Online magazine 2020/1 - In Focus: Tech Companies — The New Sovereigns? by Antall József Tudásközpont

IN FOCUS

2020. 1st Issue ISSN 2677-111X

Current trends

Challenges & Solutions

Prospective hazards and potentials

Tech Companiesâ&#x20AC;&#x201D;The New Sovereigns?

IN FOCUS

2020. 1st Issue ISSN 2677-111X

Tech Companiesâ&#x20AC;&#x201D;The New Sovereigns?

All rights reserved. Articles found in this publication are the intellectual property of the Antall JĂłzsef Knowledge Centre. No part of this publication may be reproduced or transmitted in any form or by any means, including photocopying, recording, or other electronic or mechanical methods, without the prior written permission of the publisher.

TABLE OF CONTENTS

6 6 Welcoming Words Words

Introduction 6 Introduction 6 Keeping Tabs onJudit Multinationals: The Next Interview with Varga, Homework for theofEU and Hungary— Minister of Justice Hungary 11 Interview with Juditup Varga, Justice Small Fish Catching withMinister the Big of Ones?: of Chances Hungary of Hungarian 11 The Small Fish Catching up withMarket— the Big Ones?: Innovation in the Global The Chances of Hungarian Innovation —Interview with Gábor Bojár, in the Global Market—Interview founder of Graphisoft and Gábor Bojár, founder of Graphisoft thewith Aquincum Institute of Technology 18 and the Aquincum Institute of Technology 18

Innovation 28 Innovation 28 The Origins of Innovation Frenzy The Origins of Innovation Frenzy 30 Hacker Culture and Open Source Hacker Source or Tech Giants or TechCulture Giants and andOpen Patent Protection— and Patent Protection—Where Real —Where Does Real Innovation Does Come From? 34 Innovation Come From? 34 Utopian Aspirations and Dystopian Utopian AspirationsNew and Dystopian Fears Concerning Media 40 Concerning New Media 40 BigFears Companies: How Their Regulation Big How Their Regulation CanCompanies: Help Innovation 48 Can Help Innovation 48 Battleground Banking—An Epic Battle Battleground Battle Where Only Banking—An One Thing IsEpic Certain: Where OnlyWill OneWin Thing Is Certain: That Clients 54 That Clients Will Win 54

States strikes 9090 States Strike Back What to toDo Dowith withFacebook Facebook 9292 What SettingaaNew NewPace—Chinese Pace—Chinese Tech Companies Setting Tech Companies and Their State 100 and TheirConnection Connection to to the the State 100 JapanvsvsSouth SouthKorea—When Korea—When Trade Interests Japan Trade Interests Collide with 106 Collide withState StateInterests Interests 106

7 Survillance on Steroids Surveillance Goodor orBad?—China’s Bad?—China’s Social Credit System Good Social Credit System Online Gatekeepers and Online Gatekeepers and the Future (and Present) theofFuture (and Present) the Democratic Public Sphere of the Democratic Public Caught in a Web—How CanSphere Legislation Help Us Caught in aPrivate Web—How Get Our Life BackCan from Social Media? Legislation Usas the New Sovereign? States or TechHelp Giants Get Our Private Life Back from Social Media? 8 States or tech giants as the new sovereign?

110 110 112 112 119 119 125 135 125 135

Antall József Knowledge Centre 138 About AJKC 138 8 Our Releases 140 Antall József Knowledge Centre 138 About AJKC 138 9 Releases Our 140 Guest Authors 142 Authors 142 Authors of the AJKC 144 Guest Authors 142 References of Pictures and Used Data 146 Authors of AJKC 144

9 10 New Old ways New–Old City States Ways of the Future— City StatesModel of the Future—A Global Model A Global or Unique Examples? or Unique Examples? Modern Reality? ChristianThalassocracy—Myth Ethics and Big Techor Giants— Christian Ethics and Big Tech Giants—A World A World Turned Upside Down, with Potentials Turned Upside Down, with Potentials The Neomedievalist Approach to Big Corporations

58 58 60 6460 64 68 7468 74

think.BDPST 2020 78 think.BDPST Conference 78 think.BDPST 2020—The Fifth Strategic Strategic Conference of Hungary Conference of Hungary in Pursuit of Innovation 8080 in Pursuit of Innovation Innovation—The History of think.BDPST, Expo,Start-Up and Youngand Leaders’ Forum 82 of Start-Up think.BDPST, Innovation Corner, and Young Leaders’ Forum 82 84 4

TABLE OF CONTENTS WELCOMING WORDS

Next Issue of Pictures and Used Data References In Focus:

162 146 150

11 Next Issue

150

WELCOMING WORDS

Dear Readers, First of all, I would like to express my gratitude to the specialists who contributed to this issue of In Focus magazine and all the participants who will come to the fifth think.BDPST conference. present issue of our our magazine magazine is is related related The present biggest annual annual conference conference of the the main main to the biggest organiser, the Antall Antall József József Knowledge Knowledge Centre, Centre, organiser, provides a forum forum for for various various actors actors from from which provides broader region, region, and the the global global Hungary, the broader thereby also also creating a bridge hubs ofofinnovation, innovation, thereby creating a between them. them. bridge between Technological advancements Technological advancements dictate dictate such such aa is hard hard for for humankind humankind to to keep keep up. up. pace that it is new yesterday yesterday might might be be considered considered What was new obsolete two weeks from its emergence. Providing obsolete two weeks from its emergence. answers to answers challengestoof challenges the environment, IT Providing of the specialists and ITscientists createand products and environment, specialists scientists innovative solutionsand at such an accelerated pace create products innovative solutions at that social sciences pace and legislation sciences that socialoftentimes such an accelerated cannot follow suit. Therefore, the digital and legislation oftentimes cannot followdivide suit. is expandingthebetween younger and older Therefore, digital the divide is expanding generations the different areas of social between theand younger and older generations sciences. We canareas ask of ourselves the following and the different social sciences. We questions: Is the newthe necessarily and safe? can ask ourselves followinggood questions: Is Do we grant too muchgood room and for giant tech the new necessarily safe? Dofirms we to access private What tools are to at grant too our much roomspace? for giant tech firms the disposal a modern “smart” state to answer access our of private space? What tools are at thesedisposal questions? is the limit beyond which the of What a modern “smart” state to we are nothese longerquestions? willing to sacrifi ce our personal answer What is the limit success for the sake general good and the beyond which we of aretheno longer willing to public? Naturally, theresuccess are negative as sake well as sacrifice our personal for the of positive aspects to every thus, it isNaturally, essential the general good and issue, the public? to findare a balance pros andaspects cons in there negativebetween as well the as positive order to be ablethus, to better grasp the tochanges to every issue, it is essential find a

balance between the pros and cons in order to be able to better grasp the changes taking place around us. The purpose of this In Focus issue, as well as think.BDPST, is to find such a balance and present it to an interested and attuned audience. Finding the desired balance is much easier, of course, if we follow a role model. The Republic of Singapore is at the forefront of digitalisation, while Central Europe, or the whole of Europe, for that matter, seems to be lagging behind. According to the Global Innovation Index 2019, Singapore is the eighth most innovative nation in the world and the taking us. to, Theand purpose of this In first in place Asia. around Listening learning from, Focus issue,ofashow well this as think.BDPST, to find the story once poor iscountry such a balance andstate present to an interested became a wealthy and itone of the global and attuned audience. all the while building on centres of innovation, Enjoy the magazine, and I hope to see all of you the knowledge acquired, is an experience at think.BDPST on 1–2 October. integral to our 2020 understanding and creation of such a balance. Veronikato Antall-Horváth That is why I am very proud welcome Singapore as the guest country ofDeputy this Director year’s Antall József Knowledge Centre conference.

WELCOMING WORDS

INTRODUCTION

How Tech Giants Make Their Billions Breaking down the revenue streams of tech's largest companies, 2018

$1,9M

Apple

$1,6M

Facebook

$1,3M

Alphabet

$1,2M

VeriSign

$1,1M

Visa

$906K

Mastercard

$843K

Broadcom

$785K

Lam Research

$772K

Qualcomm

$748K

Microsoft

$694K

Applied Materials

$688K

Activision Blizzard

$684K

Cisco

$640K

Xilinx

$608K

Yahoo

TOP 20 PayPalTECH TOP 20 TECH Intuit $594K COMPANIES COMPANIES Intel $560K BY REVENUEBY REVENUE KLA-Tencor $535K PER EMPLOYEE PER EMPLOYEE, $599K

$521K

AMD

2017

KEEPING TABS ON MULTINATIONALS: THE NEXT HOMEWORK FOR THE EU AND HUNGARYINTERVIEW WITH JUDIT VARGA, MINISTER OF JUSTICE OF HUNGARY Zsombor Szabolcs Pál, February 2020, Budapest

This summer, on a panel at Sziget Festival, you promised to set up a technological working group to draw up legislation on tech companies. What are the latest developments on this topic, and what is to be expected in the coming months? The question whether we will be able to control technology or whether technology will dominate our lives, does no longer belong to the realm of fantasy. Social media not only collects and analyses our personal data and our habits but also influences them. A lot of experience has accumulated in recent years with regard to global online activities that are not related to specific countries and to their regulatory background. This new experience calls for the revision of the regulations. That is

why I thought it necessary to review these issues. As promised, the Ministry of Justice initially set up the Digital Freedom Working Group (DSZM) to make the operation of transnational technology companies transparent. We named the working group “Digital Freedom” because we want the most important democratic core values to be reflected in the operation of such companies. Apart from transparency, these core values include accountability and the abolition of the predominant liberal ideological censorship in order to enable freedom of expression in the digital space, regardless of wealth, colour, gender, religion, or political affiliation. We want to ensure that, while privacy is protected, freedom of expression is not compromised. DSZM’s investigation includes the entire online space, covering any activity on any interface. With the help of the relevant state authorities, we have summarised the issues that emerged in a White Paper. We have created a website where we published this White Paper and where interested citizens may make comments to it. We also make the minutes of the DSZM’s thematic meetings available here and provide an opportunity for citizens to respond to the results. We are organising an international conference in May called “Freedom of Expression in the Era of Digitalization” to discuss each topic in depth. What are the main fields this working group is focussing on, and what is the number-one priority on your agenda? We want to look at the law enforcement practices of websites, since it is not clear and transparent how the operators of social network sites deal and process data related to users, nor the way in which statements of individuals are reviewed. INTRODUCTION

THE BASIC PROBLEM WITH FAKE NEWS IS THAT EVEN ITS CONCEPT HAS NOT YET BEEN CLEARLY DEFINED. FOR EXAMPLE, THERE IS NO DECISION ON WHETHER ONLY INFORMATION FROM EXTERNAL OR EVEN FROM INTERNAL SOURCES WOULD BE CONSIDERED AS FAKE NEWS. The White Paper identified the following issues: freedom of expression, protection of privacy, data protection, media regulation, taxation, copyright, criminal justice enforcement, child protection, and the digital sovereignty of tech companies. Why do you think it is a relevant topic today? Information sharing is increasingly shifting from traditional communication channels to virtual interfaces. As long as social media is politically neutral, the risk of abuse is low. The situation immediately becomes alarming, however, when social media intentionally intervenes in the private life of citizens, which we see nowadays on several occasions. In addition to the personal information we knowingly share (name, date of birth, education), social media stores all important information about us based on our shares and likes: our party 12

INTRODUCTION

membership, our organisational affiliations, our family status, our citizenship, our income range. To make matters worse, tech giants can release our digital personal information en masse, even if by negligence. A telling example is the Cambridge Analytica scandal, when the political consulting firm had unauthorised access to the personal information of 87 million Facebook users and the psychological profiles generated by their activities. In addition to our basic information, the algorithms generated by our online activities make it easy for particular social media companies to determine who are politically active and who are uncertain in their preference. The algorithms constantly monitor how users respond to content, and learn more about their preferences. Each time a person or page you know or follow publishes new content, the algorithms decide whether or not it should be displayed to you. Since algorithms are difficult to understand for an average person, users are often unaware of the criteria by which their newsfeed is compiled. This can also have serious consequences if a tech company decides to interfere in elections. The danger lies not only in mobilising insecure voters but also in misusing information to deliberately manipulate voters’ political decisions with “random” content in newsfeeds. At the same time, content providers are free to decide where the limits of freedom of expression lie. So the question arises: Who watches the watchers, that is, who controls the big companies operating social media platforms? Do you intend to deal with fake news? How should they be curbed without risking that the legislation on this matter may be abused by a nefarious actor in the future? There is no uniform regulation on fake news either at EU level or in Hungary. In the EU, the issue of fake news came to the forefront at the time of the 2018 European Parliament elections. In order not to influence the elections, the European Commission adopted a package on the basis of which member states set up their working groups on fake news. After the elections, these groups generally merged with governmental centres dealing with hybrid threats. These centres are also responsible for tracking fake news endangering

the internal security of the state and for raising awareness of specific issues in general and also among professional target groups. As far as fake news is concerned, the centres mainly focus on spreading information, so they do not censor content or delete anything from the internet. The basic problem also with fake news is that even its concept has not yet been clearly defined. For example, there is no decision on whether only information from external or even from internal sources would be considered as fake news. In other words, what happens when a member state spreads fake news about another member state? Is it possible for the Commission to intervene, to delete such content from social media by following the rules of the Code of Conduct or only if the fake news originates from a third country outside the EU? Member states often do not want to decide what is true and what is fake news, what may be considered a reliable source and what may not; they rely on external sources, fact-checking sites, or NGOs. For the time being, therefore, social media is governed by its own rules. The European Commission has developed the abovementioned Code of Conduct which online organisations can voluntarily observe. Where is the boundary between freedom of speech and what tech companies can display on their services? I think that, as in most cases, even here we do not have to reinvent the wheel. Even in the traditional press, freedom of speech has its established limitations. These can also be customised to social media. However, there are two aspects to this issue: copyright and moral, ethical considerations. As far as copyright is concerned, I believe that the Digital Single Market (DSM) Directive will adequately address this issue. In principle, the use of copyrighted works is subject to licensing, which entails the obligation to pay royalties. The Directive obliges member states to support creators of both traditional works and creative derivative works (such as walkthroughs, parody dubs, montages, memes) as follows. Content providers are required to obtain a license to use the content uploaded by users and to distribute it to the public. However, if

the content distributor proves to have done everything in its power to obtain the license but has not succeeded, it is obliged to filter content, with some exceptions including quotes, criticism, reviews, parody, etc. For these exceptions, service providers have to set up an effective and fast redress mechanism where users can indicate that they disagree with the removal of the content they have uploaded. Thus, decisions concerning the censoring or removal of uploaded content must be subject to human review, and legal disputes must ultimately be resolved at court. Moral considerations are much harder to grasp. Here, both the rules of criminal law and the ethics of the written press should apply. Of course, it should not be possible to display hateful content; however, in our experience, social media, which represent largely left-liberal values, interpret the terms too freely and even consider the expression of conservative–Christian national ideology as extremist. By way of an example, according to Facebook, nationalism, separatism, and white supremacy overlap to such an extent that it is almost impossible to distinguish between them. A Munich court ruled in January this year that, by deleting an entry citing Viktor Orbán and removing the related profile, Facebook had gone too far, as the post was non-offensive and, thus, subject to free expression. Still, in our country, we regularly encounter cases where right-wing journalists are suspended from social media sites or content is deleted without further explanation. Is a small sovereign state powerful enough to solve all these problems? Are you looking for partners in Europe, Brussels, or worldwide? In this respect, I follow the principle of “think globally, act locally.” Of course, the EU level is important because, for example, even if a giant company withdrew services from certain member states because of the digital tax, it would probably not be in its interest to do so on a European scale. The EU represents such a large market and such a strong economic interest that it may constitute a more effective means of exerting pressure. At this year’s summit in Davos, the issue was already brought to the table by the Americans and the French, who are the primary advocates INTRODUCTION

of taxing GAFA (Google, Apple, Facebook, Amazon). For the time being, I believe that the French would postpone the introduction of the tax, while the Americans would suspend the imposition of penalty tariffs in return. Earlier, however, EU Internal Market Commissioner Thierry Breton said: “It is not for Europe to adapt to GAFA but for them to adapt to Europe. That’s how things are going to happen now.” So far, it seems that this is a very complex issue, the tax aspect of which is only one of the many regulatory areas. Of course, we will determine which country’s regulations are closest to the Hungarian interests and look for allies accordingly. This is why we are organising an international conference where we will have the opportunity to personally consult experts from around the world. Do you view the present European context opportune for promoting the Hungarian plans or having an impact on EU legislation? Yes, I do. Each revision gives us the opportunity to pursue our interests when renegotiating the terms. This is especially true now in competition law. It seems that the whole of Europe is interested in this issue. For many decades, competition law has not seen such a strong reflection that the digital economy has generated. In the European Union, governments and competition authorities have been demanding revisions of the current rules, starting with the German–French–Italian–Polish manifestos or the joint memorandum of the Benelux competition authorities. There is a general fear that competition law is too slow and cumbersome to keep up with large technology companies and prevent them from further increasing their advantage in market competition, for example, by killer acquisitions and extorting business conditions disadvantageous to the others. We also see internet content providers gaining an unfair advantage and paying significantly less tax than what their economic and political role would warrant. Europe wants to redress this injustice, but we have not really figured out the methods. However, we need to address the issue now so that we can assert Hungary’s interests in the final regulation. Equally important is the issue of data protection, which the average consumer is increasingly aware 14

INTRODUCTION

of. Everyone experiences first-hand that they have no practical influence over who may use their personal information and for what purposes. In my opinion, EU copyright legislation is going in the right direction. The DSM Directive ensures harmony between the parties, effectively seeking to establish the responsibility and to reduce the hegemony of online content providers. We would also like to take steps, however, in all the other matters in order to clarify the Hungarian position as soon as possible, which we can successfully represent internationally. If we do so, we may be able to influence European legislation. What do you think about the taxation of tech companies? Hungary is committed to the fair taxation of large tech companies, but the way forward would be to work out a comprehensive solution based on international consensus. Until it is reached within the OECD, we might be able to work with a transitional solution which might also give impetus to the work of the OECD. However, in the long run, we would not in any way consider a corporate tax solution solely applicable in the EU member states to be beneficial, as it would risk losing all the economic activities of the companies concerned within the EU. The Hungarian advertising tax is a particularly important example in this regard: it is noteworthy that the Union is currently working to introduce a digital service tax very similar to our advertising tax which the Juncker Commission suspended on a discriminatory and political basis, saying that it was regarded as state subsidy incompatible with the internal market. The Court of Justice of the European Union, however, annulled the Commission’s decision to that effect. We hope that the European Court of Justice will also have a favourable ruling at the end of the year, stating that revenue-based, staggered progressive taxes are in line with EU law. What do you think of the EU’s recent legislation on tech companies, and how do you relate to them (e.g., DSM, GDPR)? We have already briefly discussed the DSM Directive and taxation. In terms of copyright, it is also important that the artists (authors) it aims to protect have suffered the hegemony of tech

giants since the advent of these market players. Most tech giants are regarded as intermediary service providers, so they only have limited liability, while they generate significant amounts of revenue from making the uploaded content available instead of the authors. The DSM Directive aims, among others, to eliminate this inequality by enforcing the liability of tech giants, removing it from the protection of e-commerce provisions, and creating a more equitable share of corporate revenues for authors, thus breaking the hegemony of tech giants. In December 2019, a social consultation was carried out regarding the transposition of the two copyright directives, the DSM and the SatCab Directives, with the coordination of the Ministry of Justice and the participation of the National Intellectual Property Office. During the consultation, we discussed the specific provisions of the Directives. Almost all interest groups and major market actors participated in the workshops. We are currently processing the comments and suggestions raised during the consultation. The supremacy of data in our society is well illustrated by the fact that data protection is no longer considered in isolation but also in the context of other branches of law. This is inevitable, since we now live in a so-called data-driven economy. Therefore, how companies handle and collect our data has economic significance and can be evaluated not only from a data protection but also from a competition law aspect. Such was the case with Facebook’s competition proceedings before the German competition authority (BKartA). BKartA found that Facebook, a dominant company in the social media market with its 95% market share, abused its market power by forcing users to accept terms that allowed the company to link data collected on other services in its portfolio with the data collected on Facebook profiles. In digital markets, it is often the case that a privacy breach can also be considered as an uncompetitive behaviour. BKartA confirmed that by collecting data that was not verifiable under the GDPR—which constitutes a privacy breach—Facebook was enforcing unfair contract terms, which constitutes an abuse of a dominant position.

EDUCATION IS ALSO IMPORTANT IN TRAINING RESPONSIBLE CITIZENS WHO CAN EQUALLY DISTINGUISH BETWEEN GOOD AND BAD, USEFUL AND HARMFUL. HENCE, THEY WILL BE ABLE TO AVOID BEING MANIPULATED BY UNKNOWN ALGORITHMS. The Hungarian Competition Authority (HCA) has ruled against Google that it misled consumers through non-GDPR compliant information— which is a privacy breach—and, thereby, Google also violated competition law. The HCA has also imposed the highest fine so far of HUF 1.2 billion on one of the Big Four, Facebook. The competition authority has virtually reaffirmed the principle that if you do not seem to be paying for a service, you yourself are the service: on 6 December 2019, the HCA ruled that Facebook had misled consumers by promoting its service as free of charge. Although consumers did not have to pay a fee for using the service, they generated profit for the company with their user activity and data and, thus, paid for the service. Do you think that EU’s competitiveness can be restored by legal means, and if yes, how? A common characteristic of giant tech companies is that their service portfolio is extremely wide and INTRODUCTION

HUNGARY IS COMMITTED TO THE FAIR TAXATION OF LARGE TECH COMPANIES, BUT THE WAY FORWARD WOULD BE TO WORK OUT A COMPREHENSIVE SOLUTION BASED ON INTERNATIONAL CONSENSUS. interconnected, which renders them unavoidable in the virtual world, and, also, that they have virtually infinite financial resources. From a competition law perspective, it is important that these companies primarily operate in so-called digital markets. Digital markets work differently from “traditional” material commodity markets because the value of the service is primarily reflected in the number of users on the platform (the so-called network effect): the more people use it, and the more data there is, the greater the market power of the company is, operating the platform. Therefore, companies that have been on the market for a long time and/or are wellknown have a competitive advantage over other new entrants. The EU should deal with this competitive situation. It would be premature to identify regulatory directions, but currently the following options are taking shape: a) treating social media as traditional mass media; b) splitting tech giants by means of US-originated antitrust measures; c) extending the territorial scope and constitutional regulations of nation states to cover social media activities; d) taking firmer legal action against censors to 16

INTRODUCTION

enforce the constitutional rights of freedom of expression and opinion; e) imposing a GAFA-tax; and f) creating a European, or perhaps a national, version of social media—although its popularity is questionable. The working group will also explore how to address the challenges posed by tech giants on a national level in case the EU is unable to respond to them in a timely and effective manner. In today’s globalised world, is it possible to regulate big companies at all, even on an EU level? There have also been attempts by, for example, Margrethe Vestager, but they have borne little fruit so far. What should be done differently? To date, tech giants have been exempt from control for two reasons. First, in their interpretation, they cannot be considered content providers because they only act as content distributors and, thus, in theory, do not engage in political activities. Data is viewed as a commodity that they do not produce. Large companies, furthermore, are subject to the principle of free movement of goods, which is one of the four freedoms in the EU. Second, national rules are area based, while tech giants are not confined to geographical space. As virtual companies move beyond the boundaries and scopes of responsibility delineated by national sovereignty, they act in an exclusive manner in their internal regulations. Apparently, they are trying to get rid of content control, leaving the task to companies with vague ownership background, who employ independent external fact checkers to censor content. This puts online media in line with traditional content providers, since they also select what they publish and who they prefer. If this is the case, however, they should also conform to the same rules without exception. Ms Vestager has acted out against tech companies very vehemently, but these procedures have been progressing extremely slowly: in the case of Google Search, an infringement case submitted in 2006 was only investigated in 2016, and a decision was made only in 2019. Today, legal application is lagging far behind the development of digital markets. It is true that heavy fines have been

imposed, but they have not beenApplication able to prevent prevent consumer damages. and consumer damages. and enforcement must beApplication accelerated inenforcement order to be must beprovide accelerated in order to be for able to provide able to effective protection consumers. effective for consumers. I find theprotection announcement by the UK Department the announcement by the Department forI find Culture also interesting thatUK social media for Culture will alsobeinteresting thatresponsible social media executives held legally for executives will be legallyway responsible for harmful content in held the same as financial harmful in “concentrate the same way financial directors content in order to theiras minds. directors in order to “concentrate their minds. Is it an apodictic reality that our citizens will Is an apodictic our citizens beitbetter off with reality all this that regulation? Afterwill all, be better allpossibilities this regulation? After all, it can leadoff to with fewer and services it can lead to fewer online. How couldpossibilities you explainand theservices future online. you voter? explainMany the future benefitsHow to ancould average might benefits to itan voter? Many might doubt that is average the state’s responsibility to doubt it is the state’sand responsibility to protectthat citizens directly, would prefer protect and would prefer the use citizens of more directly, indirect ways, like making the useinofimproving more indirect ways, like making strides people’s consciousness strides in improving people’s consciousness through, for instance, better education. through, foryou instance, better What would answer to that? education. What would you answer to that? In the early 2000s, when iWiW appeared in Hungary, everyone hoped that internet communication would promote freedom of expression, as there was no strict censorship culture on the internet. The users trusted iWiW and then Facebook, and they shared their innermost feelings, secrets, and desires without much fear. However, as the years have gone by and the political scene has changed, more and more users have complained that platforms do not only remove explicitly tasteless or illegal content, but sometimes also censor political opinions and posts; moreover, they may also delete the pages of activists, influencers, and publicists, and even ban those who stand up for them. For these reasons, trust in social media sites has declined in recent years. Without control, a new kind of “digital totalitarianism” without a proper framework may emerge, which might endanger freedom. One of the symptoms of the crisis of confidence is that fake news has become a catchphrase in the past few years, and, in the meantime, the general public has become increasingly aware that people in many areas are purposefully influenced by the media. Having regard to truly harmful threats and in order to protect freedom of expression and democratic values, we must prevent specific tech-giants

from artificially shaping public discourse without genuine rules. Social media is a doubleedged sword that platforms can use for their own sake, and, occasionally, even for political purposes, endangering the democratic nature of elections. This may result in fewer providers, but we have a right to know why, how, and by whom we are manipulated, while our personal information is compromised. In some cases, law can only respond to social processes with a considerable delay, so it is vital to create a regulatory framework that is flexible enough to respond to new challenges. Naturally, education is also important in training responsible citizens who can equally distinguish between good and bad, useful and harmful. Hence, they will be able to avoid being manipulated by unknown algorithms.

INTRODUCTION

SMALL FISH CATCHING UP WITH THE BIG ONES?: THE CHANCES OF HUNGARIAN INNOVATION IN THE GLOBAL MARKETINTERVIEW WITH GÁBOR BOJÁR, FOUNDER OF GRAPHISOFT AND THE AQUINCUM INSTITUTE OF TECHNOLOGY Tamás Péter Baranyi, Zsombor Szabolcs Pál, October 2019, Budapest

You have managed to build a global company from Hungary; moreover, you started it in the Kádár era which was anything but supportive of private businesses. What was your secret, how was it possible to break into foreign markets in those days? It was much easier than it is today. This would be the short answer. I was asked this question as early as 1989, when we opened our American office. The company had been operating for seven years then, and we had already had a perceptible market share. In that period, we got a lot of free publicity, since, back then, Hungary was an interesting story because of our pioneering role in dismantling the Iron Curtain. So the fact that a Hungarian company was present in Silicon Valley was an interesting story by itself, and journalists 18

INTRODUCTION

were swarming, too. And the question was always the same: How was it possible build a global present in Silicon Valley was an to interesting story firm in those conditions at home, from by itself, andterrible journalists were swarming, too. behind Iron Curtain, with nothe capital and no And thethe question was always same: How passports—at when the most was it possiblea time to build a global firmup-to-date in those computers were not even from available? terrible conditions at home, behindMy theusual Iron answer this no was—and it was easy, Curtain,towith capital still andis—that no passports—at and, in fact, it was for us than for our a time when the much most easier up-to-date computers colleagues in the available? Silicon Valley. this industry, were not even MyInusual answer the to secret to success is to employ talented this was—and still is—that it was easy, and,people. in fact, for us the thantalent, for ouryou colleagues That if youeasier can recruit will win. it wasis,much in thethat, Silicon Valley.customers In this industry, secret to After winning is easy.the This means success to employ talentedgraduates people. That is, if that the is battle for talented is much you can recruit the talent, you will win.The After that, fiercer than competing for customers. largest winning customers is easy. This meansisthat challenge for a Silicon Valley start-up howthe to battle for graduates fiercer than attract thetalented best talent, since is a much talented graduate competing for for customers. The and largest challenge will either go job security apply to an for a Silicon Valley start-up is their how own to attract the attractive big company or start business. talent, a talented Itbest is not likelysince that they will go to anotherwill start-up. graduate either So, start-ups find itand theapply mosttodifficult to recruit go for job security an attractive big young talent in Silicon nowIt in company or start theirValley—and own business. is Hungary, not likely too. Whenwillwegostarted the business, thisstart-ups was far that they to another start-up. So, from at difficult home, so situation really find itthe thecase most to our recruit youngwas talent in easy, young now talent no other attractive Siliconsince Valley—and in had Hungary, too. When we opportunities in Hungary. Here,farit from was athe novelty started the business, this was case to forso private companies were at work home, our situation waswhere reallybosses easy, since happy to elicit from their young talent hadthe nobest otherperformance attractive opportunities Here, ittalent was was a novelty to workand for employees, appreciated, in Hungary. where private where bosses the bestcompanies were selected—as this is were what happy makestoa elicit thebusiness. best performance their employees, private This was afrom crucial aspect, since wasyoung appreciated, best were Iwhere couldtalent employ talent inand thisthe context very selected—as this is what makes a private business. easily. This was a all crucial aspect, since I could employ In reality, the other disadvantages turned out young talent in thisWe context easily. to our advantage. did notvery have access to large

In powerful reality, allcomputers, the other so disadvantages turned and we had to make do out to oursmall advantage. WeThe did PC notrevolution have access with very machines. had to large andsopowerful computers, we had just started, this knowledge camesoextremely to makeEven do with machines. The our PC handy. the very lack small of capital became revolution had just itstarted, knowledge advantage, since forced so us this to rely on the came extremely handy. lack capital customers from the start,Even ratherthe than onofinvestors became for survival. my opinion,since the biggest problem ourInadvantage, it forced us to is stillon thethe factcustomers that there from is too the much capital on rely start, rather the market; therefore, it is In much to thancapital on investors for survival. my easier opinion, convince investors customers. Because the biggest problemthan is still the fact that there of is this, start-up companies concentrate on too much capital on the basically capital market; therefore, investors, which is really detrimental, since it isthan not it is much easier to convince investors the investor Because who is going to use the product. We customers. of this, start-up companies did not have any investors, so we were to basically concentrate on investors, whichforced is really focus on oursince customers, madewho our product detrimental, it is not which the investor is going better. to use the And,product. as for passports, We did notthey havealso anybecame investors, a huge for us. did not passport so weadvantage were forced to Ifocus onhave our acustomers, back whichthen, made but our whenproduct I received better. a letterAnd, of invitation as for to present our in Vienna, I went to the passports, theysoftware also became a huge advantage Ministry Interior for one. for us. I of didthenot have to a apply passport backThere then, was but an when oldI received comradeathere letter taking of invitation my application to present our for asoftware one-dayin exit visa.I He looked me andofsaid: Vienna, went to theatMinistry the “Of Interior course, to apply you forwill one.have There your waspassport an old comrade within a there week.” taking SomyI started application to for shower a one-day him with exit visa. my gratitude, me:“Of “You do notyou havewill to He lookedbut at he mestopped and said: course, be so your thankful, comrade; be more have passport withinwea will week.” So Ithankful started to you if you bring shower him withhard my currency gratitude,into butthe he country.” stopped So, even this to our advantage, me: eventually, “You do not have toworked be so thankful, comrade; as, when proved that to weyou could really sellhard our we will bewe more thankful if you bring software in the West, everybody in Graphisoft currency into the country.” So, eventually, even this got a passport, a rare privilege at that In worked to our advantage, as, when we time. proved addition, we could the software royalties we received that we could reallykeep sell our in the West, a passport, a rare for our software in foreigngot currency, another everybody in Graphisoft at that time. addition, wetocould keep privilege then. Now, it isInmuch harder attract the the royalties we receivedcan for our software in foreign best talent: everybody have a passport, our currency, isanother rare everybody privilege then. it to is currency convertible, can Now, choose muchon harder to attractofthe best talent:so everybody work a computer their choice, all those can have aare passport, our currency is convertible, privileges lost. everybody can choose to work on a computer of their choice, all to those privileges are lost. And, if you so had start a company today, how would you get on about it? And, you had to start a company today, Well, itifwould be really difficult. Now, I would also how wouldon you get on the about concentrate recruiting bestit? employees, but itWell, is much it would more bedifficult really difficult. today than Now,it Iwas would before. also That concentrate is why we onbuilt recruiting Graphisoft the Park. best employees, We provide an butenvironment it is much more there that difficult resemble todaySilicon than itValley. was We before. haveThat to compete is why we with built that Graphisoft place, asPark. the best We talent provide canangoenvironment and work even there therethat if they resembles want to.

