass redistribution of wealth from rich to poor. If anything, the rhetoric is for a return to consumerism in an effort to get people to at least buy something. But what? And for how much?
• As previously noted, this political process has coincided with a plunge in faith in society's institutions during the past 30 years, yet an increase in our political awareness and informal political action. The recent Eurobarometer poll on the subject found that only "50% of EU citizens trust their local and regional authorities, a level slightly higher than for the European Union (47%). This level of trust in the local and regional authorities is considerably higher than the level of trust in national governments or parliaments (34%)." With trust levels so low we aren't likely to look to have much faith in the authorties' efforts to sort all this out, and Gordon hasn't helped in the UK by prematurely claiming he'd saved the world.
• Similarly, we've seen the rise of lean, technology-based facilitators who've enabled us to wrest control of our own personal affairs from the one-size fits all experience offered by the likes of music labels, book publishers, retailers, package holiday operators, banks and political parties. Such platforms and marketplaces are based on rules that promote openness, fairness, and transparency, and these principles could extend to the democratisation of the financial markets, now that the individual taxpayer has a seat at the table.
• Two corollaries of the last two trends are that leadership in the new economy is a bottom-up dynamic and brands need to facilitate rather than dictate to their customers.
• I've also previously suggested that we've entered the Age of Conspicuous Thrift, in which our preferences for certain goods will increase as their price falls, over and above the traditional supply and demand effect. This partly stems from financial necessity, but also from a desire to demonstrate that we are savvy, pragmatic, authentic and environmentally aware. As opposed to Madoff investors. In essence, this signals a commitment to sustainability rather than merely consumption, although chasing prices to zero might ultimately prove counter-productive.
• Of course, I would love to point to low cost government as a trend, but ministers and officials seem incapable of either preventing structural waste (initiating stupid projects) or improving operational efficiency. We suffer from the same top-down thinking here, as we do in the financial services industry. Here, too, only bottom-up pressure from the participants will drive change - as it has done to some degree with MPs expenses.

The term "sustainable capitalism" itself encompasses many aspects of these trends.John Ikerd's book deserves a mention, and Al Gore and David Blood use the term in a global, macro-economic sense, backed by a sophisticated grass-roots programme. However, a Google search reveals that at least the debate over the meaning of the phrase is transcending the champagne and canapes at Davos - 'normal' people are really discussing and wrestling with the concept of living sustainably.

How all this looks and feel to you on a personal level is going to vary enormously. My own personal economic journey suggests that if you're in denial about any of these trends, you'll need a new mindset to get comfortable in the new economy.

For me, that change in mindset evolved in stages from one of a fairly integrated cog in the corporate wheel in 1996, to thorough disillusionment in early 2004, to a fairly confident "myself as a business" outlook from August 2005. Each of us is an entrepreneur, as Reid Hoffman recently pointed out - thanks, Wendy. This marked a transformation from pressing my nose against the glass of Jaguar and Mercedes showrooms, to taking some satisfaction in the plan to drive a lesser marque until the wheels fall off. I still enjoy a decent glass of wine and even the odd cigar, but I've also focused on the 7 lifestyle aspects identified by Green Thing as helpful to the environment.

As with most consumer choices, apparent inconsistencies from this perspective are actually driven by rational concerns from other standpoints. I won't be buying an electric sports car, because the core proposition is still "speed", which feels too self-indulgent today. In fact, the pragmatist in me feels okay with the notion that many UK speed limits will be reduced from 60 to 50 mph - the first such change since 1978. Speed doesn't matter so much in a world where we work longer and harder, communication is instantaneous, and the UK roads are basically parking lots. Similarly, I ride to work on a motorcycle not because it goes fast, but because I can squeeze past all the parked cars, eliminate variation from the trip and use my time more efficiently. My fast, "green", electric sports car would just sit around in the traffic.

But enough from me. What sort of journey does "sustainable capitalism" mean for you?

The Leadership Crisis Is Ours To Resolve

Paul Moore's recent evidence to the Treasury Select Committee reveals the kind of top-down culture in the UK financial system that explains not only rampant over-expansion and the financial chicanery that went with it, but also arrogant, self-interested foot-dragging over such things as slow payments, mis-selling of PPI, acceptance of falsely self-declared income on mortgage applications and allegedly excessive bank charges. Intensive regulatory activity, checks and balances aimed at preserving the banks has not been enough to save them. For this, the very taxpayers who are poorly served as consumers must now pay.

