Finance News

A Realistic Proposal For Taming the Facebook Goliath

Impose mandatory disclosure requirements concerning process of monetization users’ private data

Public opinion against Facebook has been growing recently, as security breaches continue to occur on its vulnerable platform. Many politicians have now realized that the company’ unprecedented power and outsized influence is an insalubrious condition for the health of a democratic republic.

No measurable progress in curtailing the power of Facebook can be made, unless politicians educate themselves about Facebook’s business practices and acknowledge the role they played in creating the threat Facebook now poses to the body-politic.

Facebook’s surreptitious business model

There is no high-tech magic or mystery underlying Facebook’s highly lucrative business model. The company attained its lofty status as a $478 billion behemoth by pilfering, manipulating and selling its customers private personal data for untold riches.

The company developed and implemented, with ruthless efficiency and a callous disregard for the security of its customers’ private data, an ingenious tech-advertising scheme, whereby users’ personal private information was harvested and misappropriated without their knowledge or consent. The data was manipulated and then transferred multiple times over, to diverse third parties for extraordinary profits. Apple CEO, Tim Cook, perhaps explained it best, when he said Facebook’s product is its customers.

Facebook had the great fortune of operating in a business environment of complete and total laissez-faire, that allowed it to implement its surreptitious and manifestly deceptive business strategy with impunity. The company’s rapid growth occurred in tandem with the maintenance of this regulatory-free environment.

Politicians helped create this unaccountable Leviathan

Regulators, and politicians were asleep at the helm while Facebook engaged in a rampant exercise of bad faith by purloining and misappropriating users’ private information with not so much as a word of disclosure about how their personal data was being leveraged by the company to earn billions of dollars. This chicanery continued unabated for over ten-years and occurred without a scintilla of disclosure to users.

The rise of Facebook will be viewed by historians as one of the greatest instances of corporate knavery and malfeasance in American history. In terms of economic power and the far-reaching scope of its influence, Facebook makes the robber barons of yesteryear, by comparison, look like lemonade stand operators.

During its rise, the company either crushed or acquired any potential competition. These predatory practices were ratified by somnolent regulators and congressional Republicans, reticent about interfering with a profitable private company’s business affairs. Little did they know their inaction would greatly facilitate Facebook’s unheralded rise.

Disrupt Facebook’s data harvesting practices

Facebook still generates over 90% of its revenue from targeted advertisements; its earnings growth is entirely dependent on its continuing ability to manipulate and freely sell users private data with limited restrictions. Any provisions that circumscribe its practice of harvesting data is inimical — if not fatal — to its bottom line. A review of Facebook’s financials during the period when it operated without scrutiny, buttresses this contention. Here are some telling numbers: Facebook’s revenue increased from $1.97 billion in 2011 to $55.8 billion through January, 2019 — a 2,729% increase. Its market capitalization increased from $6.3 billion in 2013 to $487 billion through June 1st. The price of its stock rose from $27.10 in 2013 to its current price of $164.15 — a 170% increase.

Facebook CEO, Mark Zuckerberg’s, recent comments that the company’s future lies in offering “secure,” encrypted, private communications is preposterous; as evidenced by the numbers above, the lifeblood that sustains Facebook’s operations and feeds its earnings growth rate, is harvesting its user’s private data for sale in new and beguiling ways.

Far too many Republicans have labored under the erroneous impression that regulations imposed on Facebook would place the technological supremacy of an American company at a competitive disadvantage. This specious contention is sheer nonsense. Free market conservatives must be implored to stop referring to Facebook as a “tech” company. Facebook is the world’s largest advertising platform. That’s. It. There is nothing remotely “high tech” about it.

The mystique of Facebook, somehow incorporating cutting edge technology within its business practices to bring the world together, has always been nothing more than a romantic fantasy.

Mandatory Disclosure Requirements

Imposing mandatory and adequate disclosure requirements would be highly effective at limiting Facebook’ ability to freely transfer its user’s data without their authorization. In the absence of an anti-trust action, enacting regulations that would impair Facebook’s business model is the most viable solution for circumscribing its inordinate power.

Specific regulatory provisions should be imposed that would require Facebook to disclose: how its uses customers data; identification of those to whom that data is transferred; how Facebook profits by this monetization; and that data cannot be sold without the user’s permission. The company should also be compelled to disclose that user’s private data can never be secure, either with Facebook or with third party transferees. The dirty little secret, as experience has now amply demonstrated, is that users’ private data, Facebook’s pious assertions to the contrary, is always going to be at risk.

Lastly, Facebook must be compelled to include this information on each user’s home page, in plain terms that a person of average intelligence could understand. Burying disclosure deep within multiple nested windows in the settings section is pointless and defeats the purpose of providing users with substantive information so they can make informed choices about remaining on the platform, and/or preventing the sale of their personal data.

Billion dollar fines should be assessed for non-compliance, such as those that have been levied by EU regulators against Facebook and Google recently for infractions of the GDPR. Republican members of the Federal Trade Commission must stop being timid about wielding a big stick against a company that is a mortal adversary of conservatives.

Those who question the effectiveness of mandatory disclosure requirements should review Facebook’s concerted and malevolent attempt to kill California’s new data privacy law prior to its enactment. Facebook initially resisted similar attempts by EU regulators for mandatory disclosures. European regulators are now imposing more stringent disclosure requirements, to the consternation of Facebook, who for over a decade, maintained a policy of Omerta concerning its unsavory business practices.

The scandalous lack of disclosure concerning data manipulation that suffuses the entire tech world and upon which its profits are based, is going to be one of the most significant issues that will shape the battle to reign in the tech giants.

Politicians who previously abrogated their responsibility by permitting Facebook to dominate the market, now have a chance to redeem themselves. Unless and until the dangers of Facebook’s undue power are addressed and fought on new ideological and political turf, no progress will ever be made responding to the unique socio-economic challenges posed by the unaccountable tech giants.

From my latest article in American Thinker

John Kinsellagh is a freelance writer, former financial advisor and attorney specializing in securities law. He has served over 25 years as an arbitrator for the financial services industry. He is the author of “The Mainstream Media Democratic Party Complex” and “Election 2016,” both available on Amazon. Follow him on Twitter @JohnKinsellagh. Read more of his commentary at errant

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