IN MY OPINION, OPINION,THE THE BIGGESTPROBLEM PROBLEM BIGGEST IS STILL STILL THE THEFACT FACT THERE IS IS TOO TOO THAT THERE MUCH CAPITAL CAPITAL ON ON MUCH THE CAPITAL MARKET; THEREFORE,IT IS THEREFORE, MUCH EASIER TO IT IS MUCH EASIER CONVINCE INVESTORS TO CONVINCE THAN CUSTOMERS. INVESTORS Silicon Valley. We have to compete with that THAN CUSTOMERS. place, as the best talent can go and work even We there areif focussing they want on to. those We are talented focussing professionals on those who prefer to stay at home are looking talented professionals who but prefer to stay for at ahome Silicon environment. And I would butValley–like are looking for a Silicon Valley–like try hard to point out to if point you want environment. And this I would try them: hard to this to for a ifcompany youfor have a say in outwork to them: you wantwhere to work a company decisions, firm. Because where youcome haveto aa Hungarian say in decisions, comeif you to a Hungarian an American to agoHungarian firm. subsidiary Because ifofyou go to a company, cannot participate in thecompany, strategic Hungarianyou subsidiary of an American decisionmaking. Strategic decisions made you cannot participate in the strategicare decisionin the headquarters, not at a subsidiary making. Strategic decisions are madeabroad, in the so if you want anot sayatinathe strategy abroad, while staying headquarters, subsidiary so if the strategy while staying in in you inshould work for a Hungarian youHungary, want a say Hungary, youofshould work forofa aHungarian firm firm instead a subsidiary multinational instead of a subsidiary of a multinational company. company. This might work with Hungarians, but can you also attract foreigners with the same prospects? prospects? Graphisoft Park, With Graphisoft Park, II can attract even foreigners. For example, example, when our software foreigners. firm grew to be a really really big big global global company, company, and we needed somebody with more experience in running multinational corporations, we tried to hire an American star manager for this. It was not easy: we had to lure him away from our great competitor, while we could pay him only half of INTRODUCTION

what he made there. But we offered him a much bigger stock option, so our offer entailed that, if the company was to be successful, he would make more money. For this plan to work, he had to believe, too, that the firm was going to be successful. It was hard to convince him of this as long as we met in London and San Francisco. Eventually, we could at least convince him to come here. He looked around the Park and said that his own company did not have such a place, and, if a firm built a place like this for its employees, it would surely turn out to be successful. So this was how we convinced him. By the way, thanks to his stock option, he did make more money than if he had stayed at his former firm. So what you keep hearing in the world of start-ups, namely, that it is enough to have a good idea, is not entirely true? There are thousands of ideas, and only a few of them work. And not because the rest of them are bad, but because their originators have no perseverance that would ensure their success, and they are not flexible enough to see how to modify their original idea when they see it is not working. You have to be able to see how the market reacts and learn to refine your idea accordingly. I am often approached by young entrepreneurs who ask for my opinion about their business idea. It is not me, though, but the market who must judge. So I usually ask them who their competitors are. Eight out of ten of them answer that their idea is so brilliant and unique that no one else has thought about it so they have no competition. To which, I usually say that they should forget about it then because, if no one else offers a similar product or service, it probably means there is no demand for it. The surest sign of demand is if someone else also offers something similar. Then, you must figure out what is there that you can do better. You must survey the market and see what is on offer and how you could do that better. Your first task as an entrepreneur is to analyse yourself and find out what it is that you can do better than anyone else. Then you must find the market for it. You must learn what the market buys and why. And, if you feel you can do it better, then you should. This is 20

INTRODUCTION

THERE ARE THOUSANDS OF IDEAS, AND ONLY A FEW OF THEM WORK. AND NOT BECAUSE THE REST OF THEM ARE BAD, BUT BECAUSE THEIR ORIGINATORS HAVE NO PERSEVERANCE THAT WOULD ENSURE THEIR SUCCESS, AND THEY ARE NOT FLEXIBLE ENOUGH. the winning strategy which also worked for us. We could do 3D modelling. I had no intention to make, let us say, a new word processor because we had no reason to believe that we could make one better than Microsoft Word. Instead, we did 3D modelling and found out who needed it. We figured out what we did better than anybody else. What we were better at was that we developed for much smaller machines than others. Then we could to look for those who find this aspect important. We had endured a lot of failure along the way before we found them. First, we wanted to sell to those who were already buying traditional 3D modelling for bigger computers. We thought that, if they got it on small and cheap machines, they would certainly choose this option. As it turned out, this was not the case. Those who had the money for big and expensive computers would keep buying software for those. After a lot of trial and error, we realised that it was the architects who did not

have the money to buy big machines, only small ones, so they constituted our best market. It was not a brand new idea, since 3D architecture software had already been available, but on large computers only. Larger architecture firms had bought these, so there was evidence that the product was in demand, but small firms had no access to these machines, only to PCs. So we identified what it was that we did best, and we determined for whom it was important, as they were our target customers. Do Hungary and the region have the ability and culture for start-ups to adapt to market needs? I know of a lot of successful Hungarian software companies that have followed a very similar strategy and became successful on the global market, such as LogMeIn, Prezi, Ustream, TrezorIT, or Colorfront. There are a lot of firms that are successful globally because they know something better than the others and can sell it well. They also have something else in common: none of them has applied for or received any state subsidy. That is why they have become successful. I mean they have not become successful in spite of not receiving state subsidy but because of it. Because sometimes state subsidy is even worse than too much private capital. Too much capital can hurt because it only teaches you what investors want, so you learn how to serve their needs, not the needs of the market, although some of the investors may know about the market, too, and, therefore, they can give you useful feedback. However, the decision makers of the state have no idea about the market. So state subsidy cannot be useful, since it only teaches entrepreneurs how to get funds from the state. Nevertheless, the state can also support businesses; not with money, though, but with infrastructure and education. But if the state hands out money among businesses, it just does more harm than good. Is this practice harmful conceptually, or do states actually do it badly? States simply cannot do it well, because it is not what they are for. Today, one of the biggest problems of the global economy is that there is

too much private capital waiting to be invested, a lot more than the number of businesses with the ability to make good returns. This is made even worse by the states’ pumping out more capital in the form of subsidies instead of doing their job: developing education and the infrastructure, monitoring competition. This also costs a lot of money, so states should spend their taxpayers’ money on such things rather than handing it out among businesses. Because this way businesses will only learn how to apply for funds, not how to make marketable products. I have been invited to several committees that decided about the fate of these “support” funds. At first, I said yes, but I kept arguing that we should not give money, because it is not our job. Then I stopped accepting these invitations altogether. The point is that, even if the state has the intention to entrust competent people with deciding about these project funds, state subsidy will never be effective. I cannot decide if a product is marketable or not. Even with my own products, it was not me who made this decision, but the market did. They say Europe is lagging behind the USA because they have more capital over there. But it is not the reason. As I have said, too much capital is harmful to businesses. We could actually benefit from having no surplus capital. What really makes a difference is that, over there, people have a kind of “cowboy” mentality in their genes. The cowboy is out there on the prairie and has to survive on his own. In Europe, we are used to the state always coming to our aid as a benevolent uncle. That is why it is an important question whether we, Hungarians, have the inclination to adapt. It is not so much about adaptation. We should also plant the mentality that “God helps those who help themselves.” People should understand that they must rely on themselves first of all and not expect some divine intervention. The problem is that we expect the state to help, and that is why we are less successful. And I am talking about the whole of Europe now, not just Hungary. The state should provide the framework: legal certainty, protection against monopolies, clean competition—but they should not hand out money to businesses. INTRODUCTION

If European legislation is made for the There is profit in higher education, and there breaking of monopolies, and the European might be profit in public education, as well, Union establishes the legal framework for it, but that would come at the expense of equal to what extend do you think such legislation opportunities. Higher education and public will enhance European competitiveness? education are considerably different in this This would probably be a constructive initiative. Let respect. In higher education, companies often me give you an example of something that works establish grants for talented students, and, in this better in Europe than in the USA. In the USA, way, some level of equal opportunities is provided. software can be patented, unlike in Europe. Here, In public education, however, companies may software is protected by copyright. In the USA, you contribute to equal opportunity only in the frame can patent your software if it has some new solution. of their CSR activity, but this is substantially less This restricts competition, since it means that no than how they support higher education for their one else can come up with a similar solution. In the own selfish interest in exchange for access to USA, they say this is necessary because otherwise talented graduates. So the state must play a more it is not worth investing. But that is not the case with substantial role in the public education sector. In software, so the European solution is better, since higher education, tuition is reasonable, and there the crucial part of software development is not the can be profit and competition, so there is more idea but writing the code to realise it; that is the big room for private investment. task and it takes time. If the code is protectedâ&#x20AC;&#x201D;and it is protected by copyrightâ&#x20AC;&#x201D;it gives the originator How would you compare your own higher enough time to realise the return. Because, by education institution with North American the time the others write their own code for it, the for-profit universities? owner of the original idea will have made enough In the USA, profit-oriented colleges and money to have a return on their investment. Here, universities, which must make their private funds the code itself is protected by copyright, so it is profitable, usually provide mediocre mass education. illegal to copy it. Using a different code for the same There are no elite schools among them. They usually idea is substantial work, so the other businesses say the reason for this is that mass education is must work out the same thing in a better way, much more profitable. I do not buy that, since there which generates competition, and that is good. are premium products that are profitable in other But forbidding to make something similar restricts industries, too; it is not only mass products that can competition. But this is specific for the software make a profit. So that is why I decided to prove, at industry. Of course, in other industries, there is least on a small scale, that it is possible to run a good reason for patents to exist. For example, in profit-oriented elite university. However, I realised the pharmaceutical industry, it is relatively simple soon enough that it did not work, and I also figured to copy a ready-made molecule, but developing out why. Private elite universities are not profit and testing it requires large investment. So it is oriented but run on donations collected from rich sensible to protect a new drug molecule by patent. individuals. And there are not too many newcomers But, in the software industry, I believe, copyright is among them. That is because the success of a just fine. university is built on the careers its graduates make. And that, in turn, depends not only on the quality of You have mentioned that one of the stateâ&#x20AC;&#x2122;s the faculty but primarily on the incoming students. responsibilities would be to provide good So the most successful universities are the ones education. Is this really the job of the that can admit the best students. To attract the state? You have said several times with best applicants, they need to have an established reference to your own business venture in reputation, which is hard to compete with, since higher education that you want to prove it about 100 to 150 years are needed to build that is possible to organise and run a school in a reputation. And this is where this whole system profit-oriented way. works well for social mobility: in order to uphold its 22

INTRODUCTION

reputation, a university has an interest in attracting the best students, so, for its own business interests, it offers grants to talented students who cannot pay the tuition. With my own small school, I realised that it would be good if I could prove on an international scale that it was better than its competitors—just the way that it had worked with our software. However, I realised along the way that, although I might be able to employ very good teachers, the real challenge was to persuade talented secondaryschool graduates to apply to my school and pay for it, too, while they might even be able to get a grant at MIT, Harvard, or Princeton. Originally my idea was that the institution should be able to survive from the market by collecting tuition. This was a rather hopeless aim, so the concept was modified: I did not establish a whole university but only a programme for students studying abroad. I said to myself: “If you cannot beat them, lead them.” So, as I could not compete with the best American colleges and universities, I decided to serve them instead. That is, I would provide a niche service for them, and, if I could be the best at that, these American schools would buy this service from us rather than from others. So I identified the best American colleges and universities as my market, and I did manage to make them buy the service from me. Now we have an agreement with fifty good universities, in the framework of which their students in computer science are sent to participate in our programme as part of their compulsory study-abroad semester.

THE ABILITY OF SMALL COMPANIES TO BE SUCCESSFUL ON THE GLOBAL MARKET IS THE GREATEST ASSET OF SMALL COUNTRIES BECAUSE, IN THE ABSENCE OF A STRONG DOMESTIC MARKET, SMALL COMPANIES ARE FORCED TO SELL THEIR PRODUCTS IN COUNTRIES WITH DIFFERENT CULTURES AT AN EARLY STAGE.

You mentioned several times that your school is more market oriented than others. But the need of the market today can be substantially different than it will be when the students graduate. Isn’t it dangerous to focus on the momentary need of the market? When I say “market oriented” I do not mean to focus on the momentary requirements of companies, because it can change really quickly. We are focussing on bridging the chasm between academy and business. The key performance indicators in academy are the number of publications, impact factor, scientific prizes, etc. In one word: peer appreciation. In the world of business, however, the key performance indicator is the appreciation from the lay users. This is a

huge chasm, and, if the engineering graduates inherit a mentality from their faculty to focus on peer appreciation, then they will design products that can be effectively used by other engineers only. This is why the world has so many products that are terribly difficult to use. We want to complement the science education with this kind of market mentality in order to enable engineering graduates to design really easy to use products. By means of your study programme, you have ample opportunities to meet Hungarian and international students, as well. In your opinion, what are the differences and similarities between them? Do Hungarian students live up to international standards? INTRODUCTION

You have repeatedly stated that the current, so-called “fourth” industrial revolution is an opportunity for our region to break out of its peripheral position and catch up with the core countries. Would you still say this is the case? I still think that the IT revolution is bringing a tremendous transformation worldwide. In this transformation, Hungary and Central Europe could have a huge advantage if our leaders just took the opportunity. But, for the time being, I can see no such initiative. Where would this advantage lie? Well, what made Western Europe rich? The discovery of America, when trade shifted to the world seas, and when nations good at navigation began to colonise. And then colonisation motivated the Industrial Revolution, and the colonisers became very rich. Today, the seas are not as important as they were a few hundred years ago, and the knowledge of navigation is not so much of an advantage anymore. Everything happens on the internet, and those who are good at mathematics can do better online because mathematics is the foundation of informatics. Our mathematical knowledge and tradition may serve as a cultural advantage similar to the nautical tradition at the time of the great We do understand that the secret of discoveries. And, with good leaders, we may be We do understand that the secret of success of a university is the ability to able to profit from this, similarly to how Elizabeth I success of a university is the ability to attract the best talents from high schools. discovered the potential in navigation for England. If attract the best talents from high schools. But, in order to do it, they still need the she had not built a fleet, England would not have But, order to it, they needteachers the best become a world power. So there is a need for leaders best in faculty, asdo well. Whatstill makes faculty, as well. What makes teachers and who recognise the opportunity and adapt their and professors good? professors good? You are right, the quality of education depends politics and infrastructure to it. That is, our leaders You areteachers right, the of education depends should invest in the education of mathematics—just on the as quality well. That is why the teaching on the teachers well.attractive, That is why the teaching profession mustas be financially, as like Elizabeth I invested in shipbuilding. profession attractive, financially, as well, but notmust only be financially. Ethically, too, but well, but not only financially. Ethically, too, but not only ethically. It must be attractive as a job So would you say the advantage of the not onlyteachers ethically. have It must attractive as a job Western countries in this area does not lie so that thebe opportunity to work so that teachers have the opportunity to work in the concentration of capital? creatively. Much greater freedom must be given creatively. Much greater freedom must be given to In this case, capital does not play such a significant to teachers. Hungary is also a good place teachers. Hungary is also a good place because because teaching mathematics has a long role. In the first wave, the winners of the discoveries teaching mathematics has always a long tradition tradition here, and it has been of here, high were the Spanish, not the English. Later, however, and it has always been of high standard thanks standard thanks to our geographic position and the English also realised that they had something to to our geographic position served and history, since do in this area: they could sail like the Spanish, and history, since mathematics as a stable mathematics as language a stable ground andfora they would be able to defeat them; all they had to ground and aserved common to rely on common language to rely oncame for allinto the contact various do was to build a smarter navy. They did defeat the all the various cultures that cultures camehere. into contact with one another Spanish eventually. The situation is the same now; with onethat another here. in those days, England was just as much behind

They absolutely absolutely do; the the problem problem is is that that there there are are They not enough of them coming here, as this this is is an an extra burden for them. them. American American students students have have to spend a semester abroad, so so they they choose choose us as the best place for them, apart from apart from the the fact that Budapest Budapest is is aa very very attractive attractive city— city— obviously, this aspect also plays plays a huge part part in their decision. It is different in their decision. It is different for for Hungarian Hungarian students: they they attend students: attend their their own own university, university, and and they can also take courses here at same the same they can also take courses here at the time. time.it But it is extra for them, though But is extra work work for them, even even though they they receive credits herethey thatcan they can transfer receive credits here that transfer to their to their own university. But because they have own university. But because they have to travel to travel to the other side of the city, it is such to the other side of the city, it is such a burden a burden for they themwill that not take it. that? And for them that notthey takewill it. And why is why is that? Because they can get a job without Because they can get a job without this extra this extra work, as companies arehire quick to after hire work, as companies are quick to them of study with the present them after three years three years of study with the present shortage shortage of software developers in Hungary. of software developers in Hungary. However, However, the ones who make the extra effort the ones who make the extra effort and come and come to our courses are good, very good, to our courses are good, very good, actually. actually. We do have some success stories We do have some success stories in which our in which our Hungarian students started a Hungarian students started a business with their business with their American fellow students, American fellow students, and they achieved and they achieved success together. success together.

INTRODUCTION

IF YOU CAN RECRUIT THE TALENT, YOU WILL WIN. AFTER THAT, WINNING CUSTOMERS IS EASY. THIS MEANS THAT THE BATTLE FOR TALENTED GRADUATES IS MUCH FIERCER THAN COMPETING FOR CUSTOMERS.

domesticBut market. bytoadapting to the markets. we areThus, forced do so, since weglobal have no domestic market. adapting to thesmaller global market, we could beThus, moreby successful with market, we could be more successful smaller companies. Of course, this is not thewith case with companies. Of course, thislarge is not the case have with large companies, because companies largemarketing companies, because large companies have the power and credibility to establish “global standards,” andand theycredibility do not need to adapt the marketing power to establish to cultural differences. However, the ability of “global standards,” and they do not need to adapt small companies to be successful on theofglobal to cultural differences. However, the ability small market is the greatest assetonofthe small countries companies to be successful global market because, in theasset absence of acountries strong domestic is the greatest of small because, market, small companies are forced to sellsmall their in the absence of a strong domestic market, products in countries at an companies are forcedwith to different sell theircultures products in early stage. countries with different cultures at an early stage.

Is it not often the case that, although a good idea appears on the local market in a small country, American companies can still dominate much of the world market by conquering their own large local market with a very similar idea? For example, Facebook, having its own large market in the background, was able to overtake other similar local sites, such as the Hungarian iWiW. Spain as we are now behind Western Europe. This is what the European Union is for, and why Even if we are not the first movers, we can be we think in terms of the EU market, since a truly the winners in the TheWestern first movers have to single internal European market can compete Spain as we are nowend. behind Europe. Even experience many and a the lot of dead with the American domestic market in terms of if we are not the firstthings movers, we face can be winners ends theirmovers successors learn. size. But, indeed, it is a considerable advantage in thefrom end.which The first have can to experience many things and face a lot of dead ends from which for American companies that, right from the start, Is it not contradictory that while everything— they can work for a huge domestic market of their successors can learn. companies themselves included—is becoming three hundred million customers. If the European more and more global, competitiveness is market was truly united—as it is not there yet—we Is it not contradictory that while everything— a local matter, depending on local politics? companies themselves included—is becoming would also be able to immediately think in terms I thinkand globalisation could also benefit small more more global, competitiveness is a of a market of five hundred million buyers. This countries, maybe better on than America. local matter, depending local politics?While could be an even bigger market than the United is still could an inevitable of States has, but it would require much greater IAmerica think globalisation also benefitbeneficiary small countries, globalisation, in theAmerica. American economy, maybe better than While Americaasis well still unity, for which we should give up a much larger as in the world, the role of of globalisation, small and mediuman inevitable beneficiary in the chunk of our sovereignty. For example, we do sized enterprises comparison American economy, is as increasing well as in theinworld, the role have a common currency, but this would also with multinational corporations. And we are much require a common financial policy in which the of small and medium-sized enterprises is increasing better than the Americans in making small And and countries would be subordinated to a common in comparison with multinational corporations. medium-sized companies competitive global EU budget. The legal system, the regulations, and we are much better than the Americanson in amaking scale. and Because American small and medium-sized small medium-sized companies competitive the tax system should also be much more uniform. American and A European federal tax would also be needed, to companies spoiled by their huge small domestic on a global are scale. Because medium-sized companies by their huge market, and, as a result, are theyspoiled primarily focus on be paid not by the member states but the people domestic and, a result, they markets. primarily so that they could feel they belong there. Taxes it without market, the need to as adapt to other focus it without thedoneed to adapt to other But weonare forced to so, since we have no should be broken down to the level of taxpayers INTRODUCTION

PEOPLE SHOULD UNDERSTAND THAT THEY MUST RELY ON THEMSELVES FIRST OF ALL AND NOT EXPECT SOME DIVINE INTERVENTION. THE PROBLEM IS THAT WE EXPECT THE STATE TO HELP, AND THAT IS WHY WE ARE LESS SUCCESSFUL. AND I AM TALKING ABOUT THE WHOLE OF EUROPE NOW. in order to enhance their sense of a common EU identity because, at the moment, people do not really feel part of the European Union. In other words, we should do more things together in order to be economically competitive with America. In the meantime, China is also catching up. There is an even bigger internal market there, so we are not only at a disadvantage to America but also to China, because there is no real unity yet in the Union. Do you find it problematic that global technology companies are often taking on state roles? Of course, I do find it extremely dangerous. The role of the state is to represent the public. It is what the state does, whereas a private company must always represent a private interest. And there is nothing wrong with that. However, every time the 26

INTRODUCTION

public interest has to be represented, the active role of the state is inevitable. I basically believe in liberal economic policy, but there is one thing I am very conservative about: I believe in a very strong state. I do not at all share the liberal view that the state must be weak and withdraw from everywhere. Let the state be strong and fulfil its duties powerfully and well. But it should not appear in areas it has nothing to do with. For example, it should not act as a competitor in a competitive marketâ&#x20AC;&#x201D;but as a regulator in order to ensure that competition is fair, and monopolies cannot abuse their competitive advantage. This task is very complicated and requires a strong state to fulfil. In conclusion, I believe in a strong state that makes smart rules and enforces them competently. And do you think the state should break the monopoly of big tech companies? Yes, I think it absolutely should. From my own area, I can give an example of how big tech companies can abuse their market power and how the state can intervene and help. Our competitor is Autodesk, a US company that generates a multibillion-dollar turnover. Autodesk became an absolute global market leader with its AutoCAD product because everyone uses AutoCAD. Autodesk was able to foreclose competition and prevent new players from entering the market by protecting its proprietary data format as intellectual property. This means that anyone who could not draw in this format might as well have given up on the market because they could not exchange data with others. However, the US competition authority eventually ordered Autodesk to make their format public, thereby facilitating competition. A slightly similar but perhaps more accessible, earlier example is the case of telephone exchanges. Initially, several telephone exchanges were established, and they began to compete with each other. At that time, networks were closed, which means that subscribers could talk to each other only within their own networkâ&#x20AC;&#x201D;but not with subscribers of other networks. So those operators that could gain advantage by having more subscribers were soon gaining a monopoly, as more and more subscribers chose them because they wanted to talk to more people. This, in turn, excluded competition. However, the state that regulated competition made

it compulsory for the companies to open their networks to other operators. Competition can thus be maintained by such steps, as otherwise the firm with the competitive advantage may rely on tools that enable it to forestall further competition. And, when that happens, no one wins, because there is no quality without competition. Let me give you another example of how bad even a natural monopoly can be. Landline telecommunication networks still constitute a major advantage for their owners, and competition among them is still not as strong as, say, among mobile phone companies. As a result, a landline phone is not nearly as “smart” as a mobile phone. It could be, if the companies were up to it, but they are not, because there is no real competition in landline networks. But will the breaking of the big US monopolies for the sake of creating a fair domestic market not give China—a country notorious for taking intellectual property rights lightly—a bigger advantage than desirable? Protectionism is not really effective in solving economic problems, and maintaining monopolies for that reason would be a sort of protectionism. If you try to protect your own economy with such a measure, it might help for a while, but not in the long run. What helps in the long run is to be competitive and make better products than your competitors. Of course, there are two sides to every coin. If China does not act in the same way as the United States, then things will work unilaterally and trade wars like the present one will sometimes become inevitable. In the end, however, there is usually an agreement between the parties. It would be best if there was some worldwide regulation for such things. If Europe were united, it would have a bigger say in putting a regulation like this in place.

Searching with Google has already transformed our lives to a much greater extent than, for example, Google’s car will. It is because the latter is only an automation solution, while the former is about how we gain access to information and how we control it. At present, we cannot even fathom how this will change our lives. The IT revolution is about information processing, management, and transparency. Thus, I believe that we are now experiencing the third IT revolution rather than the fourth industrial one. The first one was the emergence of information exchange, that is, the development of speech. It made man superior to animals because, with the help of speech and sophisticated information exchange, he was able to produce tools and arms. There is no animal that can give information to the other members of its species about how to make, say, a stone axe. The caveman, on the other hand, was able to do so because he could communicate very complex information by speech. The next revolution was the appearance of writing, that is, storing information. It constituted an information explosion, since information became cumulative and an extremely huge amount of it was accumulated. This lead to civilisations evolving. This, however, also became a big challenge, as storage generated so much information that was impossible to handle, and people could no longer find what they were looking for. And this is exactly what we have achieved in the ongoing revolution: an infinite amount of information has become manageable and controllable. We cannot stress strongly enough the importance of this. We do not know yet where the third IT revolution will lead the human species, but we can guess that the effect of this revolution can be much greater than the industrial revolution. We should be prepared for that.

What do you think of the current economic changes, often called revolutionary, generated by information technology? Personally, I do not like when people keep throwing around the phrase “Industry 4.0,” as it focusses on only one aspect of the IT revolution, namely, the potential for automation and robotisation, while far more profound changes are taking place today. INTRODUCTION

INNOVATION

THE ORIGINS OF INNOVATION FRENZY Zsombor Szabolcs Pál

A most widely used word of today’s highly technology- and development-oriented societies is innovation. Almost everybody looks at it as a key to stay competitive, to improve performance, and to become better, more productive, and efficient than the rivals—be they companies or nations. However, innovation did not always have the same positive connotations as it has today. Conventional wisdom holds that it was Joseph Aloïs Schumpeter who first introduced this term to modern economic thinking, by writing about the essence of capitalism, and the phrase spread and became extensively used thanks to his theory and work. Despite this belief, the word itself has a longer history, over which, most of the time, it had a less glowing undertone. In ancient times, it had mostly disparaging and derogative implications as “the introduction of change into the established order” as the Greeks interpreted it.1 This meaning was also present in classical Latin, as novare meant not only “introduce as new” and “change” but also “attempt a revolution or change in the government.”2 The very term innovare appeared later, during the 3rd or 4th centuries and acquired a clearly positive tone,3 as Early Church Fathers used it to express renovation, return to the original purity and soul,4 and vulgar Latin also used it in the sense of religious dogma.5 This positive meaning was present for many following centuries; however, the term that pointed towards the past, expressing renovation, started to be also used with reference to the future as an introduction of something new.6 Its positive value changed anew after the Reformation, when a new kind of vocabulary evolved, and words with the prefix re- were started to be used to express return to an earlier stage and the purification of a corrupted state. In the meantime, the word innovation, which made its entry into English, appeared to mean changing, altering something for the worst.7 It became part 30

INNOVATION

of a vocabulary used against papists (or Catholics), who were considered to have changed and perverted the original form of religion expressed by God in the Bible, as opposed to the Reformers, who aimed at going back to the roots. Thus, innovation gained a partly religious and, later, a partly political sense. The former referred to a kind of heresy, while the latter to revolutionary people. The term in this sense was used by, for example, Machiavelli,8 and it was started to be employed as a denigrating label by Protestants including Calvin, politicians such as Cromwell, and political thinkers like Montaigne and even Diderot.9 Innovators were the ones who had a design or scheme to topple the existing order, and their activity involved revolution and violence—to such an extent that even the main actors of the French Revolution or artists and scientists refused to refer to themselves with this term.10 This negative tenor slowly started to dissipate in the 18th and 19th centuries. The word was transmitted to new fields, namely, science and technology, in which spectacular inventions were created at the time, having a spillover effect with a positive turn in other areas, too.11 Innovation began to be appreciated in contrast with imitation—i.e. following the tradition—which was the determining factor of the earlier centuries in theology, art, and political, social, and economic matters.12 This rehabilitation occurred as people started to realise that, originally, everything had been a novelty, or “innovation,” as there was always a beginning to every phenomenon before it became a tradition and, as such, counted as new. Therefore, if innovation is wrong, then everything on the face of the Earth is also wrong, ab ovo. There was also a realisation of the fact that, without innovation, there would have been hardly any advance in science, technology, or politics.13 Moreover, the emergence of inventions that came hand in hand with the Industrial Revolution and

A simplified Kondratiev-wave—productivity-enhancing innovations drive waves of economic growth.

fledgeling capitalism seemed more lucrative than 14 flthe edgeling capitalism seemed more lucrative than structure based on traditional guilds. 14 theFrench structure based also on traditional socialists embracedguilds. the word; for French socialists also had embraced the word; for them, social innovation an explicitly positive th century, the term had them, social So, innovation had an explicitly positive connotation. by the 20 15 been completely reinterpreted. connotation. So, by the 20th century, thealso termpartly had It was been reinterpreted. It was also about partly owingcompletely to scientists who were 15speculating owing to scientists who were about the defining characteristics of speculating capitalism and its the defining characteristics its cyclical nature. According to of thecapitalism theory of and Nikolai cyclical nature. According to the theory of Nikolai Kondratiev, periods of recessions and expansions th Kondratiev, periods of recessions and expansions century could be described in long during the 19 th during century could be described in long waves the that19concentrated around certain turning waves concentrated around turning points. that Although not pivotal to his certain hypothesis, he points. Although not pivotal his hypothesis, he also implied that these turningtopoints are invariably also implied to thatthe these turning points invariably connected concentration of are advances in connected the concentration advances science andtotechnology and haveof social and 16 in science and technology and have social and political repercussions. 16 political repercussions. The concept about waves and periodic The concept about was waves and periodic fluctuations in capitalism also adopted by the flaforementioned uctuations in capitalism also adopted the Austrian was economist, JosephbyAloïs aforementioned Austrian Joseph Aloïs Schumpeter, in his seminaleconomist, work of 1939, Business Schumpeter, his seminal work of 1939, Cycles.17 For inhim, innovation—or, to beBusiness precise, Cycles. him, innovation—or, to beimportant precise, clusters17 ofFor economic innovation—were clusters economic innovation—were important drivers inof commencing any business cycle and drivers in commencing and economic development any in business general. cycle Innovation economic development general. Innovation always upsets economic inequilibrium, creates a always upsets economic creates a kind of dynamism with the equilibrium, means of competition, kind of dynamism thethe means ofintroduced competition, wherein rivals try to with imitate novelty by

the innovator. In the end, after reaching a saturation wherein rivals try to imitate novelty introduced by point, the economy finds athe new equilibrium, usually the In the end, after reaching a saturation at ainnovator. higher trend point than before. point, a new equilibrium, Still,the economy innovationfindsinvolves serious usually risks; at a higher trendit point thanattractive before. per se; only consequently, is not Still,embark innovation involves serious risks; those on it who hope for high gains or avoiding seriousitlosses it.18 Such aper consequently, is notbyattractive se;isonly figure the those embarkthe onhero it who hope for high entrepreneur, of Schumpeter, whogains is not or to 18 avoiding serious losses by it.as Such a figure is be confused with the capitalist, the former usually the hero Schumpeter, who doesentrepreneur, not own the the means to of fund his business by 19 is not to be confused with as and the Entrepreneurs are the born,capitalist, not made, himself. former usually doesimagination, not own the to fund they have foresight, andmeans will to confront his business by himself. Entrepreneurs are born, habits and routine. Their19actions are not called forth not made, andbythey have foresight, imagination, or determined the already existing processes, as and will the to ones confront andnew routine. Their they are who habits determine processes— 20 actions are“demiurges” not called offorth or determined they are the capitalist development.by the processes, as they are the If thealready idea of aexisting heroic actor and Schumpeter’s theory ones determine newalso processes—they are about who disturbed balances, known as “creative 20 the “demiurges” capitalist development. If destruction”, whichof by destroying old companies the idea of way a heroic always gives to newactor ones,and ringsSchumpeter’s a bell, it is not theory about disturbed balances, also known as a coincidence. His idea was probably influenced by “creative destruction”, which by destroying the Zeitgeist in his formative years, determinedold by companies always gives way to new rings a the teachings of Nietzsche about the ones, Übermensch bell, is not a coincidence. His idea was probably and itthe need for establishing a new morality to 21 infl uenced Zeitgeist in his formative years, replace theby oldthe one. determined by crucial the teachings Nietzsche about It is equally to stressofthat, also echoing the and teachings the need for the Übermensch aforementioned in establishing philosophy, ainventions new morality to replace are the two old distinct one.21 things for and innovations INNOVATION

It is equally crucial to stress that, also echoing the aforementioned teachings in philosophy, inventions and innovations are two distinct things for Schumpeter: while theories and abstract research in labs provide important foundations for innovation and acts of creativity, innovation equals action or an economic decision on the application of inventions to develop them into commercial products.22 Thus, innovation does not necessarily mean a wholly new thing—it might also be something already existing applied or introduced in a novel way. Therefore, as per Schumpeter, innovation may appear in five different ways: by introducing new goods, by introducing new methods of production, by opening new markets, by conquesting new sources of supply of raw materials or semi-finished goods, and by implementing a new form of organisation.23 Schumpeter’s theory made its way into mainstream—principally American—economic thinking during the 1950s and 1960s, and it is conclusively linked to his name, although some say that he never really gave a clear explanation of how innovation arises and never examined the factors and conditions leading to it,24 so his theory remains a torso in this regard. The real theoretical background was, in fact, elaborated by his unsung colleague William Rupert Maclaurin. According to his hypothesis, technological innovation is a process of several steps, and a function of propensity to develop pure science, to create inventions, to innovate, to finance innovation, and to have it accepted.25 As he claimed: “The important point for economic development is that careful study is needed of the institutional arrangements which are most conducive to the flourishing of all the major elements of dynamic growth.”26 The takeaway of his teaching was that any country aiming at greater economic dynamism should focus on setting up a proper institutional framework that helps to achieve it. With the driving force revealed behind economic expansion and the major components to it deciphered, the next decades saw a big boom in forcing innovation in more and more fields. Governments once looking at innovation as their ultimate enemy—and, along with them, international organisations mushrooming after the Second 32

INNOVATION

World War—now desperately started to seek innovation which was deemed to be the cure-all for economic problems and for the lack of international competitiveness.27 Everyone was thinking about ways to generate or accelerate innovation to leave others behind or outdo them. In the meantime, innovation became less of an individual action and more of a collective process.28 Also, while it used to be something that threatened the status quo and generated insecurity in previous centuries, now it became a key to stability, as, according to the new ideologies, it was now believed that, without innovation, there was no progress. So the absence or scarcity of innovation entailed a lack of competitive ability, which led to economic losses and may have provoked social tensions. By the 1990s, the term spread beyond economics and gained ubiquity29 in the same way as the word “progress” a century earlier.30 From an erstwhile theological concept it “became a theory of commodity production and … lately become a commodity itself,”31 as, today, innovation is not a descriptive term of a phenomenon in economics, but something that has its own value like tradable goods. While its use expanded, its meaning also inflated, converting it into a kind of magic spell which helps to put an end to every problem in the economy, society, and politics alike.32 Evidence for its mantra-like vagueness is that the verb “innovate” became intransitive, so it is not important to point out what you want to change—you just need to innovate around, no matter what.33 However, it also retained a kind of religious overtone as if it would be a modern-age faith having salvific power to some extent: with more innovation, our societies will become even more comfortable, liveable, and hassle-free, while big innovators are visionary prophets of their times.34 Nevertheless, there are also doubts around this frenzy. If everybody decides to innovate in order to increase efficiency, to produce more and more attractive products, productive capacity and supply will increase, while employment might see a downswing—or employees might witness shrinking wages—and manufacturers could wind up without customers who could buy their surplus goods.35 Actually, this possibility and its social consequences are issues unceasingly popping

up in debates on robotisation.36 This track of thought also brings to mind that Schumpeter says innovation is “creative destruction,” clearly underscoring its destructive component. So a wish for perpetuating innovation, in all walks of life also entails a wish to destroy everything, always—which might appear a terrifying rather than a tempting perspective to some. On the other hand, one might also have a sneaking suspicion that Kondratiev and Schumpeter might have wanted to describe the role innovation plays in economic cycles as a law of nature. If that is true, it is highly doubtful whether anybody can really stimulate it artificially, as natural laws have a tendency to operate on the basis of a determined set of rules. This suspicion is even more nagging if one starts to contemplate that if everybody wants to innovate, then everybody imitates each other in the joint action of innovating, so, in fact, nobody actually innovates, while real innovation might be somewhere around the corner, waiting for its rightful turn to come.

14 See, e.g., Maxine Berg: From imitation to invention: creating commodities in eighteenth-century Britain. The Economic History Review. 2002/February. 1–30.; Sheilagh Ogilvie: Rehabilitating the guilds: a reply. The Economic History Review. 2008/February. 175–182. 15 Godin (2019), 6. 16 George Garvy: Kondratieff’s Theory of Long Cycles. The Review of Economics and Statistics. 1943/November. 203–220. 17 Niels Geiger: Cycles « versus » growth in Schumpeter: A graphical interpretation of some core theoretical remarks. Cahiers d’économie Politique. 2014/2. 35–54. 18 Osman Péter: Az innováció. Társadalmi Szemle. 1984/October. 94–97. 19 Geiger, 41. 20 Aladár Madarász: Schumpeter’s Theory of Economic Development. Acta Œconomica. 1980/3–4. 348. 21 Hugo Reinert–Erik S. Reinert: Creative Destruction in Economics: Nietzsche, Sombart, Schumpeter. In: Friedrich Nietzsche (1844– 1900). The European Heritage in Economics and the Social Sciences, vol. 3, edited by Jürgen Backhaus–Wolfgang Drechsler. Springer, Boston, 2006. 56–57. 22 Emma Green: Innovation: The History of a Buzzword. The Atlantic. 20 June 2013. <https://bit.ly/385SFXG > 23 Osman. 24 Benoît Godin: In the Shadow of Schumpeter: W. Rupert Maclaurin

ENDNOTES 1 Benoît Godin: Making sense of innovation: from weapon to instrument to buzzword. Quaderni. 2016/spring. 23. 2 See Frederick Percival Leverett: A New and Copious Lexicon of the

and the Study of Technological Innovation. Project on the Intellectual History of Innovation, Working Paper No. 2. 2008. <https://bit. ly/2S7xCOM > 5. 25 W. Rupert Maclaurin: The Sequence from Invention to Innovation and its Relation to Economic Growth. The Quarterly Journal of

Latin Language. J.H. Wilkins and R.B. Carter, Cambridge, 1837. 574.

Economics. 1953/February. 97–111.

3 Benoît Godin: Innovation Contested. The Idea of Innovation Over

26 Maclaurin, 98.

the Centuries. Routledge, New York–London, 2015. 37.

27 Godin (2016), 27.

4 Godin (2016), 24.

28 Godin (2016), 31.

5 René Girard: Innovation and Repetition. SubStance. 1990/2–3. 7.

29 Jill Lepore: The Disruption Machine. The New Yorker. 16 June

6 Godin (2015), 50–52.

2014. <https://bit.ly/2S7xFdq >

7 Benoît Godin: Innovation Theology. Science, Technology and

30 John Patrick Leary: Keywords. The New Language of Capitalism.

Innovation : Intellectual and conceptual histories. 2019. <https://bit.

Haymarket Books, Chicago, 2019. Ebook.

ly/2UJvaQr > 8. 8 Mikko Jakonen: Thomas Hobbes on Revolution. La Révolution française. 9 December 2011. As Machiavelli put it: “There is nothing more difficult than to take the initiative in establishing a new order of things. Such an innovator has for enemies all those who did well under the old order.” Seven Classics on War and Politics. Classic Press, [s.l.], 2019. Ebook.

31 Leary. 32 Osman, 94. 33 Leary. 34 See, e.g., the obituaries of Steve Jobs. One such example claimed: “Jobs powerfully represents the hope that renewal and innovation can make life more elegant and meaningful.” Joshua Rothman: Steve

9 Girard, 7–9.

Jobs, prophet of hope. Boston.com. 23 January 2011. <https://bit.

10 Godin (2016), 25–26.

ly/3bjCA2y >

11 Girard, 10.

35 Vitorino Magalhães Godinho: A tegnapból a mába – és mi lesz

12 See, e.g., Robert Macfarlane: Original Copy. Plagiarism and

holnap? Eszmélet. 2010/winter. 241–242.