After a string of CEO departures, the resignation of Sir James Crosby from his post as Deputy Chairman of the FSA, and with the "blame" now lying at the door of the man who was Chancellor through it all, there is no doubt we are in the midst of a leadership crisis.

But what lies in store for us once the "old guard" has gone? Who are the new leaders? Will their leadership improve?

Leadership is a rather nebulous concept. Over centuries, people have literally died trying to define it by reference to specific character traits, sundry personal qualities, types of behaviour, situational responses, functional responsibilities and so on. But regardless of whether or not leadership features all or some of these characteristics, it is ultimately a very complex, contextual, dynamic, inter-personal relationship between the purported leader and those he/she is trying to lead.

In other words, leadership is what the participants in the relationship make it, and we get the leaders we deserve.

But we know this, and we're acting on it. Our decline in faith in our institutions over the past 30 years, and the corresponding surge in political awareness, participation in informal politics, and personalisation of previously mass consumer experiences all reflect our growing individual pragmatism and our confidence in acting on it from the bottom-up. We have learned that great leadership is within our control because we are a fundamental part of that relationship. In essence, we are the leaders.

That is why, when Chris Skinner issued an apology to 98% of bankers for his rather apt criticism of banks, I suggested that in fact they should take his remarks personally. Because we know that as people they are not powerless. We know that great leadership will emerge when the 98% respond to the criticism, bottom-up, by forging a decent relationship with their customers, putting those customers first, ahead of their managers, executives, board directors or shareholders. Only then will we see decent, sustainable profits from the finance services industry.

Democratising The Financial Markets

One of President Obama's first acts has been to berate Wall Street executives for taking the sixth largest round of bonuses in history at the taxpayers' expense.

That the US President is suddenly under public pressure to do this demonstrates not only the depth of public anger but also the gulf in public knowledge about how the financial markets work. My own perception is that intensive regulation - ironically designed to protect the financial system and the general public from the kind of risks now occurring - has funneled the world's investment funds and opportunities into a cloistered environment in which only a privileged few are trusted to connect them. Enormous rewards for those few are simply a bi-product of that regulatory outcome. And it's unsurprising that those rewards should remain high as the flow of investment capital runs dry in the face of intensifying demand from cash-strapped banks and corporations.

But all the participants in the financial system must now recognise there's a new seat at the table. While governments and central banks have always been big players in the financial markets, their new role as sole marketmaker has pulled up a chair for the taxpayer. This new player demands to know how "my money" is being used, and has the benefit of increasing media attention focused on finding that out. This in turn casts each government leader in a role similar to that of an investment banking chief executive at a perpetual AGM. Voting may be over for the US President, but now the lobbying for a multitude of special resolutions begins. For Gordon Brown, more torture awaits on both fronts.

So how can governments and their leaders escape this predicament? How can they hand off their role as marketmakers, and let the taxpayer get back to running the store?

Certainly one lever they can pull, amplified recently by Niall Ferguson, is to "de-leverage" the entire system by funding yet further bank write-offs and re-writing consumer mortgages at more affordable rates (which has happened many times in the UK sub-prime mortgage sector).

But this seems to assume the financial system will remain more or less the same. And I don't believe it will. I certainly don't believe that taxpayers will ever completely turn their backs on finance again. Indeed, as emerged at WeBank, it seems we are moved to generate a new system with a new set of rules.

The attack on 'excessive' bonuses challenges the notion that matching investment capital and investment opportunities should be a rarefied activity reserved for the anointed few. Carry that challenge through and you have a set of simplified, transparent marketplaces that are substantially open to all, in a direct sense, albeit still facilitated by a skilled few in an open and transparent way. There is already a trend in this direction with individuals spread-betting and investing in contracts for differences on various plaforms. But that's still way too sophisticated to be deemed reasonably accessible to all. A process of further simplification, with increased openness and transparency, would be entirely consistent with the development of directly accessible consumer marketplaces around facilitators in travel, auctions, retail, betting, entertainment, personal finance and trade finance markets during the past decade. In those marketplaces, the role of the facilitator has been to enable consumers to seize control of their own experience and keep much more of the value that was previously retained by suppliers.

In this sense, the "democratisation" of the financial markets may be seen as very much a logical step, rather than anything terribly radical. It will be important to get the rules right - just as that has been critical to the success of many other consumer platforms already out there. But openness, fairness, transparency, and both governments' and taxpayers' determination to get out of this mess, ought to be reliable guides.