Originality in Nineteenth-Century Literature. Oxford University Press,

36 See, e.g., Free exchange: Will robots displace humans as

Oxford, 2007.

motorised vehicles ousted horses? The Economist. 1 April 2017

13 Godin (2016), 26.

<https://econ.st/2S5zCXK >. INNOVATION

HACKER CULTURE AND OPEN SOURCE OR TECH GIANTS AND PATENT PROTECTIONWHERE DOES REAL INNOVATION COME FROM? Imre Mátyus

INTRODUCTION As it was put by Peter Levine, a developer and entrepreneur, we are witnessing a “renaissance of open source” these days. There is increasing value of IPOs (Initial Public Offerings) and M&As (Mergers and Acquisitions) in the field and a growing interest in this kind of development. Open source has turned from being a niche market and the backbone of IT infrastructure only to a driving force in almost every segment of the economy. We find open source solutions used and developed in a variety of businesses ranging from autonomous vehicle design to fintech and from big data analysis to space exploration. Projected revenues from open source services by Statista show that there has been a USD 6 billion increase (from USD 11.4 to 17.4 billion) in their market share during the last two years. Furthermore, the opensource services market is expected to exceed USD 32 billion by 2023, based on the report of Market Research Engine. GitHub, the biggest platform of open source collaboration (with more than 14 million projects) was acquired by Microsoft for USD 7.5 billion in 2018. Red Hat enterprises, one of the key players in Linux operating system development, was bought by IBM for USD 34 billion in 2019. Companies are integrating open-source solutions into their processes or open-sourcing their own projects (just think of the cloud storage management platform created for Walmart or the open datamodelling software created by Goldman Sachs). Major companies (such as Amazon, Facebook, Google, Intel, or Microsoft—just to name a few) invest in or actively support open-source projects. Jim Zemlin, the Executive Director of 34

INNOVATION

the Linux Foundation, claimed that open-source development became the new norm in many segments of information technology. There is indeed a huge potential in open source, and it is clear that it has come a long way since the dawn of free software in the 1980s and since the beginning of community-based DIY in the 1990s. In this article, I will concentrate on the idea of freedom as a potential catalyst of innovation in open source culture, as a part of hacker culture. Ideas, norms, and values from academic life and from the early days of modern computing—often referred to as hacker ethics—became fundamental in the culture of sharing and collaboration. These cultural characteristics can foster or hinder innovation in open-source development. I must emphasise that open-source development—both technologically and econo mically—has changed a lot in the last three decades. It is a heterogeneous area covering a wide range of matters from ideology- or community-driven projects to commercial endeavours, and it is becoming evermore difficult to provide a generic interpretation to it. Borders between open- and closed-source software development practices are getting blurred, and the practical interconnectedness in some areas (such as network administration, server applications, cloud computing, etc.) seems more and more obvious. Even so, in the following article, I will often focus on a specific aspect of open-source development: the archetypical community-based project. These kinds of projects have had the longest history in open-source development as well as the most in common with other segments of hacker culture. They still possess the fundamental ideas of the 1980s free software

movement and enjoy the pragmatic grassroots nature of the 1990s opensource projects at the same time. HACKER CULTURE “Hacker” is a highly contested, polysemic term. Depending on our perspective, interest, or knowledge of computer cultures, we might associate it with a plethora of meanings—from cybercriminals of the computer underground to contemporary Robin Hood figures and from hacktivists wearing Guy Fawkes masks to ingenious programmers working with PDP-10 mainframes at Berkeley in the 1960s. In any case, however, the term “hacker” seems to invoke cleverness and an unusual mastery of complex skills to solve a problem. As it was claimed by Gabriella Coleman, the term itself became part of our everyday media diet and part of contemporary culture. We might stumble upon “bodyhackers” who modify or upgrade their bodies with implant technologies. We might read about “lifehackers” applying clever tricks and tools to make their daily life more productive. We apply “study hacks” to

Richard Stallman, a programmer, activist, and founder of the Free Software Foundation

make a learning process more effective. We see hackers acting in a morally ambiguous way in a wide range of media products. Hacker culture is a broad umbrella term used primarily for a segment of computer culture with a wide variety of norms, values, and practices. As Gabriella Coleman claims, hacker culture includes a lot of different individuals from cybercriminals, hacktivists, and free and open-source software developers to ethical hackers. The common denominators for these diverse groups are their special relation to computers, skilfulness as such, and, last but not least, freedom as a crucial factor. We should add that there are also broader definitions for hackers in social sciences. Richard Stallman, a hacker, the founder of Free Software Foundation, and, at the same time, the creator of GNU operating system, claims that a hack is actually “clever playfulness,” an ingenious solution to a problem—it is not necessarily something to do with computers. Pekka Himanen, a philosopher and expert in hacker ethics, used the idea of hacking as a more generally applicable term that can be connected to a wider range of intellectual skills. Although his work focussed primarily on the ethics of free and open-source software developer communities, he suggested that almost every profession gives an opportunity for hacking. Thus, being a hacker represents expertise, craftsmanship—and, usually a determination and dedication—in a given field. Historically, hacker culture is based on the 1960s programmer culture. This culture derived from the academic world, inheriting some of its norms, -values, and ethical guidelines. Freedom—and, most specifically, the freedom to learn and innovate— is a central element to this academic heritage. Freedom is an opportunity for a passionate search for answers. Scientific progress, the betterment of mankind—often manifested through innovation— are considered to be the ultimate goals of academia and are respectable ambitions for any hacker activity. Expertise is a key factor in social status among the members of both academic and hacker cultures. Besides their meritocratic quality, both academic and hacker cultures share a high regard for the professional value of an individual based on their contribution to the common INNOVATION

goals. The main difference between these two might be their respective views on authority and institutional hierarchies. While academia has its own hierarchical structure, hacker culture generally avoids rigid structural frameworks and hierarchies based on anything but expertise. There is also an element in hacker culture emphasised by Himanen: the social responsibility they feel in connection with technologies they contribute to. The sum of these core ideas, norms, and values are often called “the hacker ethic.” FREE AND OPEN-SOURCE SOFTWARE Free and open-source software development— as described by Manuel Castells and Pekka Himanen—is essentially the manifestation of the fundamental ethics of hacker culture. Based on the core values described above, free and opensource software appeared as a reaction to a commercialising, possession-centred model of closed-source programming that had become prevalent in the 1970s and 1980s. Before that, computer code was mostly considered to be freely distributable or to be subject to change. Open-source software is basically software with its source code freely available for anyone. It usually results in the open-source software being free (1) to be copied, (2) to be distributed, (3) to be used, and (4) to be changed. As such, open source contributes to the common good by offering better conditions to use and reuse existing code for further development. Free software movement, which was the predecessor of open-source development, was created as a reaction to strict copyright rules. The appearance of closed-source, proprietary software in the 1970s and 1980s turned out to be an important step in the legitimisation of programming as highly valuable creative work and also of the software industry as a viable source of income, independent from the hardware business. Extending copyright to software code, however, hindered the progress of a field that used to share code freely before. The hacker culture of the 1960s programmers was largely based on the collaboration and free circulation of software code that ensured progress in an area with limited resources. When proprietary software gained 36

INNOVATION

Pekka Himanen

prominence, former practices became outlawed by copyright and fair use guidelines and patents in the software business. However, the moral and practical code of hacker culture manifested itself in the form of free software. Free software emphasises the idea that one should not limit the rights of the user, since it hinders, or completely prevents the progress in the field. The free flow of ideas and results is considered to have a high priority, and it stems from the academic roots. Still, free software movement, in the beginning, was perceived as an ideologically governed, less business-friendly area of computing. With the emphasis on the freedom of users and its occasionally harsh critique of proprietary development, free software cannot capitalise on its strength in the free flow of ideas. Transition came in the form of the opensource movement in the 1990s. The proponents of the term “open-source software” aimed at emphasising the pragmatic virtues of sharing and collaboration. Open source, by definition, was more about the standard of the software than the potential uses it might facilitate. By making source codes openly available for anyone to use, improve, and share, the development process may be faster, attract more contributors, thus advancing quality assurance practices. By being open to public contribution and monitoring, open source is a more economical and potentially more secure option in software development, although, from a business perspective, it has its shortcomings.

Open-source projects are usuallyskills openand for contribution—given the necessary contribution—given the it necessary skills intentions, one can find relatively easy to and join intentions, one can find it Community-based relatively easy to join a development project. or acommunity-driven development project. Community-based or projects have grassroots community-driven projects have grassroots quality and are created from the intention of the quality and areThese created the intention of the contributors. arefrom unpaid programmers, contributors. These are unpaid designers, community activistsprogrammers, who utilise designers, activistsin who their their skills community to build software theirutilise free time. skills to in their incentives free time. in There There arebuild littlesoftware or no financial the are little orOpen-source no financial incentives system. system. projects in arethelikely to Open-source projects areapproach likely to betofairly liberal be fairly liberal in their goals, as in their approach as theyby arestakeholder usually not they are usually to notgoals, influenced influenced by and stakeholder and they expectations they do expectations not have to compete do haveprojects to compete with other projects in the withnot other in the same market. same market. There are different motivations behind openThere development are different behind source frommotivations intrinsic factors to opensource development from intrinsic factors extrinsic motivators. Contributors to open-source to extrinsic motivators. Contributors openprojects usually highlight the importanceto of taking source usually the project importance part in aprojects meaningful andhighlight challenging that of taking part in by a meaningful challenging is less controlled the rules of and the IT business. project that isthe less controlled the by the rules to of the IT Some value experience, chance grow, business. Some value experience, the of chance others emphasise thethe palpable impact their to grow,on others palpable impact actions the emphasise community. the Participants usually of their on the common community. Participants have an actions idea about social benefit of usually have common social their work andan relyidea on aabout certainthe sense of reciprocity. benefit of to their work relyidea on that, a certain They tend have trustand in the if theysense offer of reciprocity. tendexpert to have trust in the their work (time,They energy, knowledge, etc.)idea for that, they offer other their people work (time, energy, expert free toif everyone, will contribute in the knowledge, etc.) for itfree everyone, other people same manner and willtolead to a common gain. will contribute in the samesource manneris and it willact. lead Thus, contribution to open a social to a common gain. Thus, contribution to open source is a social AND act. INNOVATION OPEN SOURCE Innovation in every respect demands a kind of OPEN SOURCE INNOVATION openness for newAND ideas, dynamism to change Innovation in every respect demands a kind of the process, to adapt to new situations, and openness ideas,as dynamism the to apply for newnew results quickly toaschange possible. process, to new andof to ideas apply The free to (oradapt at least lesssituations, limited) flow new as quickly possible. Theinfree (or codes, as and methods openand results solutions, at least less limited) flow of ideasbetter and solutions, source development provides chances codes, and methods in opensource development for innovation than the routinely overcontrolled provides for innovation software than the processesbetterofchances closed-source routinely overcontrolled of closeddevelopment. Given its processes largely collaborative source development. its largely nature, software open source seems toGiven be an ample collaborative nature, the open source seems to be solution to expand innovative potential ofan a ample solution to expand innovative potential business endeavour. The the massive volunteering of a business endeavour. massive volunteering developer base behindThe open-source projects developer base open-source projects is statistically andbehind financially a viable source of is statistically and financially viable that source of potential innovation. Thus, it isaevident open

potential Thus,asit unpaid is evident that and open source isinnovation. often exploited labour a source exploited as unpaid labour and a source is of often inspiration or concrete solutions. source of inspirationaorconsultant concrete solutions. Jim Stikeleather, in open source Jim Stikeleather, a consultant in openprocess source claimed that the aim of the innovation claimed that up thewith aimthe of the is is “to come bestinnovation ideas andprocess get them “to the as best ideas and them intocome actionup as with quickly possible.” Thisget requires into as quickly as possible.” This requires rapidaction prototyping and quick releases—something rapid prototyping and quick development releases—something is good that open-source software that open-source software development is good at. The tenet of “release early, release often” has at. The tenet in of open “release early, release often” been present source projects since the has been in open source projectstosince 1990s, andpresent it provides a great opportunity test the 1990s, and itthem provides a great ideas and make work as soon opportunity as possible. to test ideasprocess, and make them work adds, as soon Innovation Stikeleather is as a possible. Innovation process, Stikeleather adds, learning process of trial and error. is aStikeleather learning process of trial and of error. is a proponent planned and Stikeleather is a that proponent of serendipitous planned and targeted innovation is open for targeted that is open for beyond serendipitous elementsinnovation but has a clearly set plan it. Jim elements has aDirector clearlyofset plan beyond Zemlin, thebut Executive Linux Foundation, it. Jim Zemlin, the that Executive Director of Linux however, believes the innovation process Foundation, however,the believes the it, innovation is “messy”—despite storiesthat about the real process “messy”—despite the stories about it, process is chaotic and unpredictable. theHowever, real process chaoticisand openissource notunpredictable. the most reliable However, opencase. source is not most reliable solution in every Given its the open nature and solution in everystructure, case. Given open nature and its communal the its lack of contractual its communal structure, the lack for of contractual bonds might result in problems companies. bonds resultmistrust in problems foropen companies. Part of might the heavy towards source Part of from the heavy mistrust openprojects source stems the fact that towards community stems the fact that community projects are notfrom contractually obligated to maintain a are not contractually obligated maintainetc. a codebase, release patches, updatetosoftware, codebase, update software, in the samerelease mannerpatches, as software companies do. etc. in the same manner software companies Community projects areasoften self-organising do. Community often self-organising systems and projects strongly are based on individual systems and the strongly on individual interests and ability tobased contribute. With the interests and of theinterest ability in to or contribute. Withforthe potential loss free capacity a potential loss of interest in orisfree capacity for given project, abandonment a probability onea given is aHowever, probability out completely. as one the shouldproject, not ruleabandonment should rule completely. However, as the source not code is out easily accessible, if the original source codedecided is easily if the original developers to accessible, leave the work behind, it developers decided tomean leavethe theend work it might not necessarily of behind, a project, might not necessarily mean the end ofworkforce. a project, but it would certainly require additional butAccording it would certainly require additional to developer Manuelaworkforce. Yamada, Accordingis torelatively developer Yamada, innovation rareManuela in open-source innovation is relatively in open-source development—it is most rare frequently present in development—it is mostbusiness. frequentlyThe present in the proprietary software reasons openThe source, by the proprietary softwareFirstly, business. reasons behind it are diverse. behind nature, itdoes are diverse. not attract Firstly, the same open source, amount by of nature, financial does support notthat attract is vitalthe for a same research-based, amount of financial maintainable support innovative that endeavour. is vital for This a researchis more INNOVATION

[ existing project ]

INITIATION

[ else ]

Problem discovery

PROBLEM DESCRIPTION

Finding volunteers

DEVELOPMENT TEAM

WORKPLAN

Solution identification

Code development and testing

CODE

RELEASING

EXECUTION

Code change review has a CodeCommit and documentation

CODE DOCUMENTATION

Release management

[ continue development ]

RELEASE

[ else ]

A process-data diagram of open-source software development A process-data diagram of open-source software development

based, maintainable innovative endeavour. This is apparent in community-based projectsprojects with modest more apparent in community-based with resourcesresources and incentives, as innovation more likely modest and incentives, asis innovation to more occurlikely in more business-oriented development is to occur in more business-oriented environments.environments. Why should oneWhy giveshould away innovative development one give ideas when they could sold? Secondly, freesold? and away innovative ideas be when they could be open-sourcefree development projects are often selfSecondly, and open-source development organisingare andoften tend selforganising to be biassed towards theirtoown projects and tend be objectives. Community projects appearCommunity in reaction biassed towards their own objectives. to an existing needinamong theto members. Theyneed aim projects appear reaction an existing 38

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among the members. They aim to achieve the goal to this achieve goalofofpeople this small of people of smallthe group rathergroup than adjust the rather than the project to the of supposed project to theadjust supposed expectations a wider expectationsThus, of a opensource wider population. Thus,tend openpopulation. solutions to source tend to fulfil the fulfil thesolutions professional needs of professional developers needs rather of developers than a more In general than a more rather general demand. thesedemand. cases, In these cases, ideas that can provide innovative ideasinnovative that can provide a selling point a selling point for new technologies areforefrontâ&#x20AC;&#x201D; not in the for new technologies are not in the forefrontâ&#x20AC;&#x201D;development development often aims often to be aims a reliable to be a reliable and/or affordable and/or affordable alternative alternative to pre-existing to pre-existingsolutions. solutions.

Thirdly, open source seems to be more suitable as a There are quite a few commonalities between framework for IT projects, and it demands reliability open source and open innovation. The essential and stability more than innovation. intersection is the idea that opening up creative Open-source innovation has a strong relation to processes for collaboration may be beneficial. open innovation. A lthough they are commonly However, there is no—or at least no standard— used as synonyms—being based on the idea of business model for open source, while open “opening up for collaboration”—they are far from innovation is essentially a business approach to being the same. foster innovative capabilities. The business model Open innovation seems to have become an of the latter has a huge impact on the input and important buzzword in the last few years. The the output of the open innovation process—as it constant pursuit of innovation and the concurrent is a much more controlled version of openness, a shortage of resources might lead to a less closed narrow field of collaboration with a tight selection of system of research and development. Open outside partners. innovation is a term that stands for opening up innovation for cooperation between teams and/or CONCLUSION individuals in a business environment. However, the The innovative potential of open-source development “openness” of open innovation seems to be more provided by its structural openness is undoubtedly exclusive, closely controlled, and temporary—it is important. The ability to use existing code, ideas, basically a contractual collaboration between actors solutions with little or no constraints, the economical for a common benefit from an innovation (whether use of shared resources, the improvement in it is joint licencing, a shared set of research results, troubleshooting and code maintenance may have ideas, or prototypes, a shared copyright or patent). numerous benefits. However, the utilisation of this Open innovation is a paradigm—a set of new potential is often tied to some business venture in ideas about reshaping the innovative process of a the background. As Peter Levine puts it, the success corporation. It is about mutually beneficial sharing of technological innovation coming from the field of resources, the sacrifice of the exclusiveness of is largely dependent on the business innovation an idea or solution for quicker innovation, and the behind it. Also, business innovation needs potential ambition is to create a marketable novelty. However, novelties coming from self-organising open-source there are instances where open innovation has projects. While community-based open-source benefits for the wider society. A company may use development groups—although having the potential open innovation primarily as a means to exploit for innovation—might only cater for the relatively or use appropriate outside resources, but, later, it calculable needs of their communities, business might return results or make them openly accessible ventures can benefit from openly available solutions for others to use. by stepping over the boundaries of copyright and Innovation in open source is a different breed, patent limitations. Large IT corporations such as Google, Intel, mainly in the field of community-based projects, where the prime goal is less to create new and or Microsoft actively support open-source profitable output. In these endeavours, the development as a form of a mutually favourable aspiration is to fulfil a specific need deriving from and constructive, less formalised version of open the community or to create a feasible alternative to innovation. In this way, both the proprietary and the an already existing solution. Of course, there are open-source field may flourish, albeit not without projects aiming at innovation, but they are usually frequent reestablishment of boundaries. The encumbered by the lack of financial support (that exploitation of open source might ruin an invaluable could be converted into more work hours, more source of innovation while making everything open coders, better equipment for development and for the sake of progress might hinder business goals. testing, etc.). The relative lack of economic pressure At the end of the day, innovation might come from may result in a more relaxed fashion of creation, but, any source—keeping an open perspective would be an ideal solution for every actor. at the same time, it can hinder innovation. INNOVATION

UTOPIAN ASPIRATIONS AND DYSTOPIAN FEARS CONCERNING NEW MEDIA Attila Károly Molnár

Technological utopias and dystopian anxiety are profound and characteristic themes of modern and postmodern art, popular culture, as well as social scientific reflection. Technoutopianism characterises modernity and postmodernity, eras when profound technological progress occurred. After the failure of moral, social, and political utopias in the 19 th –20 th centuries, many people turned towards technology, a realm of unquestionable progress, hoping that its inevitably benevolent transforming influence would improve human life endlessly. Technological optimism or utopianism1 derived from the belief that humans and their relations (their morals) are more or less determined by the technological environment, and the progress of tools and machines can, therefore, achieve a better or perfect society. Technological anxiety supposes the same. The dystopian anxiety emerging from the experience of technological

progress has a common presupposition with this utopism: both ways of thinking ascribe inevitable and necessary effects to technologies. Their common presupposition is this technological determinism. From this aspect, both trains of thought follow the determinism or mechanistic, engineering thinking of scientism. Technoutopianism—the thought of an ideal society created by the effects of technological progress—entails: • The transformation of human nature or, instead, a post-scarcity society—where there might not be an abundance of goods, but they will be produced without human suffering or hard and unpleasant work, so it will prevent suffering and, perhaps, even death. In this idea, it is tacitly presupposed that human suffering and conflicts as well as the unpleasantness of life originate from the scarcity of material goods. However, since Hobbes, we have been aware, and contemporary moral and

A scene from Imre Madách’s The Tragedy of the Men—a utopia from the 19 th century 40

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Determinism characterises both technoutopian political movements and literature also show that what people need first and foremost can be hopes and dystopian fears: in both strands of obtained only from others: appreciation, honour, thought, technological devices determine men and their relations, and there is no place for free will and love, and similar immaterial values. • A different type of technoutopia refers to the human agency. The early internet utopias—in the 1990s— elimination of distance, alienation, and atomisation by the progress of transport and communication. defined cyberspace as an autonomous sphere, After the invention of the telegraph and, later, independent of market forces and politics.2 the radio and television and, recently, the Consequently, internet utopias would eventually internet, there have been many publications on transform the social world, the “real world,” and the shrinking of space and the easiness and politics. Allegedly, communication technologies cheapness of communication, which will result in would improve human relations and spread or strengthen democracy.3 A rather strong conviction mutual understanding instead of fights. th th • Environmental changes: the 18 –20 -century emerged that digitalisation—earlier, the world of technologies brought not only social problems blogs, and, more recently, social media—would but countless ecological challenges including improve democracy, somehow solving many noise, pollution, or the greenhouse effect, but democratic deficits and pushing our social–moral finally we have—or we will certainly have—a and political world closer to the democratic ideal. technology solving these problems and turning “There exists a growing body of thought that our environment back into its pre-industrial articulates the belief that recent developments state without giving up the benefits of modernity in information and communications technologies and our pleasant life. (ICTs) contain within them the potential to facilitate Technological optimism or utopianism is an integral ‘quantum leaps in the field of democratic politics.’ part of progressivism, meaning that technological For Becker, these amount to no less than a progress is an inevitable part of history, occurring in paradigm shift in the process of the understanding our daily life, and, therefore, it will probably continue of democratic governance.”4 in the future. Thus, even if social reform, the According to tech optimists, the internet, blogs, betterment of institutional contexts or morals, has and social media are new forms of agency and failed, technological progress will continue to solve political activism in a space which is uncontrolled— more and more problems. So it is a convenient so it fulfils Habermas’ concept of “ideal speech presupposition that technology will always situation,” a discursive context without domination, determine human life, and, therefore, its progress which is free, equal, and cheap. Because of this will eventually solve the fundamental problems of idealisation based on Habermas’ communicative the human condition. Technological optimism kept utopia, radical leftists quite often consider online on emerging after the collapse of Enlightenment politics as the core and root of radical democracy.5 optimism at the beginning of the 19 th century As such, countless articles in newspapers and and the bankruptcy of socialist hopes. In a academic journals in social sciences describe sense, Marx was a technoutopist because he the future decentralisation, democratisation, and argued that, although capitalism held back the equalisation of society engendered by digital progress of productive forces, it could not be technology, predominantly the internet.6 stopped, so, finally, this inevitable technological By the mid-2000s, the term “Web 2.0” had progress would clear away capitalism and quickly become a synonym for democracy, private property, and this productive force would freedom, equality, and autonomous life.7 create communism, the end of history. In the Gillmor’s book is one of the best examples of Marxist countries, up until their last and declining this kind of digital optimism. In 2004, before periods, the dominant political ideology was the spread of social media, he believed that technoutopianism, which advocated scientific– bloggers, called grassroots journalists, would technological progress or even revolution. dismantle Big Media’s monopoly in public life.8 INNOVATION

Gillmor interpreted Web 2.0 as the realisation of Tom Paine’s radical politics and hopes. Wired magazine founder Kevin Kelly’s article “We are the Web” exemplifies very well the enthusiastic tone of such newspaper articles and sociological works, receiving a huge number of citations. Yet this celebratory optimism disappeared from the mainstream as quickly as it had found its way in. Today, this view can be detected mainly in the publicity of peripheral countries. The contemporary mainstream seems to be more sceptical about the social and political effects of digitalisation, new media, and social media. The hype surrounding digitalisation, Web 2.0, and social media contrasted them with mass media9 because of the centralised character of the latter: anything centralised can be easily controlled and used to support financial and/ or political interests. Therefore, one of the main social and political values of technological innovations in communication would be their allegedly decentralised, eo ipso less controllable character. It was widely expected that new media would solve the problem of mass media, and the new citizens (the netizens) would no longer be passive and manipulable consumers of opinions. James Surowiecki’s The Wisdom of Crowds: Why the Many Are Smarter Than the Few and How Collective Wisdom Shapes Business, Economies, Societies and Nations, or Howard Rheingold’s Smart Mobs: The Next Social Revolution,10 along with many other social scientists, promoted an argument for the democratic technoutopianism of the digital age.

various versions of digimania started spreading in combination with the emergence of related technological dystopias. While technoutopias use a rhetoric of potentiality—new technologies enable people— technopessimism usually focusses on control and the lack of freedom. The traditional root of anxiety in dystopias connected to technology is the problem of freedom and control.11 This sentiment can be referred to as “Big Brother anxiety” which emphasises the loss of control as a result of technological manipulation, control, and surveillance. The narratives of democratisation and decentralisation were countered by warnings of mass surveillance, information overload, and “digital Maoism.” Thus, some years ago, the mainstream started to disentangle the hypothesis of the “democratic and democratising Web”12 upon realising another dominant aspect of the technomaniac hangover: the reality of Web 2.0 and social media, which foster tribal animosity, lynching, and spreading gossip and fake news instead of democratic debate, competition, tolerance, and respect. But the criticism concerning new media and tech oligarchs shifted after 2016. Recently, it has referred mainly to the ideological misrepresentation of opinions and reality, and it may now be referred to with the term “Matrix anxiety.”13 Mainly after the scandalous year of 2016, tech oligarchs— Google, Facebook, YouTube, Twitter, etc.—openly reinterpreted their social and political function. Previously, they were market companies providing internet services while assuming the role of flagships of freedom of speech in general, and freedom of the internet in particular, providing a “marketplace PROBLEMS OF FREEDOM, CONTROL, of ideas.” But, since 2016, these companies seem AND IDEOLOGICALLY MOTIVATED to have been disillusioned in the free competition MISREPRESENTATION While Western thinking was previously flooded of ideas; instead, they have started to talk about with the allegedly beneficial effects of digitalisation “well-ordered space” promoting a well-ordered and the spread of the internet, in the last 10-15 society. The hype of internet freedom disappeared years, the optimism concerning the digital public with the trust in the wisdom of the crowd and in the sphere has withered away. Now, the dominant competitive evolution of opinions. Of course, in the attitude towards the internet is rather sceptical past, the ideology of the free internet was political, or critical. Technoutopianism flourished mainly in too, but only indirectly, because of the hope that the period of the dot-com bubble, but now we the free competition of ideas would result in a can hear significantly fewer technoutopian voices free, equal, just, and democratic world. By now, than before 2000. Around 2005, the criticism of it has all changed. 42

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After the Arab Spring, there was a flood of publications on the role of Twitter and Facebook in the people’s movement for freedom and against dictatorship. At that time, the dominant voice was for the freedom of the internet, in spite of Islamist terrorism profiting from it. The scene changed a lot after Trump’s surprising election, when the leftist reaction and interpretation focussed on the danger of populism, the defence of democracy, and the abuse of social media by Trump. The mainstream conclusion was that the internet had to be controlled by private internet oligarchs, as they could effectively fight against populist danger in defence of progress, democracy, and the like. The ISIS and Islamist terrorism could not lead to as much control of the internet by tech oligarchs as the ressentiment of the Left losing political battles in

the West. They started to talk about the necessary control of the “wisdom of the masses” and activism on the internet, referring to the danger of authoritarianism and the defence of democracy and free society. The libertarian attitude concerning the internet disappeared from social scientific papers and newspaper articles, earlier so enthusiastic about the great potentials of the free internet. Today, rightist people speak for the freedom of speech on the internet—which was a leftist issue in the past—and, as the Left was weakening politically and the political mainstream shifted to the Right, it was predominantly rightist politicians who started a discussion about the control of internet oligarchs for the sake of fair political competition and open public life. So the internet, meaning mainly social media and the dominant search engine, Google, has taken an

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openly party political stance. New media directly 1968, this situation slowly changed with the 68and openly entered the political battlefield by ers taking over culture, education, mainstream • ranking; Churches, mass media, advertising, and, most • selecting (i.e., Facebook’s “shadow ban”); importantly, new media companies; thus, this • prohibiting/punishing (“deplatforming”) in the kind of criticism is no longer voiced. name of diversity and sensibility; TECHNOLOGY-INDUCED SOVEREIGNTY • spreading fake news; and • providing information on, or secrecy for, users. TRANSFERS This is far from deliberative democracy or The widespread criticism of internet oligarchies Habermas’ idealised non-dominated public life. has been given an additional colour: globalisation While the discourse on freedom of speech had has obviously challenged the authority of states, previously focussed on the political control of and the winners of globalisation have started to public life by the state using state authority and support and join local people, usually organised penal law, many critics in modernity pointed and mobilised by—sometimes global—NGOs, out the problem of thematisation and other and always on global social media. The roaring manipulation techniques used in public life without slogans are freedom, civil society, and the like, any kind of overt authoritative enforcement or and the social scientific label of this ideal is any support from the state and penal law. But, polyarchy.14 From the beginning, the utopian in the past, predominantly before 1968, the hype of new communication technologies and education system, Churches, mass media, and the internet heralded the end of nation states, the advertising industry were criticised because which were identified as a major source of of their soft manipulation by leftist people. After humanity’s conflicts.

France also tries to defend its historical sovereignty in cyberspace in a number of ways—chart shows the number of Facebook pages censored by the country in 2015. 44

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There seem to be two opposing trends going on regarding the internet: the cost of production and distribution is decreasing—so there are more and more channels and platforms, and a huge variety of content—while there is growing concentration in the sector, and the internet is increasingly dominated by huge global companies.15 The dotcom bubble attracted a lot of investors, and, as technological research and development require capital investments, huge tech companies also emerged in the digital world, and the existing media companies also invaded this new market. For example, in the tech debate on the power of networks—concerning mainly Facebook, Twitter, YouTube, and Google—Moises Naim influentially argued that social media almost totally exterminated power: “it is easier to get, harder to use—and easier to lose.”16 This enthusiasm focussed on the traditional power institutions like the state, the church, the school, and mass media companies. The enthusiasts have propagated that technological development could not only destroy or weaken the Leviathan but it could demolish any power altogether. However, the economic rise of the tech seem companies is not discussed, norgoing does There to be two opposing trends the analysis ofthe theinternet: power and influence on regarding thecontrolling cost of production of thedistribution new tech players in the political game and is decreasing—so there play are amore part and in the story about the or decline of more channels andend platforms, and power. state’s is attacked a huge The variety of sovereignty content—while there is from within (lobbies, oligarchs, media, etc.) growing concentration in the sector, and and the without globaldominated NGOs, and internet (empires, is increasingly by multinational huge global 15 tech companies). While bubble lawmakers and alaw companies. The dot-com attracted lot implementers moreasortechnological less representresearch the people’s of investors, and, and interest, and they are capital more orinvestments, less accountable, development require huge the codes be against interest, techtechnical companies alsomay emerged in thetheir digital world, and responsibility is rather volatile inalso the invaded case of the existing media companies tech companies. this new market. On the other hand, the absence of For authority andinthe hidden on manipulation example, thefear techof debate the power have increased. of networks—concerning mainly Facebook, LimitedYouTube, sovereignty andGoogle—Moises a permanent challenge Twitter, and Naim to their sovereignty (and media their concomitant influentially argued that social almost totally weakness) constitute well-known experience exterminated power: “ita is easier to get, harder for smaller nations, This oligarchs enthusiasm have to use—and easierbut to global lose.”16tech posed focussed a new on the challenge traditionalorpower danger institutions even to like big states the state, likethe Germany church,17the or France. school, and Therefore, mass media in the past companies. years, not Theonly enthusiasts has the political have propagated Right been suffering that technological political limitations development andcould obvious not only and overt destroy disadvantages or weaken the on the Leviathan internet,but but italso could big

demolish any power altogether. However, the economic rise of the tech companies is not discussed, nor does the analysis of the power and controlling influence of the new tech players in the political game play a part in the story about the end or decline of power. The state’s sovereignty is attacked from within (lobbies, oligarchs, media, etc.) and without (empires, global NGOs, and multinational tech companies). While lawmakers and law implementers more or less represent the people’s interest, and they are more or less accountable, the technical codes may be against their interest, and responsibility is rather volatile in the case of tech companies. On the other hand, the absence of authority and the fear of hidden manipulation have increased. Limited sovereignty and a permanent challenge to their sovereignty (and their concomitant weakness) constitute a well-known experience for smaller nations, but global tech oligarchs have posed a new challenge or danger even to big 17 A fewlike examples of tech giant Facebook’s controversial or France. Therefore, in the states Germany past years, not only has the political Right been relation to freedom of speech suffering political limitations and obvious and nation states have become aware ofbut global overt disadvantages on the internet, alsotech big companies posing threat toaware their sovereignty. nation states have abecome of global tech Digital sovereignty, justtolike companies posing a threat theirsovereignty sovereignty. in general, is political fiction, aspiration. It can Digital sovereignty, just like an sovereignty in general, receive support onlyan if people trust Ittheir own state is political fiction, aspiration. can receive much if people than trust their a stateless own state situation much supportmore only strongly more strongly a statelessfighting situationactors in which in which there than are countless like there are countless fighting actors like corporations, corporations, NGOs, non-established networks, NGOs, networks, and soseems on. The and so non-established on. The contemporary situation to contemporary situation seems to be rather similar be rather similar to the Europe of the 16th century, century, religious to the religious Europe ofcivil thewars, 16th and where inter-where and intrastate civil wars, and interand intrastate power struggles power struggles challenged the authority of the challenged and, the authority of the monarchy, monarchy, thereby, endangered peace and, and thereby, endangered peace and prosperity. prosperity. mainstream discourse discourse While, in the past, the mainstream about the the institutional institutional (constitutional) (constitutional) and was about and moral control of power or authority (by means the education education and and character character formation formation of of the of the political class), class), recently, recently, the dominant members of aapolitical discourse has rather been the desirable desirable discourse has rather been on the somehow the the pre-sovereign pre-sovereign spreading of power, so somehow condition of Middle Ages depicted as condition of the the Middle Ages is depicted democratic. In the Middle Middle Ages, Ages, responsibility responsibility and democratic. the control control of authority authority were not issues, issues, whereas INNOVATION

peace had great value because of the constant fights and wars, but, today, responsibility is present in the mainstream discourse on digitalisation and the internet. The contemporary state can be controlled, even if imperfectibly, by its citizens, and politicians have some responsibility. Those who are for a weaker, decentralised state and polyarchical relations, usually refer to these imperfections in existing states, but the emergence of global tech oligarchs has raised the question of irresponsible powers. Nowadays, a large number of people in online media serve private purposes and without any public legitimacy while they censor, punish, and deform views and news in public life without any responsibility towards the public, peace, and prosperity. It seems to be one of the hot issues of the next period to find methods and technologies to control these tech oligarchies by state power and to get support from citizens in this conflict with giant tech corporations. The corporational public life of mass media has slowly been replaced by the corporational internet, but the latter is much more global, since, at present, it does not observe any state borders or assume any responsibility. These companies have started to do politics openly and proudly in liberal democracies. Previously, it was mainly the Democrats who emphasised the importance of the free internet to undermine unfriendly governments which, by definition, were undemocratic. If free internet advances democracy and weakens authoritarian regimes, its propagation will help the spread of democracy, that is, pro-American regimes. Thus, the use of the internet in foreign affairs is not new at all. But in the past, the ideology of the free internet was used to intrude into the politics of foreign states. Thus, it was the continuation of the democracy export of G. W. Bush and the neocons but, now, with the use of high-tech and local ressentiment. Just as the samizdats demolished the Iron Curtain and the Berlin Wall, so will the internet undermine the existing dictatorships in China, Iran, or elsewhere.18 This argument refers to the “dictator’s dilemma”: economic development needs technological openness and the free flow of information, but this freedom will undermine 46

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dictatorship by democratising society. So dictators interested in economic growth undermine their own power, just like the bourgeoisie did by developing the forces of production—precisely as the Marxist prophecy had predicted it. The change occurred because of the disappointment in the democraticising effects of the free internet. Upholding democracy at home—in liberal democracies—and exporting it to peripheries instead of the earlier ideology of the free internet requires the use of manipulation, the selection of news and opinions, the conscious fabrication of reality, all in the hope that this fabricated reality will somehow become the true reality. Creating a new world at home and abroad is not a new project in the imagination of tech oligarchs: it has been there since the ideology of Wired. What is recent is that, instead of unbridled freedom, the creation of the new world is achieved on the foundations of censorship and manipulation. Therefore, the collision of internet companies and governments insisting on their sovereignty is nothing new. What is new is the openly ideological intervention of the global tech oligarchs in local politics to mobilise people for or against. The ideological export (of progress and democracy), that is, the effort to form the structure of a foreign society instead of leaving them alone has been the characteristic of modernity since the French wars. The idea of sovereignty formed by Bodin and, later, by Hobbes was used just against ideological fights. But what is probably new is that sovereignty is not only endangered by foreign states, as in pre-modernity, nor only by business companies, as in modernity, but also by internet oligarchs which sometimes may have their own foreign policy or join some interest groups, governmental or non-governmental.

ENDNOTES 1 Bernard Gendron: Technology and the Human Condition. St. Martin’s Press, New York, 1977.; Dave Healy: Cyberspace and Place. The Internet as Middle Landscape on the Electronic Frontier. In: Internet Culture, edited by David Porter. Routledge, New York, 1997. 55–68.; Ziauddin Sardar–Jerome R. Ravetz

(eds.): Utopia Cyberfutures. Culture Politics on the Information Today: or Dystopia? Social and Research. 1997/autumn. 989–1017.

and How Collective Wisdom Business? Decentralization. MIT Press,Shapes Cambridge, 2004.Random House

Superhighway. NewBarlow: York University Press, New York, 1996.; 2 See John Perry A Declaration of the Independence

Large Print, New York, 2004. 12 Matthew Hindman: The Myth of Digital Democracy.

Langdon Winner: Technology Today: Utopia or 8Dystopia? of Cyberspace. Electronic Frontier Foundation. FebruarySocial 1996.

11 Alexander R. Galloway: How Control Exists after Princeton University Press, Protocol. Princeton–Oxford, 2009.; Michael

Research. 1997/autumn. 989–1017.

Decentralization. MIT Press, Cambridge, 2004. as Usual. The Cyberspace Margolis–David Resnick: Politics

2 Perrybooks Barlow: A Declaration of the Independence 3 See AlvinJohn Toffler’s (Future Shock. Random House, New

12 Matthew Sage Hindman: The MythThousand of DigitalOaks–London– Democracy. “Revolution.” Publications,

of Cyberspace. Electronic 8 February York, 1970., The Third Wave.Frontier Bantam Foundation. Books, New York, 1980.,

Princeton University Press, Princeton–Oxford, 2009.; Michael Greater Kailash, 2002.; Fred Turner: From Counterculture to

1996. Power<https://bit.ly/2uhh1yl Shift. Bantam Books,>New York, 1990., Creating a New

Margolis–David Resnick: Politics Usual. TheNetwork, Cyberspace Cyberculture. Stewart Brand, the as Whole Earth and

3 Alvin Toffler’s books (Future Shock. House, Civilization. Bantam Books, New York, Random 1995.) are aboutNew the

“Revolution.” Sage Utopianism. Publications,University Thousand the Rise of Digital of Oaks–London– Chicago Press,

York, 1970.,social The Third Wave. Bantam Books, York, 1980., beneficial effects of digitalisation andNew communication

Greater Turner: Cyberselfish. From Counterculture to London,Kailash, 2006.; 2002.; PaulinaFred Borsook: A Critical

Power Shift.inBantam Books, New York, 1990., Creating a New technology libertarian terms.

Cyberculture. Stewart Brand,Libertarian the Whole Earth Network, and the Romp through the Terribly Culture of High Tech.

Civilization. Books,D.New York, 1995.) are about the 4 Barry N. Bantam Hague–Brian Loade: Digital democrarcy: an

Rise of Digital Utopianism. University of Chicago Press, London, PublicAffairs, New York, 2000.

beneficial social effects Democracy. of digitalisation and communication and Decision, introduction. In: Digital Discourse

2006.; Paulina Borsook: Cyberselfish. A Critical Romp through 13 James Damore: Google’s Ideological Echo Chamber. How

technology in libertarian terms. D. Loader. Routledge, London, edited by Barry N. Hague–Brian

the Culture of diversity High Tech. PublicAffairs, New biasTerribly cloudsLibertarian our thinking about and inclusion. 2017/

4 Barry N. Hague–Brian D. Meir Loade: Digital democrarcy: an 1999. 3. Also see Lawrence Friedman: The Horizontal

York, 2000.

introduction. Digital Democracy. and Decision, Society. Yale In: University Press, NewDiscourse Haven–London, 1999.;

13 James Damore: Google’s Ideological Chamber. How can Google reassure the world that it Echo protects users from

edited by Barry N. Comes Hague–Brian D. Loader. Routledge, London, Clay Shirky: Here Everybody. The Power of Organizing

bias clouds our thinking about diversityfree andspeech? inclusion.<https://bit. 2017/ July harmful content while still supporting

1999. Also see Lawrence Friedman: The David Horizontal Without3.Organizations. PenguinMeir Press, [s.l.], 2008.; Brin:

<https://bit.ly/37YaYhq > The Good Censor. How can Google

Society. Yale University Press, New Haven–London, 1999.; The Transparent Society. Will Technology Force Us to Choose

reassure theDahl: worldPolyarchy. that it protects users from harmful content 14 Robert Participation and Opposition. Yale

Clay Shirky: Here and Comes Everybody. The Power Organizing Between Privacy Freedom? Perseus Books of Group, New

while still supporting speech? University Press, Newfree Haven, 1971.<https://bit.ly/3971VcR >

Without Organizations. Penguin Press, [s.l.], 2008.; David Brin: York, 1999.; Diana Saco: Cybering Democracy. Public Space

14 Robert Polyarchy. Participation Opposition. Yale 15 Henry Dahl: Jenkins: Convergence Culture.and Where Old and New

The Will of Technology UsMineapolis, to Choose and Transparent the Internet.Society. University MinnesotaForce Press,

University Press, NewYork Haven, 1971. Press, New York–London, Media Collide. New University

Between Privacy and Freedom? Perseus Books Group, New 2002.

15 Henry Jenkins: Convergence Culture.Colonization Where Old and New 2006.; Lincoln Dahlberg: The Corporate of Online

York, 1999.; Diana Saco: Cybering Public Space and 5 Varinder Taprial–Priya Kanwar:Democracy. Understanding Social Media.

Media Collide. NewMarginalization York UniversityofPress, New York–London, Attention and the Critical Communication?

the Internet. University of Minnesota Press, Mineapolis, 2002. Varinder Taprial & Priya Kanwar & Ventus Publishing, [s.l.], 2012.;

2006.; Dahlberg: TheInquiry. Corporate Colonization of Online JournalLincoln of Communication 2005/2. 160–180.; David

5 Varinder Taprial–Priya Kanwar: Media. Peter R. Scott–J.Mike Jacka: AuditingUnderstanding Social Media. ASocial Governance

Attention and the Marginalization of Critical Communication? Bell: Cyberculture Theorists. Manuel Castells and Donna

Varinder TaprialJohn & Priya & Hoboken, Ventus Publishing, [s.l.], and Risk Guide. WileyKanwar and Sons, 2011.

Journal Communication Inquiry. 2005/2. 160–180.; David Haraway.ofRoutledge, Abingdon–New York, 2007.

2012.; R. Scott–J.Mike Auditingand Social Media. 6 TimPeter Jordan: Cyberpower. Jacka: The Culture Politics of

Bell: Cyberculture Theorists. Castells and Donna 16 Moises Naim: The End of Manuel Power. From Boardrooms to

A Governanceand andthe RiskInternet. Guide. John Wiley and Sons, Hoboken, Cyberspace Routledge, London–New York,

Haraway. Routledge, Abingdon–New York,Being 2007.in Charge Isn’t Battlefields and Churches to States, Why

2011. Tim Jordan: Activism! Direct Action, Hacktivism and 1999.;

16 Moises Naim: End of Power. From2013. Boardrooms to What It Used to Be.The Basic Books, New York,

6 Jordan: Cyberpower. The Culture and Politics of theTim Future of Society. Reaction Books, London, 2002.; Henry

Battlefields and Schallbruch: Churches to States, WhyStaat BeingiminNetz. Charge 17 See Martin Schwacher WieIsn’t die

Cyberspace and the Internet. Routledge, York, Jenkins–David Thorburn: Introduction: TheLondon–New Digital Revolution,

What It Used toden Be.Staat BasicinBooks, New York, 2013. Digitalisierung Frage stellt. Springer, [s.l.], 2018.

1999.; Tim Jordan: Activism! Direct Action, Hacktivism and the Informed Citizen, and the Culture of Democracy. In:

17 See MartinforSchallbruch: Staat im Netz. Wie die 18 Center democracySchwacher and Governance: The Role of

The Good Censor. How

the Future ofand Society. Reaction Books, London, 2002.; Henry Democracy New Media, edited by David Thorburn–Edward

Digitalisierung den Staat in Frage Approach, stellt. Springer, [s.l.], 2018. Washington, 1999. Media in Democracy. A Strategic

Jenkins–David Thorburn: Introduction: The Digital Revolution, Barrett–Henry Jenkins. MIT Press, Cambridge–London, 2002.;

18 Center for democracy Governance: The Role of Media <https://bit.ly/2RDOf3k >; and “Now, in many respects, information

the Katz: Informed Citizen, and Wired the Culture of Group, Democracy. Magazine 1997. In: Jon The Digital Citizen.

in A Strategic Washington, hasDemocracy. never been so free. ThereApproach, are more ways to spread 1999. more

Democracy New Media, edited by David Thorburn–Edward 7 Ithiel deand Sola Pool: Technologies of Freedom. Harvard

<https://bit.ly/2RDOf3k >; “Now, many respects, ideas to more people than at anyinmoment in history.information And even

Barrett–Henry Jenkins. MIT Press, Cambridge–London, 2002.; University Press, Cambridge–London, 1983.

has never been so free. There are morenetworks ways to spread more in authoritarian countries, information are helping

Jon Katz:Gillmor: The Digital Citizen. Wired Magazine Group, 1997. 8 Dan We the Media. Grassroots Journalism by the

ideas to discover more people any moment history. Andmore even people newthan factsat and making in governments

7 Ithiel for dethe Sola Pool:O’Reilly Technologies of Freedom. Harvard People, People. Media, Sebastopol, 2004.

in authoritarianHillary countries, information areFreedom. helping accountable.” Clinton: Remarks networks on Internet

University Press, Cambridge–London, 1983.Not Be Televised. 9 See Joe Trippi: The Revolution Will

people discover of new facts and making governments more U.S. Department State (Archive). 21 January 2010.

8 Dan Gillmor: the Media. Grassroots Journalism by the Democracy, the We Internet, and the Overthrow of Everything.

accountable.” Hillary Clinton: Remarks on Internet Freedom.

People, for the [s.l.], People. O’Reilly Media, Sebastopol, 2004. Regan Books, 2004.

U.S. Department of State (Archive). 21 January 2010. <https://

9 See Joe Trippi: The Revolution Will Not Televised. 10 Howard Rheingold: Smart Mobs. The Be Next Social

bit.ly/2G7S5MI >

Democracy, the Books, Internet, and the Overthrow of Surowiecki: Everything. Revolution. Basic Cambridge, 2002.; James Regan Books,of[s.l.], 2004.Why the Many Are Smarter Than the The Wisdom Crowds. 10 Rheingold: Smart Mobs.Shapes The Next Social Revolution. FewHoward and How Collective Wisdom Business? Random Basic Cambridge, House Books, Large Print, New York,2002.; 2004. James Surowiecki: The Wisdom of Crowds. Why theProtocol. Many Are Smarter Than the after Few 11 Alexander R. Galloway: How Control Exists INNOVATION

BIG COMPANIES: HOW THEIR REGULATION CAN HELP INNOVATION Ábel Czékus

George Stigler, in his early study on economic regulation, examines motivations behind the way of shaping business conditions.1 The author concludes that regulation is an asset in itself and enterprises compete for regulation best fitting their interests. This approach supposes, first of all, heavy lobbying and determined attempts to influence national legislation, and, secondly, the consideration of market imperfections and further goals. Today, economic regulation is influenced by internal and external factors. Regulation is mostly shaped by the traditions and institutions of the state, but, in parallel, the regulations of other states also influence national legislation. According to the OECD, regulation has administrative, social, and economic aspects.2 In this context, “economic regulation is intended to ensure the efficiency of markets, partly through promoting adequate competition among actors in the market-place.”3 We assert that economic regulation and innovation are in intensive interaction. Innovation is dynamically impressed by regulatory notions, while regulation is intended to support innovative solutions. This study acknowledges several aspects of the interface between regulation and innovation: • the need for a clear understanding of the relationship between regulation and innovation; • to varying degrees, competition is the precondition of innovation, and antitrust policy plays a pivotal role in it; • regulation should always be adjusted to the legislative, social, and economic conditions of the state to prevent mistakes and errors; • technology should be the motivator of the regulative act, rather than design standards; • a certain degree of international cooperation is needed to avoid failures and obstacles hindering the application of best international standards. 48

INNOVATION

Regarding its place in economics, innovation is in the cross-section of microeconomics and macroeconomics. Firstly, competition policy plays a pivotal role in the long-term development of business conditions. The question here is whether rules targeting mainly industrial phenomena fit today’s economic environment and development. However, apart from this, legislation also considers other policies that may foster innovation. This broadens the scope of the research, as various social and economic targets are pursued by these policies, too. We continue the present study following this dual approach. INNOVATION AND MARKET STRUCTURE The main objective of antitrust policy is to ensure free competition and promote efficiency. Competition policy, therefore, does not protect competitors but the freedom of competition itself. In this constellation, large enterprises are in a special situation, since they play a unique role in innovation and economic development. Thus, there is a debate among economists on the desirable extent of market power. According to Schumpeter, appropriate market power spurs innovation. The notion behind this is that large firms are in a financial position to spend more on innovation, and they do so in the hope of their future ability to expropriate profits attributed thereto. In this reading, market power is the guarantee for continuous innovation. At the other end of the spectrum, the widely accepted view proposes the need for competition as a microeconomic incentive for innovation. This approach positions competitive pressure in the centre of economic activities. Combining these views, George Symeonidis argues that there is no direct linkage between firm size and innovation.4 According to his views, the friendliest

environment for innovation is characterised by has increased.7 Here, lowering prices are the competition of a few enterprises, but there accompanied by economies of scale and mass is no clear implication on the desirable firm size production. The second point is evolving from inducing innovation the most. this: “we encounter basic technology platforms in From the perspective of microeconomics, we a wide variety of relatively short-lived products.”8 should underline an important feature of high-tech Due to its characteristics, information technology industries. In these industries, the development of differs, to some extent, without precluding the a new product might be extremely expensive due rapid development of innovative solutions. to high research and development expenditures Johannes M. Bauer studied the relationship with ambiguous outcomes. In microeconomic terms, of market power and innovation in the this means that fixed costs might be high. Contrary telecommunications industry.9 The author to high fixed costs, marginal costs may represent inquired whether Schumpeter’s conclusions a very small proportion of total costs. This is were applicable to this sector, also considering traditionally the case with software products, where the impact of regulations. Bauer argues that the reproduction or dissemination of the product is reforms in public monopolies and liberalisation cheap.5 In summary, the author emphasises that resulted in beneficial outcomes in the rate of the traditional competition policy approach is not penetration. He stated that “a more dynamic and appropriate in the case of high-tech industries. flexible organization of the industry stimulates There are two more aspects regulation should innovation,” but he also pointed out that “[on consider in technology-intensive industries.6 First, the] contrary, many examples indicate delays of the adoption and further development of the innovation by the incumbent service providers. latest technology is commercialised, i.e., “the role There is also no conclusive evidence that larger of market forces in making technology accessible” firms are more innovative than smaller ones, and

A product life cycle relative to monopoly and competition INNOVATION

many innovations are initiated by smaller firms.”10 As a summary, “empirical evidence suggests that the performance of the telecommunications sector is linked in complex ways to its institutional framework”11 and this could be a benchmark for market regulation. Also, innovation should not be treated on its own but must be viewed in the context of its specific era. Today, innovation is mostly driven by the information revolution, and identifying its interaction with science and society is crucial. As Marburger argues, “linking science, technology, and innovation into an overall policy framework may suggest that we know more about how these activities are related than we really do.”12 At this point, we recall the importance of network effects. In industries that are characterised by strong network effects, future expectations play a crucial role in modes of development, which, in turn, might require stricter antitrust surveillance. This is typically the case with the provision of essential facilities, where market entry requires exhaustive economic analysis: here, competition authorities should consider the legitimate interests of the enterprise with market power and maintain incentives for innovation. The borderline between the interests of the incumbent enterprise and the public good is frequently obscure. The state of existing monopolies and dominant firms also poses questions regarding innovation because their treatment cannot be evaluated solely based on competition policy. These enterprises usually also raise industrial policy considerations and are featured by expansive regulation. John Vickers explains that “as a general measure, regulated dominant firms in Europe have often been unduly shielded from the disciplines of both competition and competition law, while at the same time being over-regulated.”13 This kind of active involvement by the state results in unclear innovative efficiency, although we admit its special economic characteristics. POLICY CONSIDERATIONS FALLING OUTSIDE THE SCOPE OF ANTITRUST In the previous section, we discussed the need for a well-shaped antitrust policy. We demonstrated that there is no clear answer as to the limits of 50

INNOVATION

market power. Due to its novelty, this is indeed an acute challenge in the case of the tech industry. In their detailed study, Mark Armstrong and David E. M. Sappington scrutinise regulation and innovation through the lens of various outcomes,14 and conclude that “the appropriate choice between these regimes can vary with the relevant technological and demand conditions, with the regulator’s skills and resources, with the efficiency of tax systems and capital markets, and with the strength of other prevailing institutions.”15 Thus, we are of the opinion that there is no one-sizefits-all pattern spurring innovation but it may vary country by country. Incentives on innovation might, therefore, be urged by policies other than antitrust regulations. In the present section, we are going to outline the major aspects of this consideration. Getting new technological solutions acclimatised and providing an innovative environment require political commitment. In San Francisco, for example, the regulation of ondemand ride services was preceded by long and professional debates. In these debates, regulators weighed up future development possibilities, and, as a result, a new regulatory framework was introduced to harmonise the operations of these service providers with the existing public transport system.16 Conversely, the lack of regulation or lobby may lead to unexpected turmoil on the market, which stresses the need for clear regulatory intentions. In Hungary, for example, after the exit of one of the biggest car-sharing start-ups, the labour market of taxi drivers drastically changed: professional taxi drivers opted for continuing their business as selfemployed, and, as a result, by the end of 2018, only approx. 15% of them remained employees of a professional taxi firm. It is also worth mentioning that the revenues of taxi firms dropped after the exit of the start-up because of amendments to tax legislation, but, in the forthcoming years, alternative employment patterns also emerged.17 As implied above, taxation is one of the major tools to motivate firms to innovate products or processes. Innovation is effective if tax incentives are accompanied by a well-shaped regulating framework (i.e., indirect incentives). In developed economies, tax incentives have many forms (e.g.,

Direct government funding and tax incentives for research and development, 2015, % Direct government funding of BERD 0.00

0.10

0.20

0.30

Tax incentive support ford BERD 0.40

0.50 Russia Belgium France Ireland Hungary Republic of Korea Austria United States of America United Kingdom Australia Norway Slovenia Canada Iceland Netherlands Portugal Japan Czech Republic Sweden China Denmark Spain Israel Brazil New Zealand Italy Greece Finland Germany Turkey Estonia Mexico Poland Switzerland South Africa Lithuania Slovakia Chile Latvia

0.00

0.10

0.20

0.30

0.40

0.50

tax break, targeted incentives, depreciation rules, lowering tax rates, etc.), but there is consensus that governments play a crucial role in supporting innovative activities.18 In terms of taxation, innovation might generally be funded by government and business sources (i.e., BERD, business expenditure on research and development). The ratio and exact components of the sources may vary across countries; therefore, we lean on OECD data to represent their share within the GDP (Figure 2, page 51). As seen below, there is no clear pattern to the measure and composition of total expenditure across the countries. Similarly, trends cannot be identified without deep scrutiny of the economic regimes, economic policy, and development of the countries. This would go beyond the scope of this study. In their empirical study, Antoine Dechezleprêtre and his colleagues show that, in the United Kingdom and the United States, the innovation-friendly tax scheme resulted in 10% higher GDP-proportionate business research and development—however, they stress the necessity to observe these results with caution.19 Their study states that “tax policies do seem effective in increasing innovation” but, “although the results are optimistic about the efficacy of tax incentives, the large effects come from smaller firms and should not be generalized across the entire size distribution—this does imply that targeting R&D policy on financially constrained SMEs is worthwhile.”20 Therefore, they found no evidence for the leading role of large firms in innovation driven by tax incentives. The question of privacy and information security is an important issue in the study of innovation. Avi Goldfarb and Catherine Tucker, who examine data usage in online advertisement, as well as health care and operations, state that “privacy has also become a key concern for innovation policy,”21 and distinguish between the approaches of the EU and the US, where the former is based on consumer consent, while the latter is much more industryspecific. The authors argue that “these different approaches to privacy policy echo the two different approaches to innovation policy. In the European Union, there has generally been an attempt to centralise and direct efforts, whereas, again, the United States has followed a more industry-specific 52

INNOVATION

EU Commissioner for Competition Margrethe Vestager at a press conference on an antitrust case against US search engine Google at the European Commission in 2017

or ‘asneeded’ approach,”22 thereby determining the use of the latest technologies and digital solutions. The authors also stress the presence of tension between the economic abilities that create value and privacy considerations, and the fact that an inelastic approach in regulation might not lead to the optimal outcomes. Following the developments in transportation, environmental considerations have become a crucial inducement of innovation in this sector. Sajit Chandra Debnath studies the impact of environmental regulations on innovation and finds a positive correlation between them.23 The author states that an environmental regulation “usually increases the cost, [so] the companies opt to improve the production processes or even create new products through innovation in order to neutralize the additional costs incurred due to the compliance with the new regulation.”24 However, we admit that there are significant differences between countries in terms of economic development and structure, and even technologies available; therefore, there is no onesize-fits-all solution. Zhijun Feng and Wei Chen, for example, underline the need for a differentiated approach based on China’s unique economic development and assert that “the ‘incentive effect’ of market-based environmental regulation” should be promoted.25 According to David M. Hart, the costs of environmental regulations would be overcome by the benefits if regulations were targeted and well designed.26 For these purposes, he lists the issues

aenvironmental policymaker should observe enacting good regulation: regulation:conditions would involve environmental whether non-regulated •innovative whether non-regulated conditions responses by the firms; would involve responses by the firms;overcome costs innovative compliance costs that should •ofcompliance that term; should overcome costs innovation incosts the long innovation in the long by term; ofsupervision exercised the regulator; exercised by the regulator; • asupervision competition that is maintained and enhanced, •supporting a competition that is maintained enhanced, diversification and and technological supporting and technological advancement;diversification and and advancement; good understanding of developments in •technology good understanding of developments in and economics, commitment to technology economics, commitment to adjustments ifand necessary. adjustments if necessary. CONCLUSION CONCLUSION In our paper, we described two aspects of In our paper, we described aspects of economic regulation. Firstly, we two outlined the role economic Firstly, we outlined the role of antitrustregulation. policy in shaping market conditions. of shaping market conditions. Weantitrust arguedpolicy that in market power might inspire We arguedhowever, that market power might inspire innovation; there is no clear answer as innovation; however, is no answer as to its desirable extent.there It was alsoclear demonstrated to desirable extent. It was also demonstrated treatment of high-tech industries might thatitsthe that treatment of high-tech might raisethe issues concerning the industries applicability of raise issues concerning existing antitrust rules. the applicability of existing antitrust rules. Impacts of other policies were also traced in the Impacts other policies were also traced in the paper. Weofidentified the importance of political paper. We identified importance of political commitment, taxation,the intellectual property rights, commitment, taxation, intellectual property rights, and environmental considerations. The role of and considerations. The role of strictenvironmental intellectual property regimes and coherent strict intellectual property steps regimes coherent environmental protection areand appreciated. the innovative efforts environmental protection steps are appreciated. Our main conclusion is that of big companies on innovative the qualityefforts of a Our main conclusiondepend is that the broader regulatory depend framework onlyofona of big companies on and the not quality specific features of framework economic and regulations. broader regulatory not onlyThe on institutional, human, economic aspects of a specific features of and economic regulations. The society do play a pivotal in the identification institutional, human, androle economic aspects ofofa this process; therefore, there one-size-fits-all society do play a pivotal roleisinnothe identification solution. of this process; therefore, there is no one-sizefits-all solution.

ENDNOTES

4 Innovation, Firm Size Market 4 George GeorgeSymeonidis: Symeonidis: Innovation, Firmand Size andStructure. Market Schumpeterian Hypotheses and Some Themes. OECD Structure. Schumpeterian Hypotheses andNew Some New Themes. Economics Department Working Papers, no. Papers, 161. 1 January 1996.1 OECD Economics Department Working no. 161. <https://doi.org/10.1787/603802238336 > 5 Versenypolitika. Elmélet Elmélet és gyakorlat. 5 Massimo MassimoMotta: Motta: Versenypolitika. és Gazdasági gyakorlat. Versenyhivatal Versenykultúra Központ, Budapest, Gazdasági Versenyhivatal Versenykultúra Központ,2007. Budapest, 2007. 6 H.Marburger Marburger III: Dimensions of innovation in a 6 John John H. III: Dimensions of innovation in a technologytechnologyintensive Policy Sciences. 2012/March. intensive economy. economy. Policy Sciences. 2012/March. 89–96. 89–96. 7 7 Marburger, Marburger,93. 93. 8 8 Marburger, Marburger,94. 94. 9 9 Johannes JohannesM. M. Bauer: Bauer: Market Market Power, Power, Innovation, Innovation, and Efficiency in in Telecommunications: Telecommunications: Schumpeter Reconsidered. Journal of Economic EconomicIssues. Issues.1997/June. 1997/June.557–565. 557–565. 10 Bauer, 562. 10 Bauer, 562. 11 563. 11 Bauer, Bauer, 563. 12 90.90. 12 Marburger, Marburger, 13 John 13 JohnVickers: Vickers:Competition Competition policy policy and and property property rights. The Economic EconomicJournal. Journal.2010/544. 2010/544.391. 391. 14 14 Mark Mark Armstrong–David Armstrong–David E.E. M. M. Sappington: Sappington: Regulation, Regulation, Competition, Competition, and and Liberalization. Liberalization. Journal Journal of of Economic Economic Literature. Literature. 2006/June. 2006/June.325–366. 325–366. 15 360. 15 Armstrong–Sappington, Armstrong–Sappington, 360. 16 Onesimo 16 OnesimoFlores–Lisa Flores–LisaRayle: Rayle: How How cities cities use use regulation regulation for innovation: Francisco. innovation: the the case case of of Uber, Uber, Lyft Lyft and and Sidecar Sidecar in in San San Francisco. Transportational TransportationalResearch ResearchProcedia. Procedia.2017. 2017.3756–3768. 3756–3768. 17 Bucsky taxis 17 BucskyPéter: Péter:Az AzUber Uberkivonulása kivonulásaután utánaz az egész egész magyar taxis piac piac eluberesedett. eluberesedett. G7. G7 3 October 2018. <https://bit.ly/3aqvkBC > 18 For 18 Forthe thesake sakeofofsimplicity, simplicity, we we also also refer refer to research and development developmentwith withthis thisterm. term. 19 Antoine Research 19 AntoineDechezleprêtre Dechezleprêtre[et[etal.]: al.]:Do Dotax tax Incentives Incentives for Research Increase R&D. NBER NBER Working Working Increase Firm Firm Innovation? Innovation? An An RD Design for R&D. Paper Paper Series, Series, Working Working Paper Paper 22405. 22405. 2016/July. 2016/July. <https://bit. <https://bit. ly/2NDN42s > 20 Dechezleprêtre [et [et al.],al.], 28–29. 20 Dechezleprêtre 28–29. 21 Goldfarb–Catherine Tucker: Privacy Privacy and Innovation. Innovation 21 AviAvi Goldfarb–Catherine Tucker: and Innovation. Policy and the Economy. 84. 2012/12. 84. Innovation Policy and the2012/12. Economy. 22 84–85. 22 Goldfarb–Tucker, Goldfarb–Tucker, 84–85. 23 Sajit Become 23 SajitChandra ChandraDebnath: Debnath:Environmental Environmental Regulations Become Restriction forfor Innovation – A–Case Study of Toyota Prius Restrictionorora aCause Cause Innovation A Case Study of Toyota and Leaf. Procedia. Social Social and Behavioral Sciences. 2015/ PriusNissan and Nissan Leaf. Procedia. and Behavioral Sciences. July. 324–333. 2015/July. 324–333.

1 George J. Stigler: The theory of economic regulation. The

24 333. 24 Debnath, Debnath, 333.

1 The and theory of economic regulation. The Bell Science. 1971/spring. BellGeorge JournalJ.ofStigler: Economic Management

25 Zhijun 25 ZhijunFeng–Wei Feng–Wei Chen: Chen: Environmental Environmental Regulation, Regulation, Green

Journal 3–21. of Economic and Management Science. 1971/spring. 3–21.

Innovation, Development: An Empirical Analysis Innovation, and and Industrial Green Development:

2 2 OECD OECD Science, Science, Technology Technology and Industry Scoreboard 2017:

Based Basedon onthe theSpatial Spatial Durbin DurbinModel. Model.Sustainability. Sustainability.2018/10. 2018/10.19. 19.

interactive charts. Organisation for for Economic Economic Co-operation Co-operation and and

26 David M. M. Hart:Hart: WhenWhen Does Environmental Regulation Stimulate 26 David Does Environmental Regulation

Development. 2019. Development.Accessed: Accessed:2121November November 2019.

Technological Innovation? Innovation? Information Technology Innovation Stimulate Technological Information &Technology

3 3 Idem. Idem.10. 10.

Foundation. 2018. <https://bit.ly/36857o2 > & InnovationJuly Foundation. INNOVATION

BATTLEGROUND BANKINGAN EPIC BATTLE WHERE ONLY ONE THING IS CERTAIN: THAT CLIENTS WILL WIN Áron Németh

In the past few years, an evermore accelerating importantly, we might add, they would lose the battlefield has emerged within banking for the key purpose of their existence. Because banks, heart of small business clients which includes despite all advancements in technology and the basically the majority of non-private clients from passing of centuries, still operate with a simple micro-companies to small and medium-sized goal in sight: collect deposits from individuals, pay enterprises (MSME). However, the story, which interests to them, while, at the same time, lend out started out as a fight between incumbents and the collected deposits (with care and responsibility) so-called challenger banks (up-start, technology- to other individuals who are brave enough to start driven providers), is nowadays a full-fledged war and develop a business. In the end, this results in between incumbents, challengers, Big Tech, and a better life for individuals, business owners and specialists. Who are these players exactly that are their employees, and all their families. Or, to put it trying to battle it out? Firstly, the mighty incumbents, simply, banks can help societies in reaching and such as Intesa, Raiffeisen, UniCredit, OTP, or we at maintaining health and prosperity in the long term. But why is it so hard for incumbents to attract Erste; secondly, the trendy challengers, e.g., Revolut, N26, Starling Bank, or Monzo Bank; thirdly, the or keep their MSME clients, especially in light of larger than life Big Tech players, such as Facebook, their main societal purpose and the fact that most Amazon, and Uber; and, lastly, the geeky specialists, already bank with traditional players? This, as the like Kabbage (lender) or iZettle (payments). consensus goes, is due to changing client needs Of course, you might ask: What is the big fuss and behaviours. MSME clients want to have better, about MSMEs? Well, quite a lot. Just to give you a cheaper, and more transparent solutions from banks sense of how important this segment is to banks, but, at the same time, want to have experiences in most incumbents, MSMEs provide ca. 20-30% that are currently delivered by—yes, you guessed of total revenues, despite making up a relatively it—non-traditional players, i.e., challengers, Big small share (ca. 5-10%) of total client numbers. But Tech, and specialists. Why is it so? Because MSME their importance is not only about revenues, profits, owners are not cut off from the realities of life on or their expected growth rate, it is also about the Earth. As most people use Netflix, Amazon, Google, impact they have on local markets, societies, and Uber, and Co in their private lives, those who also private individuals. Again, a small hint on this: happen to own a company would like to have similar according to the latest figures by the European experiences that they are accustomed to outside Commission, more than 90% of all companies in banking. It is no coincidence that clients today tend the EU are in fact MSMEs, who not only provide to compare offers from banks and their connected ca. 30% of all jobs but add also ca. 20% to total experiences with outsider propositions, and not economic output. Based on this, we can safely say what they get from other banks. It is becoming that MSMEs are an integral part of the EU economy, less and less important to them whether a current including all member states, since these overall account or a loan is provided by an incumbent or figures closely correlate with the local numbers. not. And this is even more visible in the case of So whatever happens, banks cannot lose MSMEs, as they are shorter on time and resources out on MSMEs, because, firstly, if they did, their than anybody else on the banking market. So if performance would collapse. Secondly, and more there is a better deal, they will surely consider it. 54

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However, here, we must make an important distinction: considering something and actually purchasing it are completely different actions. And MSME owners are a particularly careful bunch. They fully understand the relevance of banks and the influence they have over the well-being of their respective business, be this influence positive or negative. They know that should a bank provide complex, hard-to-use products and services not tailored to their needs, their business could easily break underneath. Also, if they do not get support on how to better run their operations, if there is no proactive guidance on how to maintain or grow in a proper way, again, they could easily go down. So what role in banks, or for that matter, in any financial providers, do MSMEs look for? Simple: to be real business partners to them. Are we there yet as an industry? Certainly not; hence the not-sopositive feeling among MSMEs towards incumbents, the oftentimes bad publicity these players receive, and, of course, there is also the growing popularity of non-traditional providers, which, again, speak volumes about the performance of the old guard. Nonetheless, the battle for the heart of MSME clients is far from over. In fact, it is only getting exciting nowadays as the competition really accelerates. And how do incumbents fare in this game? If we look at the sheer numbers and capabilities that they possess (e.g., number of clients, profitability, expertise, outreach, innovation potential), we can safely say that they are very well-positioned for success. However, besides numbers and capabilities, it is also worth noting that there is also a great degree of willingness on their part to fight and remain relevant. Firstly, because what happens with MSME banking, as noted before, can almost make or break the success of a bank. And secondly, at least in the case of purpose-driven banks like Erste, besides financial well-being, it is also immensely important to deliver prosperity to the societies in which they operate and have a clear, positive impact on people. Could this happen without MSME clients? Surely not. Are the incumbents perfect in this sense, and their MSME clients satisfied? Not really. No surprise that MSME clients are testing the waters with non-traditional providers and moving away from incumbents. But we must note that this process, while clearly underway, is still slow, and the most

relevant indicators still back incumbents. There are several reasons for this, but three of them stand out: 1. Challengers and specialists, while very good in PR and in satisfying selected client needs do not have substantial expertise, vast resources, and capabilities to provide the all-round support that most business clients need and incumbents have. 2. Big Tech, while only focussing on selected banking/financial areas, just as the previous set of players, are able to match or even outperform the vast resources of incumbents and have also elevated customer experience to perfection (however, what they lack and incumbents do not, especially currently, is the trust of most clients). 3. Most incumbents take MSME banking seriously and invest heavily in developing it by either mimicking non-traditionals, or delivering something new and unique, or even mixing these two approaches. Could we conclude then that incumbents are winning or will win the final battle? Certainly not. Being well-positioned to win or actually winning, like in the case of considering to buy or actually buying, are not the same. However, one thing is fair to say: incumbents are pulling their act together. Of course, Apple Card, Facebook Pay, Googleâ&#x20AC;&#x2122;s current account, Uber Pay are all out there or will be pretty soon. Revolut, N26, and Startling will most likely expand both in terms of offering and geographical coverage. And we have not even mentioned the financial beasts of the East, especially the ones coming from China, like AliPay, WeChat, and PingAn. Still, as seen before, incumbents are well-positioned to fight. However, what is important in this development is that, while the dynamics of MSME banking is changing, and is changing fast, and although this will result in some winners and losers, whoever that might be in the end, the real success is that these changes will provide better services and products for MSMEs. The days of complex pricing, hard-tounderstand products, bad user experience, and solutions unrelated to actual clients are numbered, and that is a very positive outcome. However, before jumping into some real-life examples as to what this change actually means, on Table 1 (page 56) there is a brief assessment on what current approaches look like in banking from the clientâ&#x20AC;&#x2122;s perspective. INNOVATION

If you think that none of the above actually satisfies MSME clients’ needs, you are probably right. It is clear, based on a lot of research and numerous surveys (including the comprehensive ones we have conducted), that MSME clients today would predominantly expect the following from their banking providers: • Solutions tailored to actual needs: meaning that solutions (products and services) should be tailored to actual customer needs, e.g., automatic product suggestions based on behaviour via mobile app, meaningful discussion during onboarding to identify all the needs and to select products and services based on these, not just enforcing those that customers do not need. • Simplicity, transparency, digitalisation: they might sound obvious, but they are not; all simple products and underlining processes should be fully digitalised, marketed in a simple and transparent way so clients can easily understand, purchase, use, re-use, or cancel them. • Meaningful advice on complex topics: meaning that for complex topics (e.g., how to develop business, how to accumulate wealth, which insurance to take, what happens if liquidity issues arise, how to provide for my employees, etc.), relevant advice should be available in the channel of the client’s choice, anytime, anywhere; reliance on branches should be decreased.

• Omnichannel servicing: meaning that clients would like to reach providers via the service channels of their choice (not just branch, or mobile, or others, but a sum of all), and in a time slot they prefer (on-demand); thus banks adapt to MSMEs behaviour, and not the other way round. • Providing beyond-banking service: meaning that—if all of the above are checked—banks should be able to provide services that, while not strictly banking related, are still closely entwined with finances and with how to run respective businesses (e.g., automated accounting) better. These might sound futuristic to entrepreneurs, especially for seasoned ones, who have got used to complexity, limited support, and, in some cases, even negligence by some providers, but the industry is very much moving in the above directions. And we at Erste Group are no exception. I could bring—thankfully—relevant examples from all our seven core markets (Austria, the Czech Republic, Slovakia, Romania, Hungary, Croatia, and Serbia) that all point to the above, but I name now only the latest ones: In Austria, we launched a platform that automatically provides a potential financing mix to clients, mostly up-and-coming businesses, that are tailored to their individual needs: lending, leasing, equity crowdfunding, EU and state funding, basically the most relevant ones, all at the client’s disposal in a couple of minutes, in

INCUMBENTS

CHALLENGERS

BIG TECH

Incumbents Branch as main channel

Mobile app as main channel

Mobile app and website as main channel

Full solution spectrum (all financial needs)

Limited solution spectrum (selected financial needs)

Complex pricing and hard-to-selectright products from a wide range

Simple pricing and easy-to-select products, as range is limited

Personal advisory (mostly via branches)

Non-personal advisory (mostly via e-mail, chatbots)

Limited beyond-banking services (i. e. account support, payroll)

Wider beyond-banking services

Limited beyond-banking services

Image: trust and reliability

We work for you

Superior experience that you know

INNOVATION

FinTechs

Asset Management

Financing

Payments

Other FinTechs

Social trading

Alternative payment methods

Insurance

Donation-based crowdfunding

Robo-Advice

Blockhain and cryptocurrencies

Search engines and comparison sites

Reward-based crowdfunding

Personal financial management

Other FinTechs

Technology, IT and infrastructure

Crowdinvesting

Investment and banking

Crowdfunding

Credit and Factoring

Other FinTechs

Crowdlending

The main segments FinTech companies are involved in

a fully digital format. In Hungary, we are building an online/offline ecosystem for our clients, so that they can get to know each other, foster business relationships, and improve their performance by connecting with them easily. Finally, in Croatia, we are providing remote advisory services which ensure that our clients can get meaningful advice on the go, without the need to visit branches. Why are we doing this? Because, for us, the MSME segment is key, not necessarily because of profitability, but rather because of what we were established for, what we believe in, and who we are. We were established two hundred years ago this year with the purpose to provide prosperity for people and societies where we operate. That is what we did in the past two centuries. That is what we do today. That is what we will do in the coming centuries, too. And, in this endeavour,

as outlined above, MSMEs have a crucial and integral part. We need to make banking work for them and with them so that prosperity in our CEE region will be stable and long-lasting.

INNOVATION

NEWâ&#x20AC;&#x201C;OLD WAYS

CITY STATES OF THE FUTUREA GLOBAL MODEL OR UNIQUE EXAMPLES? Zsolt Csepregi

Throughout human history, different types of social organisations have competed for control over everlarger populations, territory, and wealth. These structures have always depended on available technologies while serving as a pool for further progress, engendering, in fact, the conditions necessary for the emergence of the next level in society’s evolutionary progress. Ancient conflicts and competition between tribes, city states, kingdoms, empires, and republics, just to name a few stages, did not end with liberal democratic nation states adopting market economy. Contemporary prophets of the social sciences hail the coming of a new age of technologically enabled political configurations for mankind as a whole or as groups of different sizes. Some of them attract more academic attention, such as Philip Bobbitt’s triad of the competing mercantile, managerial, and entrepreneurial states, or Parag Khanna’s vision of megacities spanning the globe. Khanna, himself hailing from Singapore, understandably looks for signs across the globe which may show that solutions implemented by the Southeast Asian city state demonstrate the emerging pattern of a new international configuration moving beyond the dominance of territorial states.

A view of Singapore, the prime example of a successful city state 60

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This vision has a strong appeal, as contemporary city states or federations of city states (such as the United Arab Emirates) are peaceful, rich, and technologically advanced habitats assuming a moderating role in global affairs and serve as nodes of international affairs and commerce. Therefore, anyone who aims to analyse international relations and decide on the future trajectory of public policies should be well aware of the competing narratives regarding the successful examples of city states and of how our (and our adversaries’) states and communities will develop in this manner or adopt certain policies championed by city states. Will the more populous megacity areas in territorial states such as the United States and China become more like the city states we admire? While the visions are attractive and imaginative, we should always be sceptical about radical change, as the doomsayers of the old ways have usually turned out to be too eager to proclaim the end of a social structure, including autocratic regimes, religious systems, market economy, or basic natural units such as the family itself. Many of the social organisations projected for the future have their roots in human history. Khanna’s vision of mercantile megacities draws on the example of Italian city states of the medieval period or even Greek antiquity. We may interpret megacities as technologically more capable versions of their ancestors. A city state differs from a large country in having a relatively smaller territory but a much denser population. In ancient times, city states usually had a navy to rely on, and they were predominant in coastal areas (apart from Bronze Age city states, which did not have imperial competition on land). The megacities of the future will also, as foreseen by Khanna, be situated on the seashores of the World Ocean and linked to a dense network of

Metropolitan corridors of Europe

trade, communication, and migration. These megacities will be multicultural, utilising every innovative solution to increase their wealth and power. The main question is whether a (mega) city can become as powerful as—or even more powerful than—a territorial state and multiply all over the globe. Will great powers allow their coastal regions to practically secede and leave behind their less geographically favoured kin in inland territories? Will international order (or disorder) allow a large number of city states— besides the limited number of influential quasicity states in the Gulf and Singapore existing at present—to have an emerging role of power? What we know for sure is that technological possibilities have expanded, which can be used to bolster the military, economic, and societal power of city states, as well as their global network. It is quite understandable that progressive thinkers, politicians, and businesspeople look to Singapore and the United Arab Emirates as examples to follow. Singapore itself boasts the

third-highest nominal GDP per capita of more than USD 100,000, and the Gulf shows similar figures. Megacity-like areas in the US (Greater Los Angeles, New York metropolitan area) or China (Yangtze River Delta, Pearl River Delta), which host up to ten times as large populations as current city states, promise the well-being of hundreds of millions of citizens if they can become upscale versions of the Singapore or UAE model. In Central Europe, all of the capitals (and Trieste) are included in the Green Banana metropolitan area, housing twelve million people, with an extended port in the Adriatic, demonstrating the significance of North–South connectivity in the region of the Visegrad Cooperation. The much more populous Blue Banana, including the UK, Germany, France, the Benelux states, and Northwest Italy, boasts a population of 120 million, serving as one of the prime economic belts of the EU. Smart city solutions and innovative transportation turn these megacities, with populations of millions to potentially a NEW–OLD WAYS

hundred million in the case of large metropolitan of a city state solely by external powers, it is areas, into well-honed engines of industry and worthwhile to draw on historical examples, which services. New manufacturing technologies, 5G show that a city state is only viable if there is no networks, and AI-assisted solutions may all serve great territorial state that would aim to incorporate these communities to “punch well above their the city, or there are more than one competing weight.” In military terms, the age of masses of territorial powers around, and the city state or a armed personnel has shifted to cyberwarfare and group of city states serves as a buffer zone and precision strikes, which also favour city states. provides vital trade and economic services for Contemporary examples of modern Spartas like the territorial states/empires. The former case is Singapore and the United Arab Emirates project exemplified by the Phoenician colonial system in hard power in their region on a scale previously the Mediterranean (up until the successful colonies demonstrated only in medieval Italian city states. had to become territorial states themselves, On the other hand, we should keep in mind like Carthage, or perished under their imperial that every technology would also be available neighbours), while the latter was true of the Italian to the adversaries of the city states. The new city states until their unification. It is highly unlikely structures do not have an inherent advantage that any city state could balance between greater over territorial states, but they serve a vital role in powers without a unique geographical location their respective regions. Our two most important or without a great power patron guaranteeing examples, the UAE and Singapore, are catalysts the independence of the city state against for Eurasian connectivity, utilising their central neighbouring territorial states (more on that later). The second issue, megacities in the process geographical position to physically connect and finance ventures which lubricate the global of secession, has two main problems. The first is economic machine, may that be through ports, that the central power should be wary of granting air travel, or capital investment. The UAE is an too much independence to the most productive important participant in the Gulf Cooperation regions of the country. The reform and openingCouncil, while it also serves as a mediator up of the People’s Republic of China is a great between Iran and the rest of the Sunni Arab example of coastal urban regions vying for world. Singapore, on the other edge of the Indian greater autonomy and wealth, while the capital Ocean basin, is a vital engine in the Association is systematically pulling the leash on leaders and of Southeast Asian Nations, the emerging regional projects too independent for its purposes and cooperation encompassing more than 650 million is constantly aiming to create a wide national or people, which would altogether be the fourth even international framework such as the Belt largest economy with its GDP of USD 8.5 trillion and Road Initiative to control these processes. (PPP). Considering what we know of these city The national centre, controlling the landmass state–like actors, it would be beneficial to have and population around the independent-minded more of them on the globe, underpinning a more megacity, would be well advised to use all interconnected world economy. On the other hand, administrative or even armed coercive methods we must understand the complications inherent to discourage any secession. It is interesting in the existence of independent city states and to see how certain cities develop institutions— their potential conflicts with territorial states, which such as independent agencies for investment is demonstrated by the blockage of Qatar by the promotion, tourism, and foreign relations—which rest of the Gulf Cooperation Council states, just to are like national ministries. These institutions counterbalance our positive example, the UAE. may realise international partnerships which are Therefore, the three greatest challenges to a equally beneficial to the city and the country, future network of megacities are the following: but they still present a challenge to national external threat from foreign powers, various sovereignty. Secondly, the urban area itself, threats from their own sovereign country, and although benefitting from separating itself from internal destabilisation. As for the conquest the more backward rural areas of the country, 62

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would lose access to not only kin population but also one of the most valued security resources: geographical depth. Countries almost always try to acquire and secure buffer zones to discourage military invasion by adversaries, and the complex international system in the 21st century will not do away with this vital need. In the end, it all comes down to geography. While certain territories and regional systems favour the coalescence of megacities, industrial and economic powerhouses including millions or tens of millions of people, most do not, or only to a limited degree. Natural fortresses like Singapore, surrounded by sea, or the United Arab Emirates, surrounded by both literal sea and the figurative sea of the Arabian Desert, may develop further as smaller city state–like political entities and serve as nodes for the ever-globalising world economy. In other regions, territorial nation states or confederations will become the flowerbeds for the blossoming cities of the future. This relationship between territorial states and city states, on the other hand, will be much more controversial than geoeconomic optimists, such as Khanna, imagine. It is not only megacities themselves that will constantly engage with each other in a tug of war for authority, wealth, and political leadership along the economic belts and roads spanning the globe but territorial states and megacities as well, as I have indicated referring to the creation of the city’s independent institutions. In some places, strong governmental control will keep the megacities at bay (like in China), or the peaceful and mature international framework of confederations (like the European Union) will provide a context for the non-threatening emergence of the integration of certain metropolitan belts. However, in some areas, city states may very well spiral out of control from the rest of the country. One should not welcome such an outcome, because regions left behind might turn into no man’s lands dominated by warlords and extremists, threatening independent neighbouring city states and international routes of trade and communication as well, especially in Africa, which provides examples of both historic commercial centres, such as the island of Zanzibar and Djibouti, and highly unstable, terrorist-infested regions.

Nightime view of Shanghai and the Yangtze River Delta, home of more than 88 million people

The global economic, horizontal tug of war between the nodes envisioned by Khanna will be accompanied by a more vertical tug of war between the state and the city. Finding the dynamic optimum of the devolution between these entities will depend on many factors, and there will not be a one-size-fits-all solution. As technology progresses, there will be more reasons for megacities to try to break out and pursue development more akin to their counterparts on the other side of the ocean but also more reasons for the state to apply counterforces and maintain cohesion. In this way, the ancient push–pull relationship between the city and the countryside will continue, and the historical city states of Mesopotamia, Greece, and, later, Italy will be able to inform our understanding to carve the best path forward in the 21st century as well. What we should keep in mind is that city states serve as vital laboratories for developing innovative solutions, thanks to their effective, relatively small scale and quickly reacting administration, and understanding their development strategies and adopting best practices are in the interest of all kinds of actors. The future configuration of the international arena cannot be a universal system equally suitable for every participant: we will have contending and cooperating city states, megacities, territorial states, and (con)federations. Neither format will gain supremacy, as the world is not uniform. What we must strive towards is finding a dynamic balance between the various and ever-evolving political structures ruling the geographical location most favourable to each particular entity. NEW–OLD WAYS

MODERN THALASSOCRACYMYTH OR REALITY? Tamás Péter Baranyi

Parag Khanna’s vision of erecting megacities never really took over the Indian subcontinent; and getting beyond territoriality is compelling, they rather had an intervention force and a local and the trends he took as starting points for this balance of power they could manipulate. It was vision are already here—but is it a viable future for even more articulate in the semi-colonisation mankind? This article tries to challenge Khanna’s of China. In the Portuguese case, they called it vision on two points. That territoriality is outdated “thalassocracy”—a seaborne rule. Those networkis debatable and so is the assumption that the based empires were flourishing at the time when transformative changes of the early 21st century normative sovereignty was being enshrined in are brand new and, indeed, transformative. the international system of Europe. In many ways, Territoriality as a concept has always been modern geopolitical, or, rather, geoeconomic, central to international relations theory, as well as thinkers borrowed their vision of post-territoriality political and strategic studies. In effect, territoriality from such historical antecedents. has become the cornerstone of international The 20th century, on the other hand, saw two relations in practice since the signing of the major changes: revenge on European empires Treaties of Westphalia in 1648. Even though the and the totalisation of Westphalian sovereignty. concept has been debated on a historical ground, Decolonisation, the foundation of the UN, the “Westphalian sovereignty” might as well become further codification of international law, the an axiom in international relations.1 One of the emergence of an international society were all problems of putting “Westphalian sovereignty” based on the normative assumption that states in the centre is the fact that it was always more are equal, they should not be subject to another of a normative rule than an actual procedure. state’s control, and their natural status is political Precisely in the decades of its establishment, independence. Nothing was more indicative of overseas colonies of European countries were this normative change than the membership blooming. Those empires were basically maritime: of the UN that went from dozens to 193 by the more like a web of outposts and entrepôts end of the century. The framework of the Cold than actual territorial gains. The Portuguese War—with the Soviet Union and the United controlled the Indian Ocean with great ships States as superpowers—was superimposed on and a handful of forts and feitorias. The British this Westphalian system, but the core remained. In the latter phases of the Cold War, however, transnational conflicts and threats came to the forefront of the international agenda: arms trafficking, environmental issues, terrorism, and organised crime. This experience was then added to the general triumphalism of the Cold War, and they together contributed to the rethinking of international relations as such.2 Today, there are many reasons why people are doubtful about territorial sovereignty. First, some argue that this notion is profoundly unjust Parag Khanna, the theorist who claims that the future and deceptive, as countries are hardly as belongs to city states homogenous as sovereignty would indicate, and, 64

NEW–OLD WAYS

ultimately, the location and structure of a state are defined by previous and present conflicts. Thus, the concept is just not apt to describe a society that is more heterogeneous, and there is little regulative power to such a hypocritical concept. Others have pointed to the perceived outdatedness of the concept: they argue that an increasingly interconnected world, expanding world trade, slow dissociation from state power, or the empowerment of citizens all suggest that the old-school territorial concept of the state does not function well any longer. The idea that globalisation brought about unprecedented changes that would ultimately modify our notions of state, power, citizenship, and alignments has been here since the end of the Cold War, and it has seen upticks and downturns in connection with present international events.3 So how important is territory today? Parag Khanna argues that it still is, but its relative weight is decreasing, and the world is going to be ruled by megacities with hinterlands. In any case, the issue of territory has been a recurring feature of

international relations. Whether it be the contest between Athens and Persia, or America versus Britain, the question of whether a great power should gain extended territories has always been present. Likewise, it was a problem whether a great territory can be ruled by democracy or only city states. An increasing emphasis on world trade was not only the favourite topic of the early 21st century but the early 19th century, too. World economy as an alternative to state-based world geopolitics was not invented by thinkers of our age.4 Territory, on the other hand, has been still very important to international power in the contemporary world. It is not by chance that the most powerful countries have extended territories and populations today. True, a small state can manoeuvre very well if it has a good position to facilitate trade and services (e.g., Singapore, Hong Kong, Luxemburg, Andorra, etc.). But the fact is that their relative advantage invariably lies with their geographic position, their relations to major powers, and inner financial structures. Singapore or Hong Kong has the advantage to trade directly with China NEWâ&#x20AC;&#x201C;OLD WAYS

A map inspired by Parag Khanna’s book, Connectography

(a major territorial power), while Luxemburg and Andorra take advantage of their relatively free flexible rules, their wealth being connected is ato the broader European economy. As we see the future world as the realm of megacities, it cannot go unnoticed that these cases are exceptional, connected to the broader picture, and are not applicable everywhere. One can also say that a world of megacities is a vintage Singaporean vision which follows the national interest of Singapore itself. The extent to which territory is still fundamental even to city states becomes clear from some examples. One of the most developed countries of the world, Australia, is essentially a country of city states, an “archipelago,” so to say. Their capacity to trade with China and the US makes them an internationally competitive great local power. Their thalassocracy is, however, fragile: the 2019–2020 bushfires showed that without a stable hinterland, such megacities are not viable by themselves. Similarly, Singapore’s capacity for trade depends 66

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on the flow of goods from abroad, which is clearly seen as a vulnerability. The lack of strategic depth in the face of climate change and emerging sea levels is also indicative of the importance of territoriality. Hong Kong, for instance, lies in the gravity of mainland China. Furthermore, both Australia and Singapore strive to “import” more people in the coming years to reach a more stable inner market. This, again, illustrates a heavy emphasis on territory or population.5 It is very clear that megacities are lame ducks without major hinterlands, active population, and stable agriculture and industries. Even if the modern version of thalassocracy could be applied universally, the concept of megacities does not take into account one essential factor: identity. It has been argued for decades that state-based identities are on the ebb, while postmodern identities—communal, sexual, lifestyle, religious, etc.—are on the rise. Some even argued that services of megacompanies define us more thoroughly than our national

affiliations: might have morewas things in Americans.Mac The users latter half of the 2010s more common, than,by say,the multicultural, The characterised resurgenceAmericans. of old-school latter half of thepostmodern 2010s was more identities than ones.characterised Even in the by the resurgence of old-school identities than mid-1990s, there were some assumptions that postmodern ones. Even in the mid-1990s, there a “Pacific identity” might emerge that would were someBeijing, assumptions thatand a “Pacific identity” connect Sydney, Los Angeles might emerge connect Beijing, Sydney, in a way theythat didwould not feel towards Xian, Alice and Los Angeles in a way they did not feel towards Springs, or Lincoln, Nebraska. Even though Xian, Springs, Lincoln, Nebraska. there Alice has been suchoran economic gravity,Even this 6 though hashas been an economic If we talkgravity, about type of there identity notsuch evolved. this of identity has trends not evolved. weclear talk any type indication of global today,6 itIf is about any indication of globaltotrends today, it is that politicians, committed a unitary vision clear politicians, to a unitary vision of thethat nation state, committed willing to endure economic of the nation state, willing endure backlash for national gains,toand with economic antiglobal backlash for national gains, with antiglobal and pro-national rhetoric, are and on the rise. The city and rhetoric, on the rise. The city statepro-national concept comes up are empty-handed against state concept comes up empty-handed against a Brexiteer Britain, a Trump Administration in thea Brexiteer Britain, Trumppolitical Administration in the US, manya other changes. US, and so and many other political In so sum, the concept of changes. the city states and In sum, the concept of the cityand states “connectography” is not quite new, it hasand its “connectography” is not quite new, and it has roots precisely in the way European countries its roots precisely the modern way European countries colonised the world.inThis thalassocracy, on colonised the world. Thismore modern thalassocracy, the other hand, is much vulnerable than its on the other hand, is much moreofvulnerable than its colonial predecessors because the transnational colonial predecessors of the transnational nature of threats and because the increasing international nature of threats the increasing competition. Big and economies, largerinternational territories, competition. Big economies, larger and major populations are so vital to a territories, stable and and major country populations sothat vital to countries a stable prosperous in the are future even and in the futurethose that goals. even mostprosperous similar to citycountry states strive to reach countries most similar to citycannot states be strive to reach Furthermore, such a vision adapted to those Furthermore, such a vision be most goals. circumstances—only in the wakecannot of major adapted mostare circumstances—only the wake markets to which expected to exert inever more of major markets which are expectedminor to exert ever influence on those thalassocratic states. morefinal influence on those thalassocratic The last argument against Khanna’s minor vision tend to states. Thethat finalmodern last argument is the fact political against identitiesKhanna’s be national, international, andidentities political, vision is the instead fact thatofmodern political instead Neither megacities nor megatend to of beeconomic. national, instead of international, and regions provided an economic. alternative to the “Westphalian” political, instead of Neither megacities identities of states which mostan citizens still associate nor megaregions provided alternative to the themselves with.identities Though Parag Khanna’s vision of “Westphalian” of states which most the city still stateassociate is enriching and thought-provoking, citizens themselves with. Though and it Khanna’s should contain important aspects Parag vision ofmany the city state is enriching for us to understand theand future, most contain likely it and thought-provoking, it should would important eventually come in second many aspects for us after to understand old-school the future,ofmost likely itnationhood, would eventually come in concepts statehood, and traditional, second after old-school long-established identities.concepts of statehood, nationhood, and traditional, long-established identities.

ENDNOTES 1

Andreas Osiander: Sovereignty, International Relations,

and the Westphalian Myth. International Organization. 2001/ spring. 251–287. 2

Roland Dannreuther: International Security. Polity Press,

London, 2013. 15–39. 3

Richard

Devetak–Anthony

Burke–Jim

George:

Introduction to International Relations. Cambridge University Press, Cambridge, 2011. 145. 4

Daniel W. Drezner: Everything Old Is New Again to

Parag Khanna. Foreign Policy. 14 October 2013. <https://bit. ly/319FUIV > 5

Tim Colebatch: Australian population to exceed 40 million

by 2060. The Sydney Morning Herald. 26 November 2013. <https://bit.ly/2OcKDnG > 6

Felipe Fernández-Armesto: Millennium. A History of the

Last Thousand Years. Touchstone, New York, 1996 659–687.

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CHRISTIAN ETHICS AND BIG TECH GIANTSA WORLD TURNED UPSIDE DOWN, WITH POTENTIALS Laura Sarolta Baritz OP

“A just society can become a reality only Times,4 since their size and influence pose a when it is based on the respect of the threat, he says. On the other hand, in Amazon’s transcendent dignity of the human person. mission statement, we read about such aspects The person represents the ultimate end of as “frugality” and “razor thin margins,” identified society, by which it is ordered to the person. as core values of the company. Let us analyse Christian ethics and the Big ‘Hence the social order and its development must invariably work to the benefit of the Five Tech Giants to be able to determine whether human person, since the order of things is to the most influential participants in the world’s be subordinate to the order of persons, and leading tech sector can go through a paradigm shift and if there is any indication in the Giants’ not the other way around.’”1 thinking and operation that they can and might “Now, man is not wrong when he regards become human centred. himself as superior to bodily concerns, and as more than a speck of nature or a nameless THE BASIC PRINCIPLES OF CHRISTIAN constituent of the city of man.” 2 ETHICS, FOCUSSING ON ECONOMIC ETHICS (HUMAN-CENTRED ECONOMY) The citations above describe the structure of the The roots of Christian ethics are originated in logic of Christian ethics. One part of it, individual Aristotle, in his thoughts about the human person, ethics, focusses on the moral and spiritual society, politics, and economy. One of the most characteristics of the human being, while social meaningful ethical traditions is also connected ethics, its other part which examines social, to him: it is the so-called “virtue ethics,” which is political and economic structures, stresses the the main ethical approach of Christianity, too. It priority of the human over the structure, in other was mainstream ethical thinking in the Catholic words, it speaks of “human-centredness” in the Church during the Middle Ages, and we see economy, politics, etc. This human-centredness its traces even today—for example, in Alasdair suggests a paradigm shift, compared to the MacIntyre or the social teaching of the Church. mainstream way of thinking about the world. Aristotle came up with a system for categorising In this paper, concentrating particularly on the virtues (cardinal virtues: prudence, justice, the economic realm, we will review the main fortitude, temperance) and stressed the role of principles of “human-centred economy” within reason and the freedom of will in the human Christian ethics, and we embark on an exciting person (that is, the origin of autonomy and adventure: while analysing the activity and role freedom). He also described the hierarchical of the Big Tech Giants, we observe whether order of values (“objective value order”), where there is a chance for a paradigm shift in the tech moral, spiritual values have priority over material industry. Do we need one at all? goods. Here, he suggested that the “good” is The notions of “Big Five Tech Giants”3 and an objective phenomenon, and, contrary to “Christian ethics” seem to exclude each other. the hedonist idea of Epicurus, he described The journalist Farhad Manjoo calls the Big Five happiness (eudaimonia) as the fulfilment of the the “Frightful Five” in his column in The New York person pursuing a virtuous goal. 68

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Christianity professes the objectivity of the THE HUMAN IMAGE OF CHRISTIAN ETHICS “good,” an objective goodness that stems from BASED ON NATURAL LAW, FOCUSSING ON the Creator’s laws. These are the eternal law of HUMAN-CENTRED ECONOMY love, the natural law of the good, and God’s norms, Based on virtue ethics, an ideal person of the Greek such as the esteem of human dignity, the esteem polis or the Christian faith is the virtuous person, of life, the esteem of property, etc. (cf. the items rich in moral values. Contrary to today’s utilitarian of the Ten Commandments). Understanding the human image of Homo œconomicus, Christians “good” this way substantially differs from today’s speak of Homo reciprocans, who is capable subjectivist approach to it. of establishing “I–YOU” connections with his/ The most revolutionary theorem in Christian her business partner, meaning he/she respects ethics is the thought of “natural law” developed by the other’s human dignity and is able to follow Thomas Aquinas, a Dominican philosopher and an “objectivist self-interest,”6 that is, one’s selftheologian of the 13th century, who comes from interest includes one’s goodwill towards the other the Stoic tradition. He writes in his work Summa person. In this sense, he/she can also take into Theologiæ the following: “every agent acts for an consideration the interest of the other. This way, end under the aspect of good.”5 Consequently, in contrast with utilitarian economic notions such the first principle of practical reason is founded on as “exchange” and “interest,” he/she can give the notion of good, viz., that “good is that which all generously, freely, magnanimously, not waiting for things seek after.” Hence, the first precept of the compensation. The persons acting this way can law is that “good is to be done and pursued, and establish “reciprocity,” a connection of reciprocal evil is to be avoided.” All other precepts of natural “goods” to each other, and do that unconditionally. law are based upon this: so whatever practical Homo reciprocanses can cooperate, create a reason naturally apprehends as a person’s good win-win market situation, and establish noble (or evil) belongs to the precepts of natural law as emulation in the framework of cooperation, instead of cut-throat competition. something to be done or avoided. The other characteristic feature of the Christian As the good has the nature of an end, and the evil the nature of the contrary, all those things to human image related to human-centred economics which a human person has a natural inclination are is that the person has priority over the structure naturally apprehended by reason as being good he/she lives in. If we want to change a system, the and, consequently, as objects of pursuit, and their contraries as evil and objects of avoidance. Wherefore, according to the order of natural inclinations, it is the order of the precepts of natural law. “Because in man there is first of all an inclination to good in accordance with the nature, which he has in common with all substances: inasmuch as every substance seeks the preservation of its own being, according to its nature.” Thus, we do have a human nature which is in close connection with the moral obligation of pursuing good and avoiding bad, and the first natural inclination of the human person tends towards the “good,” and the “good” is “which all things seek after.” Furthermore, good is in accordance with the nature of things. This theorem of Aquinas suggests that there is a natural order in the human person and that there is also a natural world order. Thomas Aquinas NEW–OLD WAYS

most important item we should begin with (together with certain actions in the system) is the person, who, driven by his/her intrinsic motivation (cf. selfdetermination theory, humanistic psychology, Albert Bandura,7 etc.), is able to change his/ her environment, that is, the structure he/she lives in. The person is free and responsible, and the structure cannot take away this freedom.8 Naturally, the structure can have a substantial effect upon him/her, it can change his/her personality traits, way of life, etc., but the free, autonomous, responsible person, with his/her human dignity, will always remain in the forefront, according to the structures and systems he/she lives in. Eventually, it is the human person who creates the system. On the basis of this train of thoughts, we can pronounce this hypothesis: the basis of the economic/political/social order is the human order of values, and a virtue ethical human order of values establishes a human-centred economic/political/social order. Consequently, a human-centred system can influence the human order of values, while it promotes the individual person to become “virtue ethical.” Pope Saint John Paul II speaks in his works of the “structures of sin” and the “structures of virtue,” saying that both sins and virtues have systems, networks.9 Now, for us, the network of virtues is interesting; however, the huge system of the Big Five Tech Giants allows the spreading of both sins and virtues. Élizabeth Leseur, an early 20 th-century philosopher, says: “every soul that aims high, raises the world.”10 We also have later authors speaking in the same manner. Robert H. Frank states in his volume What Price the Moral High Ground?: “Good behavior is contagious.”11 As a flip side of Gresham’s law, Stefano Zamagni and Luigino Bruni claim in their book Civil Economy: “the good currency attracts the bad.”12 Finally, we may cite humanistic psychologist Carl Rogers, who summarises his psychotherapeutic experiences as follows: “the person is good by his/her essence, he/she is the bearer of positive values and possibilities.”13 From these thoughts, we might draw a conclusion that “natural law beats out a path for itself, human nature cannot be changed 70

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definitively, Homo Reciprocans is still alive and is a reality working in the world as a yeast.”14 The potential of the Big Five Tech Giants is the realisation of this tenet. THE NATURAL WORLD ORDER IN CHR ISTIAN ETHICS, FOCUSSING ON HUMAN-CENTRED ECONOMY Natural law appoints a natural place of things, values, phenomena of the world, of which we mention here two principles that refer to the economy. One rule that was formulated by the ancient Greek philosophers and is also used by contemporary authors (cf. Max Scheler, Bela Weissmahr, Milton Rokeach, etc.) is the hierarchical order of values. It says that material goods are at the lowest level of the value hierarchy, while moral and intellectual values are at the top. Thomas Aquinas deploys the same logic: the “useful goods” (meaning: material goods) are good, inasmuch as they are tools and further the realisation of other “goods.” The other category of “goods” is “moral goods,” which mostly consist of goals and, as such, have priority over any other “good.” The third category is “pleasant goods,” which, in contrast to hedonistic pleasant goals, merely accompany other goods but they themselves cannot be goals. (A virtuous person does a good deed for its moral value and not for the pleasure that might be derived from the good deed.) Building on the theories described above, we can reveal that profit and money, as material goods placed in the category of the “useful goods” of Aquinas, are tools in an operation, and they are at the lowest level of the value hierarchy of management. They cannot constitute top priority goals in an economic operation, as it is their unnatural place. In other words, economic profit and money serve other values as tools, and the goal of the operation must be a target of higher value such as environmental-friendly production, human-friendly activity, true CSR, etc. In order to realise these goals, we need to optimise the profit instead of maximising it. Interestingly, in the mission statements of the Big Tech Companies, we read similar declarations: their goals of activity are their “core values,” which are immaterial concepts ranked higher than profit on the value hierarchy. Finally, in

human-centred economy, the ultimate goal of economic activity is to realise the common good, that is, the fulfilment of people.15 In our system based on Aquinas, moral values are mainly goals; therefore, in human-centred economy, the goals of an operation are rather immaterial. They include trust, justice, temperance, cooperation, solidarity ethics, and the common good itself. In the process of obtaining them, basic economic goods (such as financial means, marketing, capital, profit, etc.) serve their realisation as tools. According to this deduction, in humancentred economy, the material (two-dimensional) economic world is embedded into the moral sphere (third dimension), which has priority over the twodimensional space. The classic, twodimensional economic principle, which only works in the area of useful (material) goods, has been supplemented and revised by inserting morality and ethics as goals and governors of economic life.16 Now, let us see to what extent the features of human-centred economy are and could be realised in the case of the Big Five Tech Giants that dominate global communication and ways of thinking. THE BIG FIVE TECH GIANTS FROM THE PERSPECTIVE OF HUMAN-CENTRED ECONOMY Big is beautiful? Rob Atkinson, president of the Information Technology and Innovation Foundation, is the coauthor of the book Big is Beautiful, where he “extols the social and economic virtues of big companies.”17 The world dominance of the Big Tech Giants is manifest, first of all, in their efforts to exercise their control in almost every area from collecting data about consumer behaviour to constantly acquiring new markets.18 Secondly, they are in heavy, cutthroat competition with each other and with the outside world, using acquisitions in order to grow bigger and bigger constantly. We can read about the latest merges that have made the Giant a Monster. For instance, Microsoft bought LinkedIn for USD 26.2 billion in 2016, whereby it gained LinkedIn’s 575 million members. It also bought Skype and Nokia, whereby it acquired the 41% share of the Nokia handset market and the network

Élizabeth Arrighi Leseur, the French mystic who lived at the turn of the 19 th and 20 th centuries

effect to increase its power. The latest news about Amazoogle reports not on peaceful cooperation between Amazon and Google but on a business model that generates an even keener competition, where Amazoogle has a great chance to win. The total revenue of the Big Five Tech Giants was USD 800 billion in 2018.19 Mark Zuckerberg, the co-founder and leader of Facebook, has a dream: “studying in a classroom of students and teachers all over the world . . . just by putting on goggles in your home.”20 Forecasts for the future are very optimistic: the trend to expand power is soaring. Accordingly, Amazon doubled its sales in one year between 2017 and 2018 to 197%,21 and, by 2019, the Big Five’s brand value went up to USD 700 billion from a “modest” 151 billion in 2001. These grandiose figures would be much less daunting if the Giants did not operate in areas that provide massive returns to scale. As we have learnt from the previous section of this article, this amazing power can be used for transmitting both sins and virtues. The use of the internet for propaganda in Russia has led to conspiracy theories, misinformation, and halftruths, while Twitter played a significant role in the 2011 revolution in Egypt, where “it gave voice to the voiceless,” informing the world about the events, thereby influencing political affairs.22 As we know, the tech industry also influenced the outcome of the latest elections in NEW–OLD WAYS

the USA. So the question goes: Can this huge persons. The role of the persons here is confined to influence be used to promote virtues? “ethics owner,” which means power. An ethics owner The answer lies in the role of the human being. Is determines the ethical meaning and practices of the the human person a tool to facilitate technological given task, which refers to the subjectivist character development and virtual life, or do data and of tech ethics. The usual question of ethics owners technological operations rather serve the fulfilment is: How much does ethics add to the cost of doing of the person? There is some indication that the business? With this question, we have arrived at the world of the Big Five Tech Giants has a chance to issue of profit. Is profit a tool or a goal for the Big incorporate some ideas of human-centredness. Five Tech Giants? The answer is complex, which we In the columns of The New York Times, we read: attempt to entangle here. “In Silicon Valley they established predicable “It will be our job, as a society, to decide how to mitigate their downsides,”23 while John Naughton processes that still serve the bottom line.” “Their says in his article: “Big firms have a lot of public ethics is to have an eye toward smarter, better, faster pressure to be a responsible author.”24 That is, products, these are their virtues.” “Ethics owners the living society, the mass of people who have must promote the upside benefits of more ethical access to the advantages of technology, might AI.” “Collective goal of ethics owners not to stop the influence the behaviour of the Giants. Furthermore, tech industry.”26 These citations indicate that, in the as Harvard Business Review writes, “we should tech industry, profit is a significant goal. Still, does everything turn around profit indeed? include more of the perspective of people whose labor is shaping this part of our futures.”25 Moreover, Harvard Business Review writes as follows: “It is we should not forget about the creative leaders not the case that tech companies will choose profit and key persons of the Giants’ world, who have over social good in every instance.”27 Nevertheless, a chance to think and work ethically, grounded in “morality ... need[s] to be justified in market friendly moral values. Thus, big can be beautiful when it terms,” as “the market sets the debate, even if stems from the principles of human-centredness. It maximum profit is not the only acceptable outcome.” all depends on the person himself/herself. What is then the acceptable outcome if not maximum profit? Having a look at the mission statements of the A world turned upside down Five Tech Giants might give an idea. To be able to judge to what extent the ideas of human-centred economy and the Big Giants are The potential interrelated, it will be worthwhile to have a look at As every remarkable account on the market, the situation of ethics within their operation. The the Big Five Tech companies also have mission literature speaks of “tech ethics” and “ethics owners,” statements. Here, they proclaim the goals and suggesting that the tech industry and its actors values that drive their activity, and they are have a different art of ethics than others. The main expected to run their business according to their characteristic of this ethics is that it is a tool serving core values. In order to conclude our discussion the goals of the technology industry instead of being of the question whether the Big Five Tech Giants a set of leading principles to guide the operations of can be a place for a paradigm shift in the economy and in the way of thinking about the world, the Giants and the tech industry. Tech ethics, as a matter of fact, is a set of specific furthermore, whether they can act according to practices and institutions, robust processes, the principles of human-centredness, let us look such as documentation, checklists, procedures, at their mission statements and core values.28 The common core values of our five protagonists statistical methods, administrative regulations and accountability, and, what is more, algorithmic are the following: ethics and good corporate procedures. Tech ethics speaks of “fair algorithm.” citizenship, which are followed by excellence The technological success here is placed above and innovation. Amazon’s core values include traditionally understood ethics. The ethical questions frugality and razor-thin margins, while Google are raised about the products, not about the and Facebook declare the value of democracy 72

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and openness. Microsoft says its core values are integrity and honesty, while IBM’s mission statement quotes the virtues of a Christian account: fairness and generosity. Collaboration and respect are also on the menu of the Big Five, and Bill Gates speaks of self-criticism and self-improvement. Larry Page of Google states: “Basically our goal is to organize the world’s information and make it universally accessible and useful.”29 There is a positive light cast on the notion of “data”: it provides an opportunity “to change the world.” Amazoogle courses work with case studies on ethical data collection, and the teams walk away with a combination of ethical foresight, technological knowledge, practical and application. Concluding our argument on whether it is possible to go through a paradigm shift under the guidance of the Big Five Tech Giants and the tech industry, we pronounce that the potential is there. We base our statement on natural law: the first inclination of the human is towards the “good.”

30 December 1984. <https://bit.ly/2RgWIdK > and John Paul II: Reconciliation and Penance, Apostolic Exhortation. La Santa Sede. 2 December 1984. <https://bit.ly/36iwfAu > 10 Élisabeth Leseur: Journal et pensées de chaque jour. De Gigord, Paris, 1918. 31. 11

Robert H. Frank (ed.): What Price the Moral High Ground?

Ethical Dilemmas in Competitive Environments. Princeton University Press, Princeton–Oxford, 2004. xii. 12

Luigino Bruni–Stefano Zamagni: Civil Economy. Efficiency,

Equity, Public Happiness. Peter Lang, Bern, 2007. 191. 13

Tringer László: A gyógyító beszélgetés. Semmelweis

Orvostudományi Egyetem Képzéskutató, Oktatástechnológiai és Dokumentációs Központ, Budapest, 1992. 9. 14

Baritz Sarolta Teréz: Háromdimenziós gazdaság. Lehet-e

gazdálkodni erényetikai paradigmában? PhD Thesis. Corvinus University of Budapest, Budapest, 2014. 59. 15

In other words: to realise the happiness of people,

understood in Aristotelian and Christian meaning. That is, one sets a noble target for himself/herself, and, while pursuing it, he/she becomes more and more valuable, virtuous, and perfect. This fulfilment process makes the person happy. This process goes on alongside the objective value hierarchy: on the first level of fulfilment are the material goods, then come the

ENDNOTES 1

immaterial goods, moral goods, spiritual goods, while, at the top, there is God, and the ultimate connection with Him. 16

Baritz.

Pontifical Council for Justice and Peace: Compendium of

Manjoo. The combined market capitalisation of the five companies

the Social Doctrine of the Church. La Santa Sede. 2004. §132.

<https://bit.ly/2Siw9UD >

is over USD 4 trillion. Katie Jones: The Big Five: Largest

Acquisitions by Tech Company. Visual Capitalist. 11 October

Pope Paul VI: Gaudium et spes. La Santa Sede. 7 December

1965. §14. <https://bit.ly/2OstAy9 >

2019. <https://bit.ly/2twf8OD >

In this article, we deal with the five biggest companies

John Naughton: It is almost impossible to function without

of the tech industry: Microsoft, Apple, Amazon, Google, and

the big five tech giants. The Guardian. 17 February 2019.

Facebook, collectively referred to as the Big Five Tech Giants.

<https://bit.ly/2G9nlFH >

Farhad Manjoo: The Upside of Being Ruled by the Five

Jones.

Tech Giants. The New York Times. 1 November 2017. <https://

Naughton.

nyti.ms/2TK3kTI >

Nothing less than Excellence: How Organizational Leadership

Informs the Core Values of Top Tech Firms. MidAmerica Nazarene

St. Thomas Aquinas: The “Summa Theologica.” Burns

Oates and Washbourne Ltd, London, 1934. 6

University. 4 February 2015. <https://bit.ly/38vmNLP >

Erich Fromm: Selfishness, Self-Love and Self Interest. In:

Manjoo.

Erich Fromm: Man for Himself. An Enquiry into the Psychology of

Naughton.

Ethics. Routledge and Kegan Paul Ltd, London, 1949. 119–140.

Emmanuel Moss–Jacob Metaalf: The Ethical Dilemma at

the Heart of Big Tech Companies. Harvard Business Review.

Albert Bandura: Social Cognitive Theory: An Agentic

Perspective. Annual Review of Psychology. 2001/February. 1–26. 8

14 November 2019. <https://bit.ly/37hn2tJ >

According to Christian theology, freedom is the most

Moss–Metaalf.

important characteristic of the person, since it means that the

Moss–Metaalf.

human person is created in the image of God.

MidAmerica Nazarene University.

John Paul II:: Sollicitudo rei Socialis, Encyclical. La Santa Sede.

NEW–OLD WAYS

THE NEOMEDIEVALIST APPROACH TO BIG CORPORATIONS Zoltán Kelemen

In this paper, an overview of the neomedievalist 1950s. The idea that, in some respects, the present understanding of the corporate world will be might resemble the Middle Ages rather than the presented. Neomedievalism has been a recurring modern times was most effectively popularised by stream of international relations since the 1970s, Umberto Eco in the 1970s. His main arguments when Hedley Bull embarked on an analysis of the revolved around the resurgence of image-based global state of affairs from the perspective of the communication and an envisaged decay of literacy, rising non-state actors.1 Even though, a decade the omnipresence of English, similarly to medieval before him, Arnold Wolfers had already suggested Latin, and the growing waves of migration leading that some medieval pieces of scholarly literature to a rebirth of pre-modern multicultural cities. should be reassessed in order to see if they had Despite the political overtones in his reasoning, Eco anything to say again in matters of world politics,2 mainly drove the point home from the perspective neomedievalism has not been a “thing” before the of cultural anthropology and semiotics.4 The neomedievalist narrative emphasising, 1970s. A cultural form of neomedievalism appeared earlier in the works of Christian humanists such as among others, the role of corporations surfaced Nikolay Berdyaev and Jacques Maritain in the first in the field of international relations. The authors in half of the 20th century,3 and the term was coined question have tended to argue that the sovereignty by Isaiah Berlin’s The Hedgehog and the Fox in the of states is being eroded by supra- and sub-state actors like international organisations, multinational companies, and NGOs. In that regard, they find the newly shaped system similar to the high medieval one, in which the authority of kingdoms was limited by the pope and the emperor from above, and by the feudal system and city states from below.5 When this approach was introduced and spread by Hedley Bull in 1977, he identified five symptoms of a modern and secular counterpart of the medieval model characterised as “a system of overlapping authorities and multiple loyalties.”6 In Bull’s estimation, there were five symptoms of a potential new medieval international system: the regional integration of states, the disintegration of states, the restoration of private international violence, transnational organisations, and the technological unification of the world. For the purposes of this paper, the last three points are relevant.7 Regarding the privatisation of international violence, Bull explained the role of the UN in the Korean War and the Congo crisis as instances Italian intelectual Umberto Eco, one of main propagators of Neomedievalism of limiting the states’ monopoly of aggression 74

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from above and the Palestinian guerrillas and Latin-American revolutionary forces as elements that have challenged the states’ exclusive right to legitimate violence from below. However, Bull also reminded his readers that such a use of international private violence had its precedents in modern history. His examples were the Peruvian insurgents’ seizure of the vessel named Huáscar in 1877 and “the kidnapping of two American citizens in Tangier in 1904 by the Moroccan brigand El Raisuli.”8 Based on these instances, Bull concluded that the limitation of the states’ monopoly of violence had always been questioned; therefore, the 20th-century relevance of such tendencies should not be overstated.9 However, taking into account the significant difference between an international organisation that encompasses all states on the planet and acts in cases of war and crises and Canadian author and social activist Naomi Klein, known insurgents seizing a vessel or the kidnapping of two American citizens, we might detect a certain for her criticism against corporate globalisation asymmetry of relevance in Bull’s reasoning. Moreover, had Bull seen the late 20th- and early Halliburton, Bechtel, L-3, CACI, and Booz Allen 21st-century resurgence of international terrorism have followed such a path of development, as and the spread of outsourcing the monopoly of it was convincingly introduced by Naomi Klein.11 aggression to private companies in some of the Thus, both the challenge (transnational terrorism) most democratic countries, he might have made and the response (privatisation of international some changes to this part of his argumentation. violence) limit the sovereignty of nation states. The fourth neomedieval trait, according to Bull, As opposed to the Westphalian era, contemporary nation states, which supposedly have a monopoly was transnational organisations. He interpreted of aggression, cannot find the appropriate means transnational organisations in a wide sense which of responding to a transnational terrorist act. included multinational corporations, political The police that were formally designed to fight movements, NGOs, religious associations domestic crimes cannot effectively persecute such as the Roman Catholic Church, and intera transnational network of terrorists, while the governmental agencies such as the World Bank. army of such a traditional Westphalian state was From among these, Bull highlighted the role of designed to tackle interstate armed conflicts. multinational corporations, which he thought were Thus, transnational terrorism can almost paralyse harmful to the sovereignty of states. However, he a traditionally sovereign state in terms of its relativised this claim by adding that the interaction monopoly of aggression. The societies of such of multinational corporations and states is not states often respond to these challenges by setting necessarily a zero-sum game, as states might up companies with private paramilitary forces, open up to multinational corporations because which further weaken the state by privatising its they believe they would profit from doing so. monopoly of aggression. This process also brings Apart from the fact that more recent economic the international system closer to the restoration of history claims that opening-up is unavoidable, private international violence, which was listed by and multinational corporations would not assure Bull as a potential symptom of a neomedieval world economic convergence in the world, it is also order.10 United States companies like Blackwater, worth noting that the share of such companies in NEW–OLD WAYS

the world economy has risen to an unprecedented level since Bull’s book was published. Thus, most of his arguments against this feature of neomedievalism have weakened over time. The fifth symptom identified by Bull was the technological unification of the world. Perhaps it is least obvious how technological unification would lead to a neomedieval world order, but Bull argues this feature facilitated the previous ones in many cases. Technological unification made possible the regional and global integration of states, which were the most notable harbingers of the idea of neomedievalism. Bull made it clear that he viewed these symptoms as irregularities and anomalies, which nevertheless pose a challenge to the realist approach to international relations. Despite that, he came to the following conclusion: “A time may come when the anomalies and irregularities are so glaring that an alternative theory, better able to take account of these realities, will come to dominate the field. If some of the trends towards a ‘new mediaevalism’ that have been reviewed here were to go much further, such a situation might come about, but it would be going beyond the evidence to conclude that ‘groups other than the state’ have made such inroads on the sovereignty of states that the states system is now giving way to this alternative.”12 The forty years that have passed since the first publication of Bull’s work have justified most of his claims; in particular, the years following the end of the Cold War gave rise to a re-emergence of the discourse on neomedievalism. In this new take on the question, a particular emphasis has been placed on the role of corporations. Ranging from apocalyptic visions of neomedieval chaos to describing the structure of the current international system as neomedieval, the wide spectrum of the literature offers various shades of medieval analogies. A typical apocalyptic vision of low definition was presented by Parag Khanna, who claimed that “the corporate masters of the universe . . . are driving us right back to a future that looks like nothing more than a new Middle Ages, that centuries-long period of amorphous conflict from the fifth to the fifteenth century when city states mattered as much as countries.”13 A more nuanced approach 76

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was presented by Jörg Friedrichs, who aimed to revise Bull’s neomedieval model. Friedrichs believed that Bull overstressed the relevance of the forces of fragmentation in the neomedieval international system and disregarded that two competing universalistic claims on top held the medieval structure in one piece. The Pope and the Holy Roman Emperor as universalisms counteracted the fragmentation of power caused by “overlapping authorities and multiple loyalties.” Counterbalancing Bull’s overly “centrifugal” definition by the spiritual and secular forms of universalism, Friedrichs created his own definition of neomedievalism: “A medievalist system is a system of overlapping authorities and multiple loyalties, held together by a duality of competing universalistic claims.”14 Friedrichs then went on to identify the contemporary equivalents of the universalist elements that he introduced in the definition. The two functional equivalents that he detected were a political and an economic universalism: the nation state system and the transnational market economy. The nation state system was paralleled with the imperium, while the transnational market economy with the sacerdotium. Friedrichs compared the national and international bureaucratic class promoting the nation state system to feudal lords and kings promoting the shared expectations of imperial vassals. The social ethos of feudalism was similar to the universal belief in international order in the modern era.15 At the same time, Friedrichs found the managerial class of the world market economy comparable with the clergy of the Middle Ages. Both could be characterised by an unusually “high degree of social and spatial mobility,” and both protected their orthodoxy against various forms of heresy. The dogma of the “econocrats” would be neoliberal laissez-faire orthodoxy, while economic isolationists or interventionists would be the respective heretics. “There is excommunication from financial markets for stubborn states, just as there was excommunication from Christendom for reluctant secular rulers in the Middle Ages. There is a contest between the world market economy and the nation-state system for supremacy in the international sphere, just as there was a contest for supremacy between the Church and the

Empire in the Middle Ages.”16 Friedrichs further analysed the elites who were responsible for representing the ideologies of these blocks. He highlighted that religious universalism was mostly spread by Catholic theology, while the intellectual representatives of imperial universalism were to be found more sporadically in the elites, and, from among them, he named Dante, William Ockham, and Marsilius of Padua. Regarding the contemporary world, Friedrichs identified “a knowledge-based elite, or epistemic community, of organic intellectuals and public writers” as the intellectual background of both the nation state system and the transnational market economy.17 Even though one could claim that it is inconsistent of Friedrichs to argue that the nation state system, which is supposed to be under siege by multiple forces of fragmentation in a neomedieval model, is itself one of the competing universalisms,18 it does not diminish the overriding role of transnational corporations in neomedieval models. In fact, as we have seen, the role of such corporations has been one of the most important leitmotifs of the neomedieval narratives over the past decades.

realms of power”) was also used by Wolfers, who borrowed it from 19th-century German historian Otto Von Gierke. See Friedrichs, 159. 7

These points would be summarised based on the

author’s doctoral dissertation. Kelemen Zoltán: A Historically Revised Model of Neomediaevalism and the European Union as ‘Regimen Mixtum.’ PhD Thesis. Corvinus University of Budapest, Budapest, 2019. 28–29. 8

Bull, 260.

Bull, 259–260.

10 Bull, 258–260. 11 Naomi Klein: Disaster Capitalism. The New Economy of Catastrophe. Harper’s Magazine. 2007/October. 50–51. 12 Klein, 265. 13 Parag Khanna: Neomedievalism: The World is Fragmenting. Badly. Gird Yourself for Another Dark Age. Foreign Policy. 2009/May–June. 91. 14

Friedrichs, 137.

15 Friedrichs, 138. 16

Friedrichs, 140.

17 Friedrichs, 142. 18

For such criticism of Friedrichs’ work see Kelemen, 43.

ENDNOTES 1

Hedley Bull: The Anarchical Society. A Study of Order in

World Politics. Macmillan, London, 2002. 2

Arnold Wolfers: Discord and Collaboration. Essays on

International Politics. Johns Hopkins University, Baltimore, 1962. 241–242. 3

Nikolai Berdyaev: The End of Our Times. Sheed and

Ward, London, 1933.; Jacques Maritain: Humanisme Intégral – Problèmes Temporels et Spirituels d’une Nouvelle Chrétienté. Fernand Aubier, Paris, 1936. 4

Umberto Eco: Dalla periferia dell’impero. Chronache da un

nuovo medioevo. Bompiani, Roma, 2003. 5

These arguments are best summarised in the following

works: Jörg Friedrichs: The Meaning of New Medievalism. In: Jörg Friedrichs: European Approaches to International Relations Theory. A House with Many Mansions. Routledge, London– New York, 2007. 127–145.; Bruce Holsinger: Neomedievalism and International Relations. In: The Cambridge Companion to Medievalism, edited by Louise D’Arcens. Cambridge University Press, Cambridge, 2016. 6

Bull, 245. A similar phrase (“double loyalties and overlapping NEW–OLD WAYS

think.BDPST CONFERENCE

think.BDPST 2020—THE FIFTH STRATEGIC CONFERENCE OF HUNGARY IN PURSUIT OF INNOVATION

think.BDPST is AJKC’s most ambitious and prestigious event. Its main aim is to discuss further possibilities of regional development and the newest trends and perspectives of innovation, research, and technology. Similarly to previous instalments, we have the honour to welcome HE Péter Szijjártó, Minister of Foreign Affairs and Trade of Hungary, as the main patron of the think.BDPST this year again. The event enjoys the support of the Ministry of Foreign Affairs and Trade of Hungary and the International Visegrad Fund. In 2020, our aim is to continue our tradition and go further in exploring specific areas such as the future of 5G, innovative solutions in the fields of environment protection, or the regulation of tech giants in today’s societies. The speakers, representing a wide variety of stakeholders, will introduce and contrast the most relevant factors involved in the public discourse around the issue, including free markets and free speech, corporate and personal accountability, as well as the necessity and feasibility of regulation. The first panel discussion of the conference is focussing on the most important questions of the global energy market. In recent years, heightened global tensions emanating from the Middle East, as well as the rise of India and China, have brought the issue of global energy security at the forefront of political debate. Governance structures for short-term supply management and long-term energy cooperation are needed more than ever in today’s turbulent world. Also, cooperation between the most “energy-consuming” countries is required to effectively address the pressing problem of climate change. However, cooperation between nation states on an extremely crowded international stage is, as we see, not promising, and the main actors often tend to compete with each other. Energy diplomacy has thus emerged as a powerful concept in public discourse. But is energy diplomacy a really effective tool? The

experts of the panel will seek an answer to this and many other questions. Clean and potable water is one of the most important sources on the Earth. The aim of the second panel discussion is to explore different water security strategies in various regions. Such strategies include the utilisation of renewable technologies with the aim of reducing the energy footprint of water, as well as the future of desalination. As pollution in the oceans is becoming a high-profile topic in the public discourse, cleaning technologies and the problem of plastic will be included in the debate. In keeping with the theme of Minister Varga’s talk (Like or Dislike—Tech Giants and Their Regulation Possibilities), the panel, entitled Big Tech— Regulation and/or Innovation, will focus on the debate that has arisen around the contemporary social, political, and economic role played by corporations at the forefront of digital innovation, commonly referred to as “big tech.” The fif th-generation wireless net work technology, or 5G, has the potential to transform not only mobile internet connectivity but also many sectors and applications, ranging from the Internet of Things to smart city infrastructure and autonomous driving. But what does 5G exactly mean for our future? Experts will discuss the different uses, benefits, and drawbacks of 5G technology, the nature of the evolving network, as well as the driving forces behind it. START-UP EXPO At the other traditional side event of think. BDPST, innovative enterprises, innovators, experts, and start-ups will have the opportunity to present their ideas, solutions, and prototypes in front of an international audience and investors in order to boost the Hungarian start-up ecosystem in the heart of Europe. This year, observing our custom from previous years, the Start-up Expo will include Pitch Sessions

and several interactive workshops that provide a platform for talented people full of ideas, startups, SMEs, and corporations to introduce their activities and ideas of how to create an ecosystem of innovation. In 2020, Start-up Expo will focus on the regulation of high-tech innovations of deep technology start-ups, which can fundamentally change our lives in the near future. The regulation of this emerging sector is a key issue of the coming years, but it is indisputable that these innovations also have great potential to be discussed and presented. Therefore, the aim of the Start-up Expo is to bring together the brightest start-up solutions and take a glimpse into the opportunities of this emerging sector. YOUNG LEADER’S FORUM In 2020, as a tradition, the Antall József Knowledge Centre organises the Young Leader’s Forum as one of the side events of the think. BDPST conference. The programme of YLF 2020 is focussing on issues connected to the nexus of innovation, technology, and environment. There are two main topics to be

discussed in different formats during the forum: the responsibility of social media and the internet in influencing public perceptions of environmental issues, and the role of science, technology, and innovation in shaping the future of water as a key global resource. The first part of the programme is focussing on the impact of social media and smart applications on public awareness about environmental issues and the question of fake news. How can social media affect our way of thinking about environmental questions? How can smart applications shape our lifestyle and consumer behaviour? Who is responsible for the enormous amount of environment-related fake news and disinformation, and how can we tackle this challenge? The second part of the conference will bring together experts to discuss the future of water as a key global resource. What are the main challenges and possibilities in the water sector? How can technology and innovation contribute to solving water-related challenges? Do we have enough knowledge and resources, and if not, what is the missing element?

SAVE THE DATE

29 SEPTEMBER-2 OCTOBER 2020

ORGANISED BY

1-2 OCTOBER 2020

STRATEGIC PARTNERS

2 OCTOBER 2020

INNOVATION—THE HISTORY OF think.BDPST, START-UP EXPO, AND YOUNG LEADERS’ FORUM

Innovative technologies and innovative people are key assets that AJKC wants to promote and support. The late Prime Minister József Antall, though rarely used the word innovation, repeatedly reflected on the indispensability of Hungarian talent and the need to remain at the forefront of intellectual development. It is part of the Antall legacy to deeply engage in topics related to innovation, technology, and novelties. Part of this activity is the think.BDPST conference, the largest annual conference of AJKC, which aims to utilise the potential that lies in the V4 region in the field of cutting-edge technologies. The main purpose of think.BDPST is to put Hungary on the map of large-scale regional conferences such as GLOBSEC, the Economic Forum in Krynica, the Bled Strategic Forum, or the Prague European Summit, by organising the most significant innovation forum of the region, thereby facilitating a dialogue between the representatives of the economic, governmental, and scientific spheres. think.BDPST—CONNECT TO THE FUTURE Four years ago, the first of Hungary’s strategic conference series, think.BDPST—Connect to the Future, was organised by the Antall József Knowledge Centre in partnership with Hungary’s Ministry of Foreign Affairs and Trade, the National Research, Development and Innovation Office Hungary, the Hungarian Investment Promotion Agency (HIPA), and Hungary’s Institute for Foreign Affairs and Trade, with the support of the International Visegrad Fund and the Hungarian Electricity Ltd (Magyar Villamos Művek). The event, which took place on 8–10 March 2016, focussed on innovation, future technologies, and regional development. The main patron of the conference was His Excellency Péter Szijjártó, Hungary’s Minister of Foreign Affairs and Trade.

The event was opened by HE Péter Szijjártó on 8 March in Pesti Vigadó. In his speech, Minister Szijjártó pointed out that in order to become the driving force of growth in Europe, the V4 region should take the most active and flexible approach possible when it comes to innovation. The opening ceremony also featured Dr József Pálinkás, President of the National Research, Development and Innovation Office Hungary, who explained why research and development, as well as innovation might prove to be promising new dimensions for the V4 cooperation. During the two-day conference, topics including the R&D potential of the Visegrad region, the pace of development, the building of scientific and technological excellence in the V4, the role of innovation in creating jobs, new technologies in urban planning, emerging technologies in urban infrastructure, genetic engineering in agriculture and medicine, as well as future and emerging technologies were discussed. George Pataki, former Governor of the State of New York, Dr Edmund Stoiber, former Prime Minister of the State of Bavaria, Dr Zoltán Cséfalvay, Permanent Representative of Hungary to the OECD, Robert-Jan Smith, Director General for Research and Innovation at the European Commission, István Mikola, Minister of State for Security Policy and International Cooperation at the Hungarian MFA, Tom Szaky, CEO of TerraCycle, János Pásztor, Senior Advisor to the UN Secretary General on Climate Change, Fadi Swidan, Cofounder and Co-organizer of Nazareth Accelerator, Ferenc Pongrácz, Business Development Executive at IBM Southeast Europe, Jennifer C. Lai, Executive Architect, Watson Group, IBM New York, and Martin Kern, Interim Director of European Institute of Innovation and Technology, were among the speakers. The second think.BDPST conference was organised by the Antall József Knowledge Centre in partnership with Hungary’s Ministry of Foreign

Affairs and Trade, the National Research, Development and Innovation Office Hungary, CORDI R&D, the Budapest Enterprise Agency, the City of Budapest, the Hungarian Investment Promotion Agency, and Hungary’s Institute for Foreign Affairs and Trade, with the support of the International Visegrad Fund and the Hungarian Electricity Ltd (MVM). The event, which took place on 29–31 March 2017, focussed on social and technological innovation and the future of education and healthcare. The main patron of the conference was HE Péter Szijjártó, Hungary’s Minister of Foreign Affairs and Trade. think.BDPST 2017 was opened by HE Péter Szijjártó and Dr József Pálinkás. The second day of the conference focussed on challenges of social innovation. Keynote lectures were held by George Friedman, geopolitical forecaster and strategist, and HE Sheikh Dr Mohammad Sabah Al-Salem Al-Sabah, Former Deputy Prime Minister of Kuwait. The third day, revolving around innovation in healthcare services, hosted István Mikola, Former Minister for Healthcare, Gábor Orbán, COO of Gedeon Richter Plc, and Rabbi Professor Daniel Hershkowitz, President of Bar-Ilan University and Former Minister of Science and Technology of the State of Israel. The conference was officially closed by Dr Csaba Balogh, Minister of State for Public Administration at Hungary’s Ministry of Foreign Affairs and Trade, and Gábor Zupkó, Head of the European Commission Representation in Hungary. Organised on 28–29 March 2018 in Várkert Bazár, the third think.BDPST conference revolved around the future of transportation, the innovation potential of human–machine interaction, and urban innovation. The guest country of the event, also providing the theme for an official programme of the Hungarian Presidency of the Visegrad Group, was the Republic of Korea. Korea’s selection as the 2018 guest country of think. BDPST was motivated by its status as the world’s leading innovator, as well as its rapidly developing cooperation with the V4 countries. The main patron of the conference was HE Péter Szijjártó, Hungary’s Minister of Foreign Affairs and Trade. Speakers included Chang Whan Ma, Deputy Minister for Planning and Coordination at the Ministry of Science and ICT of the Republic of

Korea, Professor David Winickoff, Secretary of the Working Party on Bio-, Nano-, and Converging Technologies at OECD, Vik Kachoria, President and CEO of Spike Aerospace. Inc., Lord David Willetts, Board Member of UK Research and Innovation, Anat Lea Bonshtien, Chairman and Director of the Fuel Choices and Smart Mobility Initiative at the Office of the Prime Minister of Israel, and Dr Jacob Cohen, Chief Scientist of the NASA Ames Research Center. The fourth think.BDPST conference, organised on 4–5 April 2019, centred around the topic of smart visions, more specifically, smart home, smart solutions, and challenges of digitalisation. The guest country of the event was the United Kingdom, hosted under the patronage of HE Péter Szijjártó, Hungary’s Minister of Foreign Affairs and Trade. The UK was chosen as the 2019 guest country of the conference as a result of its economic and scientific interests in the Visegrad Cooperation, as well as the fact that it has been a most ardent promoter of a technology-intensive model of economic growth. HE Iain Lindsay OBE, British Ambassador to Hungary, Carole Mundell, Chief Scientific Advisor at the Foreign and Commonwealth Office of the United Kingdom, Kimmo Rönkä, Future Living Specialist at the Housing Fair Finland Co-operative, Dr Akira Maeda, Program Officer/Research Supervisor at the Department of R&D for Future Creation of Japan Science and Technology Agency, Matthew Evans, Executive Director of techUK, Brian Matthews, Head of Transport Innovation at the Milton Keynes City Council, Zuzana Nehajová, Head of InnovEYtion Centre at Ernst & Young in Prague, Dr Ebtesam Al-Ketbi, President of the Emirates Policy Centre, Dr Zoltán Cséfalvay, Senior Scientist at the Joint Research Centre of the European Commission in Seville, and Csaba Krasznay, Professor at the Cybersecurity Academy of the National University of Public Service, were among the speakers.

think.BDPST START-UP EXPO A side event to the 2016 think.BDPST conference was the Start-up and Innovation Corner, where innovative enterprises, innovators, and start-ups playing a key role in making East- Central Europe a centre of innovation had the chance to introduce themselves by promoting their products, prototypes, and ideas for an international audience and a group of investors. During the Start-up Meetup, exhibitors of the Start-up Corner, as well as enterprises devoted to the improvement of start-ups, showcased their activities and ideas of how to create an ecosystem of innovation. In 2017, think.BDPST was again accompanied by the side event Start-up and Innovation Corner, which was organised in cooperation with the Budapest Enterprise Agency (BVK). The event, which featured twenty-four start-ups, investors, and incubators, took place on the 1st floor of BĂĄlna Budapest. Exhibitors had the opportunity to present their innovations and hold pitch sessions where the audience had the chance to pose their questions directly to the presenters. Organised in cooperation with BVK, the 2018 Start-up Expo provided an opportunity for seventeen start-ups from the field of transport innovation and AI to introduce themselves. Visitors had the chance to meet the winners of the most prestigious European start-up competitions, including BVKâ&#x20AC;&#x2122;s V4 EYES 2.0, which made it possible for all V4 countries to be represented at

the Start-up Expo. Besides Hungarian, Polish, Czech, and Slovak start-ups, British and South Korean companies also participated in the Expo. The start-ups also held five-minute pitch sessions to make their activities known to the audience. A workshop led by Google on digital skills development was also organised as part of the event. In 2019, seventeen promising start-ups from the field of smart home and smart city had the opportunity to introduce their innovations at the Start-up Expo. During the two-day event, companies from Hungary, Great Britain, and Slovakia exhibited their innovative products and held presentations during the pitch sessions. The programme also featured other presentations and workshops by Google, PMI Science, Hiventures, Variance Hub, and the Budapest Enterprise Agency.

think.BDPST YOUNG LEADERS’ FORUM Another side event to think.BDPST 2016, the Young Leaders’ Forum, organised in cooperation with Design Terminal and the National Centre for Creative Industries, and with the support of the Central European Initiative, featured thirty outstanding young professionals, the leaders of tomorrow, from the Central European region. The aim of the Young Leaders’ Forum was to provide participants with the opportunity to reflect on the most significant topics and areas think.BDPST covered, and exchange experience and opinion. The Young Leaders’ Forum, also a side event of the 2017 think.BDPST conference, was held in the Budapest Music Center. The Young Leaders’ Forum featured twenty-six outstanding young professionals from the Central European region, soon to become important actors and decisionmakers in the field of innovation, as well as the political and social sciences. The 2018 Young Leaders’ Forum involved thirty young experts in the fields of transportation, urban mobility, and transport poverty, coming from twenty different countries of the Visegrad Cooperation and the Western Balkans, as well as the Republic of Korea. The mentor of the forum was Attila Süle-Szigeti, HR & Marketing Lead at STILL Hungary. During the four-day event, participants had the chance to discuss transportrelated issues and questions with experts including Dávid Vitézy, Director of the Hungarian Museum of Science, Technology and Transport, Zoltán Dunai, Country Manager of Stadler Rail Group, Ralf Diemer, Head of the European Affairs Department at the German Association of the Automotive Industry, László Arany, Managing Director of Flixbus, Tommaso Gecchelin, Inventor and Founder of NEXT Future Transportation Inc., and Jeroen Bastiaanssen, Research Fellow of the Institute for Transport Studies, University of Leeds. The event also featured a special field visit to Demola Budapest. In 2019, the programme of think.BDPST Young Leaders’ Forum focussed on issues connected to smart societies, innovative urban spaces, and housing models and trends. Participants also had the chance to hone their leadership skills on different workshops and pitch sessions.

Panellists at the event included Dr Ralf Linder, Senior Researcher at the Fraunhofer Institute, Philip Boucher, Policy Analyst at the European Parliamentary Research Service, Mete Coban, CEO of MyLifeMySay, Miloš Gregor, Researcher at Masaryk University, Hanna Szemző, Managing Director of the Metropolitan Research Institute, Milota Sidorova, Co-Founder of Women Public Space Prague, Borbála Jász, Assistant Lecturer at the Budapest University of Technology and Economics, and Attila Sándor, CEO and CoFounder of Tekrama.

STATES STRIKE BACK

WHAT TO DO WITH FACEBOOK Zsolt Pálmai

The greatest trick Facebook ever pulled of what to do with Facebook is to chop it up was making itself free. Just imagine if Mark into pieces: breaking up the company to undo Zuckerberg were to charge a dollar for a month its acquisition of former emerging competitors of use. Would that near-negligible but at least Instagram and WhatsApp. tangible monthly fee drastically change the That something needs to be done appears to way we approach the social media behemoth be a unanimous consensus. Facebook itself, in in terms of our expectations regarding, for addition to users and lawmakers from around example, data privacy and the general value the world, agrees (for at least partially selfish of the service that we expect to be provided reasons, as will be shown below) with the notion in exchange for our money? Would you deem that there is a need for government regulation of the paywall a valuable tradeoff if somehow the its activities. But when it comes to the scope and platform were 100% secure from unauthorised nature of the intervention, people tend to disagree accessing and use of data—or even ditched wildly. Major factors in this state of affairs include the data collecting beyond the bare minimum and lack of sufficiently analogous social, technological, did away with targeted content altogether? and legislative precedent, as well as disagreement Some argue that, without the latter provision, over the nature of the various apparent issues with users would actually be paying double, since Facebook, and even the very nature of the company. their data is also being indirectly monetised. Depending on who—and, apparently, when— So let us turn the question around: what you ask, Facebook should be treated as a if Facebook were to pay for your data, the “social utility,”1 a publisher (the company has amount depending on how much and what referred to itself as one or the other depending kind of data you share? What price would you on which one suited its desired narrative at the put on details about your browsing, spending, time),2 a “platform utility,”3 or a communications recreational, and (among many-many others) service.4 The underlying issue is clear: there is a socializing habits? What factors would you take general uncertainty regarding how to approach into account when determining that price? And, the social media (a term that this essay will use most importantly, what is the “realistic market for the sake of simplicity) giant from a legal and value” of your data? And what if you found out policy perspective, which makes it even more that that “realistic market value” is not only more difficult to lay out a roadmap for a breakup or than one dollar but considerably more than the some degree of regulation. price you would have asked after more or less The variety of just the most recent complaints careful deliberation? Is it possible that you are and scandals involving Facebook further reinforces being grossly overcharged—for something that this point. Much of the current debate regarding the is purportedly free? proliferation of fake news, political disinformation, Even if one can easily provide a more-or- as well as foreign interference in the 2016 US less definitive answer to most of the questions presidential campaign, revolves around the lack above, it is difficult to have them be based on of adequate action on Facebook’s part to counter more than personal preference, which can such efforts, and the company was repeatedly hardly serve as the basis for a broad regulations called out for failing to prevent the dissemination regime. No wonder, then, that one of the most of anti-Rohingya rhetoric that fuelled an ethnic popular proposals for solving the Gordian knot cleansing in Myanmar. Then, against the backdrop 92

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of such a track record, in October 2019, the access to their data for political purposes.7 This company announced that it would be exempting exacerbated already existing concerns about data political advertisements from fact-checking and the breaches and, in general, the possibility that the potential bans that might result from it.5 While many large amounts of data collected by big tech leave conservatives, long dissatisfied with Facebook’s users vulnerable to all kinds of abuse. moderation practices and alleged liberal bias, Finally (at least for the sake of this piece), on lauded the move, other commentators, including a less immediately user-focussed level, there has Democratic US presidential candidates, warned that been growing dissatisfaction with the way big tech, it would open the floodgates to even more false, and Facebook, in particular, have potentially stifled disingenuous, and hateful content. The pushback innovation and competition. The company’s coprompted the company to consider revising its founder, Chris Hughes, even called allowing the hands-off approach, which, predictably, invited social media platform holder to acquire Instagram allegations from, among others, President and WhatsApp, in 2012 and 2014, respectively, Trump’s campaign that Facebook is once again “the FTC’s biggest mistake.”8 As Hughes points trying to limit free speech.6 out, the two companies were not taking much of Facebook’s handling of users’ personal data has a bite out of Facebook’s pie as far as revenue was also been a sticking point for a long time. Notably, concerned, but they were occupying valuable the Federal Trade Commission recently ruled that mindshare on mobile platforms, and thus Facebook had failed to adequately protect that represented a threat in, and ultimately an inroad data from improper use by third parties, and levied to, that segment of users. Some have argued the second-largest fine in its history (USD 5 billion) that these episodes demonstrate how start-ups in the wake of the Cambridge Analytica scandal, have near-zero chance of challenging established where people were essentially tricked into giving market leaders: even if one has the confidence STATES STRIKE BACK

to resist a buyout by the large corporation, there System in 1982. Both were demonstrably is a high chance that they will see their product monopolies in their respective field, with quickly and competently copied, as we can see unchecked power to suppress competition and in the case of Chinese social video app TikTok control prices, and breaking them up yielded and Facebook’s response, Lasso. While this does the desired effect of increased technological allow innovation to take place in the industry, its innovation and competitive pricing. That said, one major difference between those cases and extent is largely limited by the industry leader.9 Ordinarily, this last point would constitute Facebook is that the former involved “essentials”— perhaps the strongest case for breaking up oil and the phone system—while it would be Facebook. Competition could, in theory, drive difficult to make the case that Facebook and the service providers to one-up each other in privacy platforms it owns are in any way indispensable to protection, smart use of data, and even in the the broader economy.10 Moreover, and perhaps way they calibrate their moderation policies and more importantly, as one study points out, by algorithms (whether that would leave us with many the late 1980s, the entrenched approach was Facebooks for our many political persuasions is a to take the factor of pricing—in other words, valid question but beside the point for now). However, “economic efficiency”—as the basis for the legal conventional wisdom regarding monopolies is hard definition of competition. Consequently, antitrust to apply here—and this is where we return to this efforts in the United States have come to revolve article’s jumping-off point—because Facebook is, at around the concept of “consumer welfare.”11 least in the classical sense, free. This has yielded an environment where, in Facebook critics calling for breaking up the 2012, major book publishers joined forced to company tend to cite two major precedents: challenge Amazon’s monopoly on e-books— Standard Oil in 1911, and AT&T with its Bell and the Department of Justice ended up filing 94

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an antitrust suit against them because Amazon’s domination of the market resulted in lower prices for customers and the DOJ deemed that the publishers were, in essence, colluding to force the industry leader to raise its prices.12 Then there is also the problem discussed earlier. “Social networking” remains a relatively undefined industry, and, based on the definitions that one begins to work towards, other prominent market players enter the picture, challenging the narrative that Facebook is a de facto monopoly: if we treat it as a messaging platform, then it can be argued that Apple iMessage, text message services, and even email-based platforms such as Gmail are competitors—and popular ones at that.13 Some have argued that Facebook is actually primarily an advertiser, as ad sales constitute the vast majority of its revenue—within the digital advertising industry, it is not even the predominant player. That title belongs to Alphabet, the owner of Google and YouTube, with Facebook coming in second place, and Amazon also occupying an increasingly sizable chunk of the pie.14 Meanwhile,

if we look at the landscape of platforms used for creating and sharing content, Facebook’s decline in popularity among younger generations has been the subject of much recent analysis (although Instagram is still holding strong in the number-one spot), with Snapchat and YouTube as the preferred platforms for many Gen Z-ers.15 Whether the foundation of the legal status quo described earlier is a fair assessment of the relevant dynamics at play when considering antitrust cases is beside the point—the question is what to do with Facebook, which necessitates asking what can be done with Facebook. Recent precedent suggests that completely unwinding Instagram and WhatsApp to create competition in the fields of content creation/publishing, messaging, and advertising might simply not be legally realistic at this point. Trying to demonstrate in court that had Instagram and WhatsApp not been acquired by Facebook, they would have represented competition that would have forced the market leader to somehow give users a better deal would inevitably rely on hypotheticals and would STATES STRIKE BACK

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be much more difficult than to simply point to the very concrete zero dollar that these services currently cost. However, even if breaking up Facebook proves to be unviable (or is ultimately deemed inadequate), alternatives must be sought in an effort to tackle the clusters of pressing issues that have taken shape around its operation. In fact, even if there was sufficient will, ability, and opportunity to divest Instagram and WhatsApp from their parent company, most commentators seem to agree that there is a need for reform and regulation to help tackle challenges related to privacy, problematic content, and insufficient competition beyond the scope of Facebook. When it comes to the collection and handling of users’ personal data, a landmark piece of legislation that could serve as the model for US federal reforms is the European Union’s General Data Protection Regulation (GDPR) law, implemented in 2018. Hailed as a step in the right direction by consumer groups and businesses alike, it set new standards for transparency and accountability in how corporations handle personal data. Regulators in the US could also shift their focus from monetary cost to the cost that users pay in data, and whether it is appropriate in its amount and management—once again going back to the original question of whether Facebook users can be overcharged even if the platform has no paywall— enabling them to go so far as to limit the amount and nature of data that can be collected.16 Should the political/ideological debate around hate speech and fake news/disinformation ever be settled (readers are advised not to hold their breath), and agreement be reached that Facebook must also serve the “public interest,” there are a few easy adjustments to US federal law that would give regulators increased authority over the content published on the platform. The federal agency best positioned for this, the Federal Communications Commission (FCC), works, among others, to ﬁght disinformation in broadcasting.17 However, it currently has no authority to police content on Facebook, as the platform, as it is currently understood, does not utilise a public resource. One of the more bold suggestions is that users’ personal data should be regarded as a public resource, since it is, by definition, “owned by the people,” which would enable the FCC 96

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to ensure that Facebook operates in service of “social welfare” by holding it accountable for the content that it allows through its filters.18 Finally, creating a level playing field for healthy competition to thrive in the social media market is a pressing necessity to which not even radical antitrust action offers a shortcut. Even if Facebook were broken up, the current state of digital markets has an “underlying tendency . . . to tip toward few or one dominant player.”19 Part of this goes back to the already-discussed practice of Facebook buying up emerging competitors, which has reportedly bred an environment where start-ups now attract investors with the expectation of eventually being bought by Facebook. This creates a cycle where the development of a potentially competitive product becomes contingent on its developer’s willingness not to compete with the market leader beyond a certain point.20 Part of the problem is that the higher echelons of the market have an extremely high barrier of entry, and, thus, lowering it should be the primary task of regulative efforts. Since much of this gap in competitiveness comes not from the incomparable financial and human resources of Facebook but from their huge advantage in how much user data they have access to, efforts should focus on reducing this particular gap—which could also be made easier by treating personal data as a public resource. Then, Facebook could be required to adopt interoperability measures that would help up-and-comers take advantage of the market leader’s resources to make up for their lack thereof (of course, mandating a broader access to data collected by other platforms would require very careful balancing with privacy protections), and even by imposing stricter limits on how much and what kind of data can be collected.21 It has been mentioned that Facebook itself has also called for regulations to govern the way it manages these issues. The “selfish reasons” behind this, alluded to earlier in this piece, have hopefully become clear by this point: while also (ideally) serving the public interest, increased government intervention in the way Facebook conducts its business also enables the company to shift responsibility and move the debate from the field of antitrust action to regulation—by far the lesser of two evils for a corporation. The most

vocal critics of the company will no doubt voice their dissatisfaction if breaking up Facebook does indeed turn out to be an unviable path for the reasons listed above, but a closer look at the underlying issues that make up “the Facebook problem” shows that the most dramatic action is not necessarily the most effective one.

<https://bit.ly/2GcmZDz >; Kate Cox: Facebook, Antitrust 101: Why everyone everyone is probing Amazon, Apple, and Google. Ars is probing Amazon, Apple, Facebook, and Google. Ars Technica. Technica. 11 May 2019. <https://bit.ly/2RgkLt2 17 Consumer Guide: Broadcasting>False Information. Federal 17 Consumer Guide: Broadcasting Information. Federal Communications Commission. Last False updated: 5 January 2018. Communications Commission. Last updated: 5 January 2018. <https://bit.ly/36jYb76 > 18 Philip M. Napoli: What Would Facebook Regulation Look 18 Philip M. With Napoli: Would Facebook Regulation Look Like? Like? Start theWhat FCC. Wired. 4 October 2019. <https://bit. Start With the FCC. Wired. 4 October 2019. <https://bit.ly/2RlfxfT >

ENDNOTES

19 Napoli. 19 Napoli. 20 Why Breaking UpUp Big Big TechTech Could Do More Harm Harm Than Good. 20 Why Breaking Could Do More Than Knowledge @ Wharton. 26 March26 2019. <https://whr.tn/2tJjuSl > Good. Knowledge @ Wharton. March 2019. <https://whr.

1 Chris to to Break up up Facebook. The The NewNew York 1 Chris Hughes: Hughes:It’s It’sTime Time Break Facebook.

21 Gene Kimmelman: The Right Way to Regulate Digital

Times. 9 May 2019. <https://nyti.ms/30IiGJA > York Times.

Platforms. CenterThe on Media, Public Digital Policy. 21 Gene Shorein Kimmelman: Right Politics, Way to and Regulate

2 Levin:IsIsFacebook Facebook a publisher? In public says 2 Sam Sam Levin: a publisher? In public it saysit no, butno, in

18 September 2019.Center <https://bit.ly/2upJvpK > and Public Policy. Platforms. Shorein on Media, Politics,

but it says yes. The Guardian. 3 July 2018. <https://bit. courtinitcourt says yes. The Guardian. ly/3axWZAz 3 Elizabeth>Warren: Here’s how we can break up Big Tech. 3 Elizabeth Warren: Here’s how we can break> up Big Tech. Medium. 8 March 2019. <https://bit.ly/2TNb0El Medium. 8 MarchFacebook 2019. <https://bit.ly/2TNb0El 4 Matt Rosoff: is not a monopoly,>and breaking it 4 Rosoff: Facebook is not a monopoly, andCNBC. breaking it up up Matt would defy logic and set a bad precedent. 9 May would defy logic and set a bad precedent. CNBC. 9 May 2019. <https://cnb.cx/3aBpmO2 5 Alex Hern: Facebook >exempts political ads from ban on 5 Alex Hern: exempts political ads from2019. ban on making making false Facebook claims. The Guardian. 4 October <https:// false claims. The Guardian. 4 October 2019. <https://bit.ly/38sIiNe > 6 Google to limit politicalpolitical ads. Politico. 6 Zach ZachMontellaro: Montellaro: Google to targeted limit targeted ads. 21 November 2019. <https://politi.co/30JyMCI > Politico. 7 Everything You Need KnowtoAbout Facebook 7 Andrea AndreaValdez: Valdez: Everything You to Need Know About and Cambridge Analytica. Analytica. Wired. 23 Wired. March 23 2018. <https://bit. Facebook and Cambridge March 2018. ly/2REmmYO 8 Hughes. > 8 Hughes. 9 Kenneth Rogoff: Has Big Tech gotten too big for our 9 Has Big Tech too big<https://on.mktw. for our own good? ownKenneth good?Rogoff: MarketWatch. 11 gotten July 2018. MarketWatch. 11 July 2018. <https://on.mktw.net/2urpqPO > 10 Rosoff. 10 Rosoff. 11 Matthew The The push push to break Big Tech, explained. 11 MatthewYglesias: Yglesias: to up break up Big Tech, Vox. 3 May Vox. 2019. <https://bit.ly/2GeCgUl > explained. 12 Thomas 12 ThomasCatan–Jeffrey Catan–JeffreyA. A.Trachtenberg–Chard Trachtenberg–Chard Bray: Bray: U.S. Alleges E-Book E-Book Scheme. Scheme. The The Wall Street Journal. Journal. 11 April 2012. <https://on.wsj.com/36jWMNS > 13 Rosoff. 13 Rosoff. 14 Greg Sterling: Almost 70% of digital ad spending going to 14 Greg Sterling: Almost 70% of digital spending going to Google, Facebook, Amazon, says analystad firm. Marketing Land. Google, Facebook, Amazon, says analyst firm. Marketing Land. 17 June <https://mklnd.com/37dHCet > 15 Rob2019. Thubron: More teenagers are abandoning Facebook 15 Rob Thubron: More and teenagers are abandoning for YouTube, Snapchat, Instagram. Techspot. 8 JFacebook uly 2019. for YouTube, Instagram. Facebook Techspot. 8 2019. Olivia Solon: Snapchat, Teens areand abandoning in July dramatic <https://bit.ly/36ffo1K >; Olivia Solon:1 June Teens2018. are abandoning numbers, study finds. The Guardian. <https://bit. Facebook in dramatic numbers, study finds. The Guardian. 1 JuneBhaskar 2018. <https://bit.ly/2vdHIVo 16 Chakravorti: Don’t > break up Facebook and 16 Bhaskar Chakravorti: Facebook and 20 Google Google based on these Don’t three break myths.upFast Company. July based on these three myths. Fast Company. 20 July 2019. STATES STRIKE BACK

SETTING A NEW PACECHINESE TECH COMPANIES AND THEIR CONNECTION TO THE STATE Viktória Anna Papp

known “tour through the South,” further steps were taken to open the economy to foreign trade and investment, along with some political relaxation. During his southern tour, Deng pressed for faster economic reforms and tried to eliminate the leverage of CCP conservatives opposed to market liberalisation. This second phase of reforms focussed on building the necessary institutions for a market-driven economy, including the modernisation of the tax system, enterprise reforms, and the separation of commercial and policy banks. Consequently, in this fresh wave of market growth, private and foreign-invested companies, in particular, enjoyed a period of massive development and contributed to about 50% of China’s GDP by the turn of the millennium.1 Although China’s largest companies were and still are state-owned enterprises—mainly in the energy and financial sectors—the share of private investment in the economy increased from less than 2% in 1992 to about 15% by 2003 (although the reclassification of collective enterprises as private was a contributing factor, too).2 Today, China’s private sector contributes to about 60% of the country’s growth and 90% of new jobs created,3 and Chinese future-oriented technology industries are all dominated by private companies. It was in the early 1990s when China’s firstgeneration tech companies were established, and its “new economy”—along with the general development of the tech industry—started to emerge. The idea of the new economy was officially presented by Premier Li Keqiang in ECONOMIC DEVELOPMENT AND THE TECH 2016, referring to new types of businesses INDUSTRY empowered by the internet. Although it has Reforms in China have developed gradually, never been officially defined, the idea is loosely starting officially in 1978 and first implementing applied to industries fostered by technological the household responsibility system. In the early applications and advances, such as Internet Plus, 1990s, when Deng Xiaoping went onto his well- hi-tech services, artificial intelligence, fintech, In the past few decades, along with China’s rise as an economic power, has come the massive development of its technology industry, which now has several leading companies that are also competing on domestic and international markets. China’s flourishing technology industry has produced, for example, Baidu, Alibaba, and Tencent (or BAT in short), the East Asian country’s firstgeneration tech champions, which not only are now among the most valuable listed Chinese companies but have also made it to the list of the largest tech companies of the world. The success of these companies and the whole industry was facilitated by the Chinese government’s reform and opening-up policy and promoted by the “Made in China 2025” strategy launched in 2015. Although China’s image of being the factory of the world and providing cheap products on a massive scale has not yet faded, Chinese technology firms are emerging as leaders of many sectors of the technology industry. Chinese companies used to copy successful American business models and adapt them to local conditions and customers, whereas today companies in China’s tech sector are driving fundamental innovation that is being increasingly adopted around the world. The development of the technology industry was primarily based on private companies, but, as the importance of the industry in the Chinese economy grew and Beijing started to shift the economy towards an innovation-driven growth model reliant on domestic consumption, the party and state decided to have more say in these companies’ affairs.

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advanced manufacturing, and web-based tourism. The concept also emerged in the context of decreasing productivity and a shrinking labour force, requiring a transition from a labour-intensive economy to one reliant on innovation.4 In this context, the strategy of “Made in China 2025” was an important step for China in realising its ambition to become a leading global tech power by putting technology and science at the forefront of its economy and aiming to reduce its dependency on foreign technology and supply chains in sectors such as semiconductors, robotics, new-energy vehicles, and aerospace. The strategy aims to increase the domestic market share of the Chinese producers of “core components and materials” from 40% to 70% by 2025, and, therefore, the competitiveness of Chinese companies in highLi Keqiang, Premier of China since 2013, a vocal proponent technology industries has to be enhanced both of bolstering technological innovation in the country in domestic and global markets. For this purpose, along with favourable policies and regulations, The “Made in China 2025” strategy has been investment support and loan schemes were set up to help the whole entrepreneurial ecosystem. subject to international criticism—especially For example, following the success of Beijing’s on the part of the US—for breaching WTO high-tech hub Zhongguancun, launched in regulations on global competition and free market, 2009, additional seventeen national innovation as the domestic companies of the Chinese state demonstration zones were established by the receive disproportionate benefits through various State Council two years ago, where favourable state funds, subsidies, and legal regulations that policies were allowed in order to spur innovation negatively affect foreign organisations. Amid the and encourage regional economic growth. ongoing trade war conflict with the United States, Another key to the success of tech companies China has recently been downplaying its “Made was the enormous investment in R&D and in China 2025” strategy, and it may even be education. China is second to the US in spending replacing it with a new economic blueprint to offer on research and development in absolute it as an olive branch to the US.7 terms, which has helped Chinese companies to improve their products and expand into CHINA’S LEADING TECH COMPANIES new markets. Education reforms and the The “big seven”8 companies—Baidu, Alibaba, establishment of university science parks have Tencent, Huawei, Lenovo, ZTE, and Xiaomi— also played an important role in the growth of China’s home-grown success stories and China’s tech industry. In 2019, more than eight new economy champions, are household million students graduated in China, and about names in China but also becoming well-known four million graduates major in technology, math, internationally. China’s top tech companies, and engineering annually.5 There is also a huge both listed and privately held, have a combined pull factor for students to choose these majors market value of around USD 1.5 trillion.9 Alibaba because engineering, economics, and science and Tencent, the largest—and financially the majors in China all enjoy top starting salaries and two brightest—stars of China’s tech universe, high employment rates. In 2015, the five highest- create billions of dollars of free cash flow. These paying graduate jobs were all IT related.6 companies have often been compared to Western 102

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The seventeen national innovation zones in China

counterparts, such as Apple, Google, and eBay, because of their similar business models and criticised for having enjoyed favourable domestic environment, preferential policies, and regulations that granted them an unfair home advantage. Operating in a huge market and having such protectionist policies, though, led to a unique innovation ecosystem which then allowed these tech companies to evolve, develop new ideas, and adapt to domestic conditions. WeChat, for example, started by Tencent in 2011 as a simple messenger mobile application, has gradually become a global “super app” that has over a billion monthly users, allowing them to use it for payments, booking flights, hailing a ride besides offering various “mini-programs”—all integrated in one service. Mainly due to the success of WeChat, Tencent has expanded its business to other tech sectors such as social networking and mobile gaming and now leads the world in terms

of mobile app monetisation. Evidently, some recent developments of Facebook Messenger and WhatsApp have shown similarities to certain functions and strategies of WeChat. Another Chinese tech giant, Alibaba Group, was started by Jack Ma and a few of his peers as a B2B marketplace site and evolved into the world’s largest internet business organisation. Recently established Indian and Nigerian e-commerce websites used Alibaba’s business model as a reference, which also shows how Chinese tech companies proliferate innovations. In the past few years, along with Tencent, Alibaba and Baidu have also been broadening their portfolio by investing into various businesses such as bike-sharing, ride-hailing, and food delivery, inevitably crossing each other along the way.10 The tech triumvirate has certainly helped propel entrepreneurship, but, for many start-ups, it is unavoidable to accept VC investment at some

THE SEVENTEEN NATIONAL INNOVATION ZONES IN CHINA

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point and, therefore, become part of of their their rivalry. rivalry. BAT BAT (and Alibaba and Tencent in particular) have already invested, directly or indirectly, indirectly, in in about about eighty eighty of of the the so-called “unicorn” “unicorn” companies, companies,1111 and and their their venture venture capital investments investments account account for for almost almost half half of those in China, whereas the largest US companies companies make make only 5% of domestic VC investments. investments.1212 The number number of of areas areas where where Chinese Chinese companies companies The are ahead thethe restrest of theofworld been growing aheadofof the has world has been in emerging industriesindustries such as such internet growing in emerging as finance, internet artificial artificial intelligence, new social virtual finance, intelligence, new media, social media, reality, reality, and smart In the field of virtual and transportation. smart transportation. In the artificial for example, has caught field of intelligence, artificial intelligence, for China example, China up the United States, of the global haswith caught up with theleading Unitedmost States, leading AI-related research investment over most of the global activities AI-relatedand research activities the few years. andpast investment over the past few years. THE STATE AND THE THE THE CCP’S CCP’SINVOLVEMENT INVOLVEMENT IN THE TECH INDUSTRY Needless between the the Needless to say, the relationship relationship between Chinese CommunistParty, Party,the theState State (which, Chinese Communist (which, in in China’scase, case,are are rather rather parallel institutions), China’s institutions), and private companies complicated. ItIt is is not companies is complicated. surprising that in China nearly all organisations surprising that organisations have a party committee. committee. Technology Technology companies, companies, the great examples of China’s capitalist market reforms, are no exception. If there are at least three Chinese Communist Party members within an organisation, members are required by party rule to create a new party committee.13 Given that the CCP has ninety million party members, one can safely presume that this is a common phenomenon in Chinese companies. Initially, the development of the private sector occurred outside the control of the CCP, and their relationship with political decision-makers resembled that between lobby groups of Western companies and governments. The Party welcomed the sector’s contribution to economic growth, employment, and tax revenue; however, it kept an ideological distance from China’s new capitalists. Then, in 2002, Jiang Zemin officially invited the “progressive productive forces” to become CCP members,14 and, after the global financial crisis, the CCP started to strengthen the party structures in private companies. It was Ma, founder of Alibaba, one of the mosttoprominent the Jack beginning of ongoing development co-opt the Chinese privatecompanies economy into the political system or 104

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the great examples of China’s capitalist market reforms, are no exception. If there are at least three Chinese Communist Party members within an organisation, members are required by party rule to create a new party committee.13 Given that the CCP has ninety million party members, one can safely presume that this is a common phenomenon in Chinese companies. Initially, the development of the private sector occurred outside the control of the CCP, and their relationship with political decision-makers resembled that between lobby groups of Western companies and governments. The Party welcomed the sector’s contribution to economic growth, employment, and tax revenue; however, it kept an ideological distance from China’s new capitalists. Then, in 2002, Jiang Zemin officially invited the “progressive productive forces” to become CCP members,14 and, after the global financial crisis, the CCP started to strengthen the party structures in private companies. It was the beginning of ongoing development to co-opt the private economy into the political system or comfortably blur the lines between the blur two.the Thelines CCP, under the comfortably between theleadership two. The of President Xi leadership Jinping, has taken measures to CCP, under the of President Xi Jinping, expand its presence privateitscompanies has taken measures within to expand presence Moreover, the through “party-building” efforts.15“party-building” within private companies through 15 increasingly stricter online censorshipstricter is maintained the increasingly online efforts. Moreover, through services provided by through these companies, censorship is maintained services Baidu, Alibaba, and companies, Tencent, which all have joint provided by these Baidu, Alibaba, research and development labs with government joint research and and Tencent, which all have entities. For instance, announced last development labs withit was government entities. September that the city of Hangzhou, the cradle For instance, it was announced last September of private in the China, would send that the cityenterprises of Hangzhou, cradle of private government worksend in hundred key enterprises inofficials China, to would government companies Geely and officials to such workasinAlibaba, hundred keyHoldings, companies Wahaha, supposedly to act as a bridge such as Alibaba, Geely Holdings, and between Wahaha, authorities sector authorities while also supposedly and to actthe as corporate a bridge between increasing the government’s influence in these and the corporate sector while also increasing the 16 businesses. government’s influence in these businesses.16 outsider, these relations are just All in in all, all,for foranan outsider, these relations are as and difficult to figure as out the Party’s justcomplex as complex and difficult to out figure as the inner It is clear, that the Party’saffairs. inner affairs. It is however, clear, however, thatCCP the does not only over stateowned CCP does not exert only influence exert influence over stateenterprises but has also become within the owned enterprises but has also active become active increasingly influential private sector. within the increasingly influential private sector. Although 2019 2019 was was a tough year for many Although tough year Chinese tech companies—Huawei companies—Huawei in in particular— particular—

Hanzhou, the cradle of private enterprises in China and the first of the Chinese Cities of Opportunity

and 2020 started with news about the share of the new economy’s stalling as the United States and China has been in trade conflict, it will most probably not halt the further development of the sector. Given the overarching goal of the Chinese leadership to boost the country’s grand economic transition, in the long run, there will be more support and plenty of incentives for technological industries to stay competitive, as China has been working to promote domestic innovation and achieve self-reliance in tech since before President Trump launched his trade war. The new economy plays an important role in Beijing’s aim to maintain economic growth while shifting its economy. Therefore, tech companies can expect to receive even more support and “strategic guidance” from the CCP if trade tensions do not ease.

diverse career options. Xinhuanet. 24 June 2019. <https://bit. ly/2RhEHvJ > 6

Katherine Stapleton: China now produces twice as many

graduates a year as the US. World Economic Forum. 13 April 2017. <https://bit.ly/30lrwae > 7

China prepares policy to increase access for foreign

companies. 8

Wall

Street

Journal.

<https://on.wsj.

The group is now often referred to as the “big eight,” since

last May Meituan Dianping, a food delivery firm overpassed Baidu in market value. Tripti Lahiri–John Detrixhe: China’s favourite food delivery service is now worth more than its biggest internet search firm. Quartz. 24 June 2019. <https://bit. ly/2RMevsm > 9 Louise Lucas: The Chinese Communist Party entangles big tech. Financial Times. 19 July 2019 <https://on.ft.com/2NRI2kh > 10 Alibaba and Tencent have become China’s most formidable investors.

ENDNOTES

The

com/2tGo4Rp >

The

Economist.

August

2018.

<https://econ.

st/2NPzetP > 11 Unicorn companies are start-ups that are worth USD 1 billion or more.

Sebastian Heilmann: How the CCP embraces and co-opts

12 Alibaba and Tencent… The Economist.

China’s private sector. Mercator Institute for China Studies,

13 Guīchéng

MERICS Blog – European Voices on China. 21 November 2017.

(规程与方法：党支部的设置). Cpcnews.cn. 18 August 2016.

yǔ

fāngfǎ :

<https://bit.ly/2TMsG35 >

<https://bit.ly/3auT5sh >

14 Heilmann.

Bert Hofman: Reflections of forty years of China’s reforms.

World Bank Blogs. 3

Amir Guluzade: Explained, the role of China’s state-owned

Dǎ ng

zhī bù

shèzhì

15 How dominant are Chinese companies globally? Center for Strategic and International Studies, China Power Project.

companies. World Economic Forum. 7 May 2019. <https://bit.

<https://bit.ly/2sNvNg1 > Accessed: 2 December 2019.

ly/30L4Ki2 >

in nation’s cradle of private enterprises in charm offensive to

Full Text: Report on the Work of the Government (2016).

Xie Zu–Echo Xie: China assigns officials to 100 companies

Last updated: 17 March 2016. <https://bit.ly/2TNu7hR >

bolster confidence. South China Morning Post. 25 September

5 Chinese university graduates rise exponentially, have

2019. <https://bit.ly/2TPk4IW > STATES STRIKE BACK

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JAPAN VS SOUTH KOREAWHEN TRADE INTERESTS COLLIDE WITH STATE INTERESTS Emese Schwarcz

A region came to a halt when, on 1 July 2019, the products that made South Korea a highthe Government of Japan announced that the tech giant. The problem with these materials is Republic of Korea (ROK) should be no longer related to their dual-use nature, meaning that they on its trade whitelist of trusted export partners can also be used for military purposes, namely, for sensitive chemicals, due to national security uranium enrichment and sarin gas production. concerns. The decision was unprecedented, and The latter is an especially sensitive issue for the it surprised all the regional actors. As a retaliation, Japanese, due to the deadly sarin gas attack that Korea did the same and initiated a voluntary was delivered in the Tōkyō metro by members of boycott against all Japanese import products, the doomsday cult Aum Shinrikyō in the 1990s. which was then followed by the announcement of The ROK obviously would not have any reason the termination of South Korea’s membership in its to smuggle these items to North Korea, nor does General Security of Military Information Agreement the Japanese think so—rather, the main problem with Japan and the United States. The ensuing seems to be with the export inspection measures conflict between the two nations exceeded the that the Koreans apply. The Japanese government definition of a simple trade dispute, affecting cited a 2019 South Korean MOTIE (Ministry of political and diplomatic relations and triggering a Trade, Industry, and Energy) report1 which listed a significant amount of interest in the relationship total of 156 incidents of illegal exports of strategic goods between 2015 and 2019. The destinations between the two East Asian countries. Hydrogen fluoride, fluorinated polyimide, and of these illegal exports included, among others, photoresist—these are the three chemicals China, Southeast Asia, Taiwan, and the Middle essential for making semiconductors and LCDs, East. Issues with the Korean handling of exports

South Korean Minister of Foreign Affairs Kang Kyung-wha, US Secretary of State Michael R. Pompeo, and Japanese Minister of Foreign Affairs Tarō Kōno at the US–Japan–Republic of Korea Trilateral meeting in Thailand on 2 August 2019. 106

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in World War II has hardly anything to do with export control deficiencies, the ROK seems to link the two together. Doing so has harmed Japan considerably, not only in an economic sense but in a geopolitical one, too. For one, the boycott of Japanese products has caused the Japanese beer export to plummet by 99.9% compared to 2018. Similar tendencies can be observed in the case of Japanese cars, cosmetics, clothing, and even trips to the island country. On 2 August, Japan decided to go beyond the aforementioned three products and removed the ROK from the trade whitelist in South Korean rally for denouncing Japanese products general. The repercussions were intense: South Korea decided to hand in its three-month notice of were discovered even before that, as regular leaving the General Security of Military Information bilateral policy dialogues were set up in 2015 to Agreement (GSOMIA), which is a geopolitically vital facilitate a smoother procedure. These dialogues, arrangement between Japan, the ROK, and the US however, were discontinued at some point by the for sharing military intelligence on regional security. Korean party for unknown reasons. The Korean leadership explained that if Japan has Thus, existing export control challenges in the lost trust for the ROK export-wise, then there is no Republic of Korea made Japan wary of possible basis for staying in an agreement built on bilateral security risks, including the possibility of North trust on security measures. The reaction to this decision was less than optimal Korea acquiring these materials. Excluding the ROK from the Japanese trade whitelist, however, does not for the ROK on more than one front. Firstly, US mean that Korea will not receive any supplies; rather, officials were especially vocal about their disapproval the procedures will take longer, and so the ROK will because the US considers the agreement crucial for be in the same (non-)priority group as Taiwan or countering the North Korean and Chinese threat and Singapore.2 Japan, on the other hand, could very they feel powerless in this situation.6 During a trip to well get the short end of the stick in this affair, for East Asia in early November in the hope of putting Korea did not take their policy decision lightly. some pressure on the Korean party, the chairman of The South Korean perspective brings politics the US Joint Chiefs of Staff expressed his (and the unto the table and dismisses the national security US administrationâ&#x20AC;&#x2122;s) strong wish for the ROK to stay reasoning of the Japanese government. According in the arrangement. For the US, Japan and South to the Korean side, the decision was made as a Korea constitute the main pillars of securing the East retaliation for the South Korean Supreme Court Asian region, for both of these countries give home rulings against Japanese companies involved to multiple American military facilities, which ensures in forced labour during World War II.3 Japan and a strong American presence even in this relatively South Korea had traditionally had an antagonistic remote region. A disturbance in the relations between relationship because of the historical wartime the two allies could be detrimental to demonstrating atrocities committed by the Imperial Japanese sufficient military power in order to keep the US an Army. These rulings ordered compensation to be active and strong regional actor. Secondly, for Japan paid by the Nippon Steel Corp. and Mitsubishi also, the alliance is rather important, as the Korean Heavy Industries Ltd, but Japan protested on side can provide information about North Korean the grounds that all wartime atrocities were missile launches sooner than the Japanese could compensated in the 1965 peace treaty. This detect them. An indication of the gravity of the agreement also stipulates that all matters regarding situation was that even the South Korean Minister wartime issues were completely and ultimately of National Defence campaigned for staying in the resolved.4 And while the issue of forced labour GSOMIA.7 This clearly shows that Korean military STATES STRIKE BACK

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800 000 000 700 000 000 600 000 000 500 000 000 400 000 000 300 000 000 200 000 000 100 000 000 0

Japanese beer export to the Republic of Korea (in Japanese Yen)

officials can measure with precision the country’s dependence on the GSOMIA from a defence point of view but national politics weigh in a lot more in dealing with bilateral relations with Japan. Not that the ROK is alone with this. It is no sheer coincidence that Japan chose to change the export control regulations on 1 July, exactly on the first day to start campaigning for the Upper House elections in the Diet. The Japanese ruling party, the Liberal Democratic Party, is a massive right-leaning conservative conglomerate, and its voter base is also largely conservative. These conservative voters prefer nationalist policies and are keen to define themselves in opposition to South Korea and China. The reason for this is quite complex, but contrasting historical perceptions seem to lie at the core of the antagonism. Due to the lack of consensus on the history regarding the common affairs of the two countries in the course of the 20 th century, conflicting narratives were applied in their respective history textbooks, which gives way to constant contention. To cater to these conservative–nationalist voters, and gain possible votes, the Abe-led ruling party timed the modification of the regulation carefully. And this must not have escaped the ROK’s attention. The escalation of the tensions led to quite severe trade situations, and not only for the Japanese economy. The sharp decrease in exports to the ROK can very well disrupt the global supply chain, 108

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while it puts third countries that rely on the ROK for semiconductors into a difficult position. The head of Keidanren, Japan’s association of business organisations, believes that businesses could take a prominent part in pacifying the two neighbours through trade when diplomacy fails.8 Truly, this is something that has been underway ever since bilateral diplomatic relations took a wrong turn at the beginning of the Heisei era (1989–2019), when the issue of comfort women started to unfold. The Korean counterpart to the Keidanren chief, Chairman Chang Soo-huh of the Federation of Korean Industries, was quick to join in this sentiment and emphasised the utmost importance of business ties in a joint statement issued in November. Keidanren Chairman Hiroaki Nakanishi, who is (not entirely accidentally) also the head of Hitachi Ltd, made a statement, underlining the fact that Korea is already an integral part of the supply chain, from which Japan also greatly benefits.9 The statements of the business association chiefs illuminate the underlying problem in the whole debacle: it is in none of the countries’ interest to suffer blows on bilateral trade relations nor in regional security ties. A weakening relationship is bound to give leverage and a vantage point to North Korea and, according to Foreign Minister Kang Kyung-wha, to China as well. As much as corporate interest is a driving force between the two countries, state interest seems to have gained ground in the

past couple years, even when strongarming seems to weaken both countries’ position. Threatening to quit the GSOMIA might have been a bluff on the ROK’s part, but, on the whole, it gave discomfort to the Korean administration because the US did not take the decision well. Moreover, the States’ reaction also left a bad taste in their mouths, since—according to Korean interpretations—the US seemed to put the blame solely on the ROK for the whole dispute, which would put the ROK in a disadvantageous position even if it was to decide to give up on the plan of leaving the GSOMIA. Nevertheless, contrary to all fears, on 22 November, the Government of the Republic of Korea decided to uphold the agreement.10 Not without a condition, though: the ROK requested that the agreement could be terminated at any moment. Additionally, the ROK suspended its earlier complaint to the World Trade Organization about Japan tightening export controls. Therefore, South Korea surrendered, most likely as a result of US pressure. However, the general distrust and animosity between the two countries still persist. To solve this conundrum, Japan and the ROK will definitely have to start a dialogue in which they do not prioritise national pride over regional security and global trade. It is important to note, too, that no matter how this situation is resolved, one has to evaluate each move with an eye on the history and national agenda of the two countries, as there are two sides to every dispute.

5 Alexandra Ma: Beer exports from Japan to South Korea have fallen 99.9% as their bitter, personal trade war rages on. Business Insider. 30 October 2019. <https://bit.ly/2OxZCs1 > 6 Jesse Johnson: Unwilling or unable? U.S. faces uphill battle in quest to save Japan-South Korea intel pact. The Japan Times. 13 November 2019. <https://bit.ly/35id89P > 7 South Korean defense chief wants to maintain info-sharing pact with Japan. The Japan Times. 4 November 2019. <https://bit. ly/2OpeNUd > 8 Japan, S Korean Envoys, Execs Discuss Ways to Cool Tensions. The New York Times. 15 November 2019. <https://nyti.ms/2Xwsrcn > 9 Wang Yamei: Spotlight: Japan, S. Korean business lobbies agree to deepen ties through dialogue. Xinhua News. 16 November 2019. <https://bit.ly/2racBYK > 10 South Korea announces conditional delay in terminating intel pact with Japan. Kyodo News. 22 November 2019. <https://bit. ly/2OEmshq >

ENDNOTES 1 Yuka Koshino: RESOLVED: Japan Has More to Gain Than to Lose from Its Export Controls on South Korea. Debating Japan. Center for Strategic and International Studies. 24 September 2019. <https://bit. ly/2X7txeq > 2 Mitsuru Obe and Kim Jaewon: Inside the lose-lose trade fight between Japan and South Korea. Nikkei Asian Review. 31 July 2019. <https://s.nikkei.com/2OiAIME > 3 Japan’s Abe and South Korean PM Lee meet for first time in a year. Nikkei Asian Review. 24 October 2019. <https://s.nikkei.com/ 2r7yEPB > 4 A year after Seoul wartime labor ruling, Japan-South Korea leaders’ summit on hold. The Japan Times. 30 October 2019. <https://bit.ly/35euMv7 > STATES STRIKE BACK

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GOOD OR BAD?CHINA’S SOCIAL CREDIT SYSTEM Orsolya Talárovich

Can you imagine a life where everything you do, including what you buy, how you behave, how many hours you spend on your mobile phone, or how many times you take your dog for a walk, is observed by the government, and then, as a result of this observation, you get a score which measures how trustworthy you are as a citizen and determines what you are allowed to do? It seems surreal, right? However, that is exactly what is happening in China. So it is not surprising at all that recently this kind of surveillance has become the most controversial issue regarding the country. The primary purpose of this technology-enabled, surveillance-based programme is to nudge Chinese residents toward better behaviour and preserve traditional moral values. According to the Chinese government, the

implementation of this programme will contribute to improving government transparency and fighting against corruption, and, at the same time, it will promote the integrity of businesses in the fields of production and finance while ensuring that economic activities meet the standards and impel “private credit rating companies to protect user information and reduce the risk of data asymmetry.”1 However, in the eyes of Western people, the system is much more like a dystopian nightmare or a digital dictatorship, which severely limits people’s privacy. China’s social credit system (SCS) is not the first in the world, but it is unique due to the peculiarity of China’s market economy and the complexity of its social system. In other words, we can say it is a social credit system with Chinese characteristics. That is

Every citizen receives a score based on their financial and social behaviour. 112

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why “any objective and fair . . . judgment [of this system] must be based on a full understanding of the reality in China and the history of its credit system, otherwise they would be superficial or even biased.”2 Since the introduction of China’s reform and opening-up policy, which was launched under the leadership of Deng Xiaoping at the 3rd Plenary Session of the 11th Central Committee of the Communist Party of China (CPC) in 1978, a highspeed growth in the country’s economy and substantial progress have been seen, but, at the same time, “some very serious problems have emerged. These include tax evasion, industrial accidents, bribery, counterfeit consumer goods, food and drug safety incidents, economic and academic frauds,” and evading military service, “which undermine trust between citizens, between consumers and businesses (producers and sellers), and adversely affect the government integrity to some extent.”3 In order to solve these problems, the idea of the so-called social credit system emerged “as early as 1991 as a strategy of ‘addressing problems in commercial and financial sectors.’”4 However, “[t]he modern-day social credit programme has its roots in the controlling, surveillance-based model that was envisioned by former” [Chairman of the] Chinese Communist Party, . . . Mao Zedong.5 The first real step towards creating the present social credit system was in 2001, when the Central People’s Government formulated and implemented the Outline of the 12th Five-Year Plan, which includes the concept of implementing a national reputation system. The primary goal of this system is to ensure transparency and accountability and create an honest and trustworthy economic and social environment within the country. “As can be seen from this Outline, ‘social management’ was replaced by ‘social governance,’ and the government’s role was explained as the ‘supervisor’ rather than the ‘manager.’ These changes indicate that China’s social credit system has been designed to promote open and inclusive social governance, to involve more actors in the process of social governance, and to boost social governance efficiency while promoting healthy competition in Chinese market economy.”6

In 2007, the State Council published the Guiding Guiding Opinions Concerning the Construction of a Social Social Credit Credit System, System, resulting resulting in eighteen eighteen central central government departments initiating initiating aa SCS. SCS.77 In In government departments governments the years that followed, some local governments designed local SCS pilots, pilots, but the national national SCS SCS idea only got particular attention on on 14 14 June June particular attention 2014, when the State Council issued the Planning Outline Outline of Social Social Credit Credit System System Construction Construction to speed up the structuring of the social credit system.8 According to the official blueprint blueprint of of the the programme, to programme, itit was to “allow the trustworthy trustworthy to roam everywhere under heaven heaven while while making making it everywhere under hard for the discredited discredited to to take take aa single single step.” step.”99 In January 2015, the People’s People’s Bank Bank of of China China licenced eight big big tech such as as licenced eight tech companies, companies, such Alibaba and and Tencent, Tencent, to to begin begin a trial version version of Alibaba 10 famous The most famous the commercial credit system.10 commercial SCSs currently currently are are the the Sesame commercial SCSs Sesame Credit (Zhima Xinyong, Xinyong, 芝麻信用), 芝麻信用), developed Credit (Zhima developed by Ant Financial Group, an affiliate Financial Services Services Group, affiliate of the Chinese Alibaba Group, and Tencent Credit (Tengxun Xinyong, ��信用), 腾讯信用), developed (Tengxun Xinyong, developed by Tencent Holdings. Holdings. For For such systems, especially Tencent credit systems, systems, data data is the key. for commercial commercial credit key. The aforementioned aforementioned Sesame Sesame Credit Credit has has aa very very big big The advantage, as it has had access to the records of platform app app Alibaba’s mobile and online payment platform Alipay, which which is the world’s number number one mobile mobile Alipay, payment organisation and and already already has has payment service service organisation over one billion users worldwide. “Sesame Credit scores are updated once a month and and calculated calculated and weighted weighted based based on five five criteria: criteria: credit credit history, user behavior behavior (e.g. (e.g. purchasing purchasing behavior, behavior, donating charity), ability ability to to pay pay off off debts debts and and donating to charity), stable stable personal personal assets, assets, personal personal information information (e.g. provided reliable personal information), information), and and social network of social network). The network(e.g. (e.g.quality quality of social network). algorithms usedused to create individual scores scores remain The algorithms to create individual unknown, which makes it impossible for users remain unknown, which makes it impossible for to analyze and understand the creation of their users to analyze and understand the creation of 11 11 scores.” their scores.” By July 2018, more than forty municipal municipal and and provincial pilot projects had been established established by local governments, too. Some parts of the social social credit system are currently operating operating nationwide, nationwide, while while others others are are just just local local and and limited. limited. That That is is unified why it is rather difficult difficult to give a single, unified SURVEILLANCE ON STEROIDS

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definition of the social credit system: every to build a comprehensive profile of each Chinese province, city, or company has its own scoring citizen.”12 But that is not all: Chinese scientists methodology, in which even the score ranges are have developed birdlike drones and similar different. As of 2020, the Chinese government machines to spy on people. When in flight, these wants to introduce the social reputation system robotic birds are so realistic and silent that real at the national level, which will consist of three birds sometimes fly beside them.13 This regime of major parts: a master database, a blacklisting physical observation is complemented with the system, and a mechanism for penalties and online monitoring mentioned above. So what does the system look like? Every rewards. The sources of this database include court judgements, tax records, corporate records, Chinese citizen receives a score based on their citizen observations, government agency records, behaviour both in the financial and social sense. and, obviously, the records of the commercial According to the collected data, local authorities SCSs. People, of course, are most concerned and the central government publish two about the observation of citizens, since the other nationwide lists, which are publicly searchable sources, although not in the exact same form, on a government website called China Credit are available in almost every country. The world’s (Xinyong Zhongguo, 信用中国). Instead of being most populated country is taking surveillance given a specific score, firms and companies are technology to new levels. Until “2018, there were marked as having an excellent, good, fair, or poor more than 200 million cameras – one for every credit rating. As Frank Tang notes in a 2019 article, seven citizens – installed across the country. “according to the assessment of the coal sector Many of these have now been fitted with facial published in April, only 98 of more than 19,000 recognition software, which can be combined firms were rated as excellent, while 1,868 were with existing government data such as voice labelled as having poor social credit ratings.”14 recordings, fingerprint data and blood samples Individuals, companies, and organisations with 114

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especially “untrustworthy” or illegal behaviour are added to the so-called blacklist. However, it is important to highlight that there is a difference between getting a low social credit score and being blacklisted by the government. The other catalogue, known as the red list (which is the Chinese or Communist version of the whitelist) consists of people, businesses, social organisations, and governmental agencies with very high scores.15 There are very harsh consequences for being blacklisted, “including bans on leaving the country, using public transportation, checking into hotels, hiring for high-visibility jobs, or acceptance of children to private schools. It can also result in slower internet connections and social stigmatization.”16 To increase public humiliation, there is even a By the end of last year, more than 200 million cameras mobile app that shows who around you is in debt. In contrast to suffering the detrimental effects of a had been installed all over the country. bad rating, high scorers can enjoy many benefits including easier access to sharing economy smoking areas, criticise the government, have services (e.g., renting bikes, scooters, or cars), a membership in, or support, the Falun Gong free medical check-ups, tax reductions, and or Tibetan Buddhism, play too much with video favourable bank loans. In addition, they can also games, play loud music on public transportation, use special waiting rooms at the railway stations or “and other actions deemed illegal or unacceptable hospitals, and get easier access to governmental by the Chinese government.”18 services. There is another great—and perhaps a In recent years, the various aspects of SCSs bit startling—advantage to getting a high credit have been widely discussed in the media, and score. Sesame Credit is linking up with some academic research in this field is advancing rapidly. dating websites, too, for example, Zhenai.com It can be seen that Western people and Chinese and Baihe.com. While Zhenai gives the high people have very different opinions about this scorers of its 140 million users greater visibility on topic. Western critics usually claim that the social its website, Baihe lets its most highly rated users credit system is simply an intrusive surveillance boast with their score to other members as long programme for punishing dissidents and as they agree to display their scores in return. infringing the citizens’ right to privacy. However, Thus, “would be partners can judge each other most of the Chinese citizens actually think this on their looks as well as their social credit score; system will help to regulate social behaviour and maintain safety within the country, and, for that system is opt-in.”17 There are a number of proactive steps by them, these are the most important factors. If we which one can improve their social credit score: review the past decades of China, we can see for example, paying bills on time, charitable that there have been many occasions (e.g., during donations, praising the government on social the Cultural Revolution) when citizens lived in dire media, purchasing Chinese-made goods, taking conditions, in fear, or even in hunger. Therefore, one’s own parents to the hospital, being friends having experienced such harsh and demanding with other high scorers on social networking living circumstances, Chinese citizens are more websites, and even donating bone marrow. receptive of surveillance systems and are ready to However, high points can reduce easily if citizens support CPC’s measures rather than live in chaos drive too fast, change jobs often, smoke in non- again. Moreover, the system provides better living SURVEILLANCE ON STEROIDS

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conditions for high scorers, as they get easier access to sharing economy services, which especially favours poorer people. For example, people who have high social credit scores can rent a car without a deposit. The deposit money for car sharing is around one thousand yuan, a sum that many people in China still cannot afford. According to the objectives of the Chinese government, the programme is due to be fully operational nationwide by 2020, but the initiative, in its present state, is more like a patchwork of regional pilots and experimental projects rather than a strong, unified, country-wide system. For this reason, the full extent of the impact of social credit on China and Chinese citizens is impossible to predict, simply because the system does not fully exist yet. In reality, the system might stand somewhere in-between what the government claims about it and what Western media fears about it.19

ENDNOTES 1 Fan Zhengjie–Zhang Bei: The truth and reality of China’s social credit system. EUobserver. 30 August 2019. <https://bit. ly/2GdET8y > 2 Fan–Zhang. 3 Fan–Zhang. 4 Genia Kostka: China’s social credit systems and public opinion: Explaining high levels of approval. SAGE journals. 13 February 2019. <https://journals.sagepub.com/doi/ full.10.1177/1461444819826402 > 5 Sophie Perryer: China’s social credit system awards points to citizens who conform. The New Economy. 22 May 2019. <https://bit.ly/2RGK9aC > 6 Fan–Zhang. 7 Guówùyuàn bàngōng tīng guānyú shèhuì xìnyòng tı̌xì jiànshè de ruògān yìjiàn (国务院办公厅关于社会信用体系建设的若干意见) Chinese Government Website. <https://bit.ly/36q9Dyo > 8 Kostka. 9 Simina Mistreanu: Life Inside China’s Social Credit Laboratory. The party’s massive experiment in ranking and monitoring Chinese citizens has already started. Foreign Policy. 3 April 2018. <https://bit.ly/2NRqGCS > 10 Rénmíng yínháng yìnfā “Guānyú zuò hǎo gèrén zhēng xìn yèwù zhǔ nbèi gōngzuò de tōngzhī” (人民银行印发: 关于做好个人征信业务准备工作的通知). Chinese Government Website. 5 January 2015. <https://bit.ly/2uoK2sg > 116

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11 Kostka. 12 Perryer. 13 Zhou Jiaquan: Drones, facial recognition and a social credit system: 10 ways China watches its citizens. South China Morning Post. 4 August 2018. <https://bit.ly/2TOG8n3 > 14 Frank Tang: China pushing ahead with controversial corporate social credit rating system for 33 million firms. South China Morning Post. 17 September 2019. <https://bit. ly/2RGMfr0 > 15 Mike Elgan: Uh-oh: Silicon Valley is building a Chinesestyle social credit system. Fast Company. 26 August 2019. <https:// bit.ly/2RJiXI1 > 16 Elgan. 17 Nicole Kobie: The complicated truth about China’s social credit system. Wired.co.uk. 7 June 2019. <https://bit.ly/ 2utHaKo > 18 Elgan. 19 Louise Matsakis: How the West Got China’s Social Credit System Wrong. Wired. <https://bit.ly/2tzPatB >

ONLINE GATEKEEPERS AND THE FUTURE AND PRESENT OF THE DEMOCRATIC PUBLIC SPHERE András Koltay

In From Hell, a graphic novel written by Alan Moore, Victorian serial killer Jack the Ripper states, as a kind of explanation for his actions, that “One day, men will look back and say that I gave birth to the twentieth century.”1 Even though this sentence does not appear in any letter written by Jack the Ripper to Scotland Yard (assuming that those letters were indeed written by him) and it is an obvious and deliberate exaggeration used for rhetorical effect, it is noticeable because Jack was the first serial killer who became a media phenomenon

in the modern sense of the term; he committed his crimes in an era of explosive developments in tabloid journalism, thereby providing suitable material for the masses who craved sensational stories,2 and his story still has business potential some 150 years later. His terrible crimes and their media coverage were intertwined, and, in a sense, the killer showed the way to the next era of tabloid journalism. When Steve Stephens broadcast a live Facebook video feed of himself mercilessly shooting a random and innocent pedestrian in

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April 2017, it seemed clear that we have arrived at a new era of tabloid “journalism,” when we can watch murders being committed in real time and killers can satisfy their craving for attention.3 Even though the murder committed by Stephens is not attributable to social media, just as the crimes of Jack the Ripper were not caused by the hunger of contemporary media for sensation, it is a sure sign that the public sphere of this day and age has a different quality than the one created by traditional media (printed press, radio, and television). In the twenty-first century, most public debates are conducted online, and major platforms and businesses have user numbers and economic power, including the power to shape public opinion, unprecedented in media history. As a paraphrase of the statement made by the Victorian killer in Moore’s novel, one might almost say that Google and Facebook gave birth to (the public sphere of) the twenty-first century. The rise of the internet since the 1990s reaffirms Marshall McLuhan’s thesis from the 1960s (which became a commonplace during the last decades but, nevertheless, has not yet been disproved) that the “Medium is the message.”4 In light of the earlier means of public discourse, the

Canadian philosopher Herbert Marshall McLuhan, who laid the foundations of media theory and also foresaw the internet before it was invented 120

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statement above seems especially applicable to online communication, as it has an impact on the operation of the public sphere through not only the content of communications but also the particular methods, structure, and architecture of online communication; this equally applies to private correspondence (e-mail), friendly conversations (chat services, social media platforms), looking at pictures and watching videos (video-sharing portals), the means of accessing information (search engines), discussions of public affairs, and the nature and use of information. People speak much more in public, or at least somewhat publicly, and access much more information than ever before—but we use entirely different means than before to do so. McLuhan’s main thesis is that while we focus on the content (message) conveyed by the media, the media (technology) itself slowly and unnoticeably transforms social norms, values, our rules of coexistence, and the ways we manage our affairs. This is the real content of the “media.” Everyday life has considerably been changed by new online services (including search engines and social media), and certainly not in a subtle way; such changes have also had an impact on the nature of public discourse, as well as on the meaning of terms such as “knowledge” and “information.” Some even argue that the functioning of the human brain has changed to adapt to the new means of communication.5 It seems somewhat ironic that the internet was heralded in the beginning as the domain of unlimited freedom and free speech without government interference,6 even though its development was commissioned by the US government for use by US defence forces because the internet was seen by the government as a suitable means of monitoring citizens and it was opened for non-military use through the privatisation of the existing infrastructure only decades after its creation.7 The idea of a “free internet without a government” was utopian from the very beginning—either a naive dream or the product of a sinister scheme to mislead people. Freedom of speech is a cornerstone of democracy and Western civilisation. Its fundamental principles and doctrines were elaborated over the course of centuries and

take their time to change. The emergence of the internet posed new challenges to those fundamental principles. Some two decades ago, the internet gave rise to wild and romantic hopes and ideas that the emergence of the new medium would democratise the public sphere and culture without any legal interference, simply through the nature of technology itself.8 Such early expectations have been replaced by a general sense of disappointment, as people have realised that many of the offline media’s problems apply to the internet as well (see, for example, the issue of ownership concentration), while it is also affected by new and internet-specific challenges that hinder the functioning of a democratic public sphere. As Lawrence Lessig, a pioneer in scholarly theories on the function of the internet, put it when American academic and political activist Lester Lawrence he recognised this disillusionment, “The Net was Lessig, known for founding the NGO Creative Commons not in Kansas anymore.”9 Nonetheless, we must not forget that online communication has brought and proposing legal restrictions on copyright about revolutionary development in several fields, and it has widened the public sphere. However, providers, search engines, and video-sharing while these achievements form part of the and social media platforms (i.e., gatekeepers or everyday life of many people, they cannot let us intermediaries) are indispensable parts of the forget the difficulties we have to face concerning system, and they all can influence the public this new medium. There seems to be a strange sphere. They are capable of rendering pieces duality here: even though people have more of content unavailable or raising considerable opportunities to address the public and access obstacles to accessing content, while they can information than ever before, the digitisation of push other content in front of the general public. everyday life implies a danger for many people Whereas they challenge numerous aspects of the that human culture and communication may existing legal framework (data protection, privacy, defamation, hate speech), they have also become become shallower than it was before.10 A particular and worrying phenomenon in online dominant actors in the public sphere. Both major online platform providers and communication is that gatekeepers have an increased influence on the operation of the public governments, the latter being in charge of sphere. This is a bizarre turn indeed, considering regulating such providers, suffer from mutual that the initial promise of the public internet was schizophrenia. On the one hand, governments to make traditional gatekeepers (press houses, try to force service providers to remove certain newspaper stands, post offices, cable service pieces of content (e.g., hate speech, userproviders, etc.) less important and influential. generated content that may jeopardise children Instead, the internet created new gatekeepers or violate personality rights) from their services; with greater influence over the public than ever on the other hand, service providers are trusted before (in addition to creating a radical expansion to judge the legal status of such pieces of content, meaning that governments essentially of the public sphere). Just like in the offline world, services that “outsource” the courts’ monopoly to apply the produce content and services that transmit law. At the same time, the service providers content to the audience both play an important concerned also select content according to their role in online communication. Internet service own policies, deciding on what to delete, who to SURVEILLANCE ON STEROIDS

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silence, and what items to feature for their users. This means the enforcement of a “pseudo-legal system,” with its own code, case law, sanctions, and fundamental approach to the matter of the pluralism of opinions—all this taking place in a privately owned virtual space. Even though the internet promised unlimited access to opinions some twenty years ago, the emergence of a monopoly of opinion is much more likely today than it was ever before; while nation states are helplessly watching the erosion of their legal system and the fall of their constitutional guarantees protecting the public sphere, they are (at least in part) voluntarily delegating important chunks of their law enforcement tasks to tech giants. Earlier in history, the freedom of individuals needed and was afforded protection against the government by restricting government powers. Today, the human rights rules and principles, developed and elaborated through hundreds of years, need to be applied and enforced with regard to the trilateral relationship between governments, citizens, and service providers. An online gatekeeper is defined as a person or entity whose activity is necessary for publishing the opinion of another person or entity on the web, which includes internet and blog service providers,

social media, search engine providers, entities selling apps, web stores, news portals, newsaggregating sites, and the content providers of websites who can decide on the publication of comments to individual posts. A fundamental question is whether or not online gatekeepers must be regarded as media, considering that they do not produce or publish their own content but merely host content produced by their users and make it available. A conclusion is that the activities of some gatekeepers may be regarded as a kind of editing, as they include the organisation and sorting of user-generated content, which, in turn, implies making decisions on presenting individual pieces of content to users, thereby influencing their chances of being included in a public debate. Furthermore, intermediaries have no way of escaping the need to judge the legality of the content generated by their users— because it either serves their own purposes or they are coerced into doing so by government agencies. This means that gatekeepers can, and are sometimes even obliged to, remove pieces of content from their systems and they are free to decide to “hide” (render quasi-invisible) or push (display in a featured location) non-infringing

ISPs, search engines

The gatekeepers of information on the internet 122

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Democratic Impact

certain content moderator MICROGATEKEEPER

AUTHORITY GATEKEEPER

MACROGATEKEEPER

Facebook, Wikipedia, Portals

Africa

Amendment

Asia & the Pacific

New law

Central & Eastern Europe Western Europe & North America Latin America & the Caribbean Arab States 0

Number of countries with data protection or privacy laws adopted or amended by region between 2012–2016

content to the general public. In this context, it seems to be the inevitable conclusion that gatekeepers are, in fact, editors, even if they are somewhat different from the editors of traditional media outlets. This complex set of relationships necessitates the examination of the various issues from multiple aspects. One must consider: (i) the relationship between speakers and government, including the duties (if any) a gatekeeper must perform with regard to speech crossing the limits of freedom of speech; (ii) the relationship between government and gatekeepers, which also raises various questions, such as the issue of gatekeepers’ liability for infringing user-generated content and the matter of legal obligations to take action against infringing content; (iii) the relationship between gatekeepers and speakers—in addition to the removal of infringing content, various questions arise from the discretionary power of gatekeepers to remove or hide certain opinions from their platform. The questions pertaining to such powers of gatekeepers seem to have a new quality, as gatekeepers “edit” content, both pursuant to government instructions and on their own initiative and discretion, and their decision-making powers are not limited by the traditional principles, standards, laws, and legal practices concerning freedom of speech. This is why, from a constitutional perspective, we cannot say that gatekeepers restrict freedom of speech, but, in effect, that is exactly what happens. Even though content deleted or suppressed by a gatekeeper can be published in another way or on another site, some influential gatekeepers are capable of exerting considerable influence over the public in and of themselves.

The privatisation of freedom of speech is a cardinal issue, meaning that the limits of that freedom are drawn by private actors, that is, major platform and infrastructure providers. It is argued that this process brings about a paradigm shift in the constitutional protection of speech and the role of government in maintaining and preserving the democratic public sphere. As Damian Tambini and his co-authors put it, we are living in an era of the “deconstitutionalisation of freedom of speech.”11 This process gave birth to new ways and means of restricting speech because either the courts apply traditional legal doctrines to new circumstances in lawsuits between users or online gatekeepers restrict their users’ freedom of speech and right of access to information. The internet, as a phenomenon, may not be understood without addressing the issue of surveillance, which makes privacy and data protection one of the most important legal fields in its context. The issue of privacy and data protection is also relevant to the questions raised by content-related interference, as most gatekeepers (social media platforms, search engines, and web stores) determine what to show to and hide from users on the basis of data collected on their users. Facebook’s newsfeed or Google’s search results may not be understood properly without the information each gatekeeper has on each user of their services. If a newsfeed or a search ranking is considered an “opinion” that is eligible for constitutional protection, the collection of data serving as a basis for such an opinion should also be assessed from a legal perspective.12 SURVEILLANCE ON STEROIDS

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Similarly, copyright and trademark issues, as well as the problem and possible ways of managing media ownership concentration, are of great importance in the context of the internet. Even though our intuition may suggest otherwise, most of the problems raised by online gatekeepers are not entirely new but were also present in the traditional media sector. In the early 1960s, Jürgen Habermas himself warned of the end of the public sphere, as he was worried that public discourse and debate pertaining to public affairs was prevented by the commercialisation and consumerisation of mass media. The argument that democracy is weakened by new online services (e.g., the production of fake news) is not entirely new either. It is not argued here that all problems could be solved by adapting existing solutions to the new circumstances, as not all components of the new media order are analogous to a phenomenon that was already known in the context of traditional media. It seems doubtful that the limitation of speech by private actors could be tackled within the centuries-old framework of fundamental rights. It also seems that the meaning of “regulation” has become somewhat elastic. Governments can (or at least attempt to) regulate the activities of both gatekeepers and users, including matters pertaining to freedom of speech. However, gatekeepers also act as “regulators” in the sense that they adopt their own quasi-law in the form of public policies and other internal (i.e., not public) guidelines and regulations, and this latter form of “regulation” (which is not even regulation in the legal sense of the word) is far more effective than government legislation and is enforced by gatekeepers every day. Legal systems somehow need to come to terms with this duality.

ENDNOTES 1 Alan Moore–Eddie Campbell: From Hell. Knockabout Comics, London, 1999. This sentence is also used in a movie based on the comics (From Hell, directed by Albert Hughes– Allen Hughes, 2001). 2 See L Perry Curtis, Jr: Jack the Ripper and the London Press. Yale University Press, New Haven, 2001. 124

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3 Daniel Kreps: Alleged Facebook Killer: What We Know So Far. Rolling Stone. 11 April 2017. <https://bit.ly/3aEjbsD > 4 Marshall McLuhan: Understanding Media. The Extensions of Man. McGraw-Hill, New York, 1964. 5 Nicholas Carr: The Shallows. What the Internet Is Doing to Our Brains. W. W. Norton & Company, New York, 2011. 6 John Perry Barlow: A Declaration of the Independence of Cyberspace. Electronic Frontier Foundation. 8 February 1996. <https://bit.ly/2GiMhjj > 7 Yasha Levine: Surveillance Valley. The Secret Military History of the Internet. PublicAffairs, New York, 2018. 8 Jack Balkin: Digital Speech and Democratic Culture: A Theory of Freedom of Expression for the Information Society. New York University Law Review. 2004/April. <https://bit.ly/2RkXFBN > 9 Reference to a line of Dorothy in the 1939 movie The Wizard of Oz, when she realises that she and Toto have left their safe home. See Lawrence Lessig: Foreword. In: Jonathan Zittrain: Future of the Internet—And How to Stop It. Yale University Press–Penguin UK, New Haven, 2008. viii. 10 Jonathan Franzen: What’s Wrong with the Modern World. The Guardian. 13 September 2013. <https://bit.ly/30Sm7xp >; Andrew Keen: The Cult of the Amateur. How Today’s Internet Is Killing Our Culture. Currency, New York, 2007. 11 Damian Tambini–Danilo Leonardi–Christopher T. Marsden: Codifying Cyberspace. Communications Self-Regulation in the Age of Internet Convergence. Routledge, London, 2007. 275. 12 Lisa M Austin: Technological Tattletales and Constitutional Black Holes. Communications Intermediaries and Constitutional Constraints. Theoretical Inquiries in Law. 2015/May. 451.

CAUGHT IN A WEBHOW CAN LEGISLATION HELP US GET OUR PRIVATE LIFE BACK FROM SOCIAL MEDIA? János Tamás Papp

It is undisputed that the internet has become They generate the vast majority of online content the newest forum for the public. We obtain and consumption. They are the ones who determine consume information differently, our news and what and how the average internet user sees and content consumption habits have changed, and can reach. In other words, these are the companies the content we want to watch has also changed through which we access the internet and significantly. This new “digital revolution” has made information reaches us, they are the intermediaries a huge difference in almost every area of life. These between the user and the content creator, and changes are driven, catalysed, and supervised by they are the gatekeepers who are almost exclusive the global tech companies whose products are depositors of content access for the average user. A decade ago, nobody thought that not just used by billions of people worldwide every day. The influence of Google, Facebook, Twitter, or Amazon social media platforms would become the centre now rivals that of the largest media companies. of our online world but our profiles would become

HOWMUCH MUCHOF OF YOU YOU IS IS ON ON SOCIAL SOCIAL MEDIA? HOW MEDIA? DATA YOU MEAN TO GIVE DATA YOU MEAN TO GIVE PERSONALLY PERSONALLY IDENTIFIABLE IDENTIFIABLE INFO INFO

- your name - your name - birthday - birthday - photo photo -- any other distinguishing information

DATA YOU DON’T MEAN TO GIVE DATA YOU DON’T MEAN TO GIVE

GPSGPS LOCATION LOCATION - Wi-fi - Wi-fi - Bluetooth signal - Bluetooth signal

- any other distinguishing information

CONTACTS - phone adress book -CONTACTS e-mail adress book

- phone address book - email address book

LOCATION DATA - listed location LOCATION DATA - tagged location on sites like Instagram - listed location and Foursquare

- tagged location on sites like Instagram and Foursquare

BILLING INFORMATION - adress -BILLING credit card information INFORMATION

- address - credit card information

EMPLOYMENT DATA - previous and current jobs -EMPLOYMENT current coworkersDATA

- previous and current jobs - current coworkers

PHONE INFORMATION PHONE INFORMATION - service provider - service provider - language - language - time- time zonezone - make and and model - make model - operating system - operating system • IOS,ios, Android Windows Android or or Windows system updates • system updates - battery percentage - battery percentage

SOCIAL MEDIA USAGE HABITS SOCIAL MEDIA USAGE - frequency of use - frequency of use - likes and and interests - likes interests - social network interactions - social network interactions • messages - messages • photos shared - photos shared • close friends vsvs. acquaintances - close friends ac quaintances - visits to partner websites based ads - visits to partner websites based onon ads

According to a May 2015 survey commisioned by the USA Network, to athat May if2015 by the USA Network, 55% of youngAccording people say theysurvey couldcommissioned start fresh, they wouldn’t join social media at all 55% of young people say taht if they could start fresh, they wouldn’t join social media at all. SURVEILLANCE ON STEROIDS

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the mould of our offline self. At the dawn of social have been created to share information. We networking, even the service providers themselves really cannot blame users for taking advantage have addressed very few privacy issues, but by of these oppor-tunities and using these pages now the dangers of having too much information for their intended purpose. Not to mention about us on an online platform have become that even a very conscious user who is paying clear. Because of the online tracking needed attention to the fate of his or her data cannot for the social networking sites and behavioural say with certainty whether the data he or she advertising, the concept of private life has been is sharing is safe or not. So we can say that the completely transformed in recent years, and the real responsibility (or at least a big part of it) lies range of related issues has become very broad. with the platforms. Thus, our private life is increasingly threatened, and, to get a clear picture of this issue, we need to look FROM PRIVATE TO PRIVATISED LIFE at the responsibility of three actors in the whole The phrase “Data is the new oil” has become scenario: the user, the platform, and the state. commonplace today; nevertheless, it has lost nothing of its validity. Every social media site SHARE-BASED SOCIETY collects and sells our most intimate private The possibilities of social networking sites information daily, and we have no way of are endless. With their appearance, people knowing what companies do with our data. An have been given a wonderful tool to express entire industry has been created to buy and sell their personality and opinions. A platform has our data, and it offers this information without opened for almost everyone, which is a simple our having any real influence over it. The sheer and powerful tool to exercise their freedom size of the data broker industry means it would of expression and share their thoughts with be nearly impossible to even ask each of the the world. The term to be emphasised here companies what kind of data they have on us. is “sharing,” as social media is a function that It is not just data that we clearly know the allows us to share our inner selves with others. platforms have access to, whether because we However, it is very easy to “overuse” this freedom provided it at registration or because we are and to share information about ourselves that aware that it is collected from us. It is not even used to be completely private. The more we use necessary to be present on a social media site these pages for sharing, the more our followers for a platform or data broker company to have and platform operators will learn about us. The personal information linked to us. Every day, our first step that leads to the collapse of the walls of friends are leaving clues about us, what we like, our private sphere is oversharing, by which we how we behave, even about our political agendas, remove the bricks from the wall that protects us. when they talk or get in touch with us or react Defining what is private information and what to something we said earlier. Thus, even if we is not has today become much more difficult decide to delete our account, our profile could for not only users but also others who only still be compiled from previous interactions with consume content. On social media, you are our friends or other pages. A company would only interesting (or, for many, valuable) if you be able to target us with customised ads simply are publishing personal content. Many people, by analysing the people in our network. Search on the other hand, cannot distinguish between engines would be able to deliver search results personal and private information, and, thus, for geared to specific people based on what their their popularity, or simply out of simple lack of friends are saying. interest, publicly disclose information that they When platforms collect so much data in so would otherwise keep to themselves in real life. many ways, it raises the question of why we are While oversharing in itself can cause many continuing to trust or use them at all. The answer problems, it is clear the key issue is not the is that if we do not want to miss out, we do not overinvolvement of users. Online platforms really have a choice. Social media sites regulate 126

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their own platforms mostly without the need to adhere to specific state regulation because the only regulations from governments that they need to follow are generalised around personal information. CONTRACTUAL FREE SPEECH The operator of a social networking site can determine the rules by which it operates its own interface, and registrants have two options: they either accept these rules or do not register on the site at all. Today, however, Facebook, for example, has such a large user base that it has become an almost indispensable community space and, thus, has a huge impact on the community with its privacy policies, rules, and practices. However, since their decisions regarding unlawful content are not public, it is still very difficult to examine on what grounds these sites find certain content to be in violation of, or compliant with, their terms of service. This creates serious uncertainty, may lead to ad hoc

decisions, can manipulate public debate, and may have a very serious impact on democratic public discourse. The relationship between users and platforms is governed by a contract that everyone signs when they register (or even use) such a site. All their rights, all their responsibilities, and all the disputes between them and the platforms are sorted out there. Everything a user can or cannot do on the platform is what a given platform allows them to do. The relationship is not even properly contractual, as the contract, in the form of Terms of Service, can basically be changed unilaterally by the platform at any time. For example, Facebook’s privacy policy says: “Information controlled by Facebook Ireland will be transferred or transmitted to, or stored and processed in, the United States or other countries outside of where you live for the purposes as described in this policy.” So, basically, Facebook may store and process our data anywhere in the world, meaning it might be subject to different data protection laws.

Numbers do not lie: data is the new oil. SURVEILLANCE ON STEROIDS

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Thus, it is not just a question of what platforms do with our data (or anything else) but whether they can be legally bound to anything. In other words, we have reached the third stage of our investigation, namely, what the state can do to protect users. At this point, we also need to break away from the narrowly understood data protection issues and, more broadly, address the general regulatory issues of the platforms in question.

can do anything without being accountable by law. But this was only half-truth. While it could be said that it is difficult to detect infringements and prosecute unlawful behaviour, communication via the internet and social media is not exempt from restrictions on speech in the offline world. Most of the unlawful behaviour on social media can be placed under a predetermined civil or criminal provision. However, since the setting of these limits is subject to state regulation (and freedom of speech has been harmonised to a lesser extent in EU law) and social media is global in nature, i.e., it disregards state borders, this duality causes many problems. At present, it seems that not only legislators but also the platforms themselves are moving towards some form of common regulation. If we put aside anti-democratic motivations that are incompatible with the ideas of freedom of expression and want to limit citizens’ freedom on the internet, we can say that most serious regulatory initiatives have been made to make the internet a safer, better place for minors and adults alike. While it may be assumed that platforms do not think otherwise, the primary motive for turning to regulation is probably economic, as it is more cost-effective to comply with a general set of rules than with different laws in each country. Of course, this raises the not-so-easy question on what principles and by what authority this regulation may take place.

BYE-BYE, WILD WILD WEST! There is a strange duality regarding the regulation of similar online platforms. On the one hand, so far, almost all previous proposals that have attempted to regulate internet communications on a bigger scale of some form have met with fierce resistance and eventually failed as a result of the protests. The “protectors” of internet freedom want states to have as little influence as possible over online communications and refrain from any opportunity that would compromise liberties in any way or form. On the other hand, voices that have had it with the hegemony of online platforms and call for some state regulation are getting louder. In their view, the kind of self-regulatory model that the platforms have so far used has obviously failed. As a result of various privacy abuses, violent content scandals, and failure to address hate speech or terrorist sites, researchers, politicians, and ordinary citizens are increasingly calling for stricter state regulation of social networking sites. EUROPEAN REGULATIONS TO THE RESCUE! It is very difficult to find the right balance The need for common regulation is, therefore, between the two “competing” interests. If we no longer a conditional issue but a reality. So far, accept the principle that the internet is an the direction of regulation is two-way: to protect unregulated, free platform, from this point of view, users from each other (i.e., rules about legal any attempt to regulate would mean the loss of and illegal content and related obligations for some of our freedom. Regulating the internet tech companies) and to protect users from the infrastructure can be considered a restriction on malicious activity of the platforms. freedom of expression, even if it does not directly Concerning the relationship between users, attempt to control what can and cannot be said. the perception of neutrality of the E-commerce However, this is contradicted by the fact that Directive has clearly shifted. There are two main the internet is not a completely unregulated area, areas which have been regulated to a certain and, in fact, it has never been. For many years, extent. One is content related to terrorism and some people described the internet invoking a hate speech, and the other is content that is metaphor which compared the online world to harmful to minors. In these two areas, the new the wild West, where there is no law and anyone AVMS (Audiovisual Media Services) Directive has 128

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entered the contractual relationship between users and platforms by extending its scope to audiovisual content shared on video-sharing platforms (which may include social networking sites). The new directive introduced the concept of video-sharing platform service, which also includes audiovisual content published via social media. The regulation covers only a limited amount of content, namely, audiovisual content, and provides state control over only a few areas (protection of minors, hate speech, support for terrorism, child pornography, denial of genocide). Note that similar content has also been banned or removed by platforms in the past under their own policies, but it is important that since the date of transposition of the directive, this has been an obligation for the platform providers. One of the most trending areas of protecting users from platforms is the fight against disinformation, where the European Commission is trying to enforce usersâ&#x20AC;&#x2122; rights through a kind of self-regulatory model. Major online platforms

agreed on a self-regulatory Code of Practice to address the spread of online disinformation and fake news. The Code of Practice was signed by the online platforms Facebook, Google, and Twitter, and by Mozilla and Microsoft, who have committed to help counter mass online disinformation campaigns intended to polarise public opinion, especially in relation to elections. However, weaknesses in the system became apparent when the Commission (through the European Regulators Group for Audiovisual Media Services) tried to verify compliance with the undertakings. The monitoring was based on material stored in the archives of political advertising established by each of the platforms, using their own criteria and the reports provided by the platforms. The platforms were not in the position to meet a request to provide access to the overall database, even on a limited basis, which was a significant constraint on the monitoring process and emerging conclusions. For example, it is ineffectual to report that â&#x20AC;&#x153;xâ&#x20AC;? offending groups SURVEILLANCE ON STEROIDS

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25 May 2018

Explain in simple language why the user should leave personal information, how the information will be used and how long it will be stored.

Any company that processes data needs to remove someone's personal information on request if it is not contrary to the public interest or other fundamental rights of Europeans.

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Individuals have the right to appeal against the decision when it is based on automated processing and produces a legal effect or similarly significant effect on the individual.

or “y” fake profiles were removed; if we do not know performance of a contract, legitimate interest, legal what offenses were committed, on what basis, and obligation, etc.). It protects the personal data of how many pages and profiles were reviewed or those who reside in the EU, as well as tourists and reported, control may be less effective. The fact that temporary visitors to the EU. each user sees a customised page when using the platforms further complicates the individual control THE FUTURE OF REGULATION of the commitments, making it impossible to get Of course, it would be a naive dream to think that a comprehensive view of the shortcomings of the from now on we could never find any of our data in the wrong hands. There can be no perfect control commitments the platforms have made. Another important element in protecting users from or regulation, because technology will always be platforms is the General Data Protection Regulation at least one step ahead, and we are likely to be (GDPR). The GDPR has brought improvements tracked by curious pages in the future as well. compared to the previous regulation. Of these, However, even if this is the case, the regulation, no the extension of the obligation to comply with data matter how imperfect, must strive to guarantee and protection principles is significant. One of the tools to protect the rights of users as broadly as possible. It is no longer a privilege for the states to set the do this is the obligation to report a privacy incident and stricter monitoring of compliance with privacy boundaries of freedom of expression and to oversee rules. Platforms have thus been obliged to modify it, as it has already been done by global players their entire data management in accordance with the who extend their own code of free speech to all provisions of the GDPR, and, in the event of a loss parts of the world. They can no longer be excluded of data, to alert both state data protection authorities from the discourse surrounding the definition of the and data subjects. Violation of the rules, such as doctrines of freedom of speech, since lawmakers inadequate data security measures, can lead to (states) and law enforcers (platforms) of freedom of serious fines. The regulation also made it a speech are interdependent, and while both parties requirement to employ a data protection officer wish to retain their “exclusive rights” to fundamental to oversee compliance with the GDPR practice public issues, both parties need to adapt for the established by the company and consult with sake of the ideal solution. Of course, many things authorities if problems occur, helping to remedy can change, and many more questions remain to the privacy issues. be answered on this subject, but there is one thing The provision on the approval of cookies has also we can say with certainty now: the right to freedom been tightened. Contrary to the above, consent of expression is fundamentally changing. The new shall only be given on the voluntary acceptance of European Commission plans to begin their work unannounced terms, the rejection of which shall on a new set of rules that will be designed to not result in foreclosure. In practice, this makes it change the way the EU treats tech companies. easier to avoid consenting to third-party cookies, There will be a new ePrivacy Regulation, and thus reducing the risk of data transfer. In addition, the revision of the E-Commerce Directive could the GDPR is generally intended to ensure that lead to a Digital Services Act, which could equip data on EU citizens can only be processed on Brussels with strong legal powers to regulate data the territory of states where compliance with the protection, hate speech, illegal contents, and criteria system stated by the GDPR is granted. So political advertising. Still, articles such as this platforms now have global privacy settings that are can only give you a snapshot of the situation GDPR compliant. This means that transparency is at the time of writing, and in the current rapidly built in with the social platform, granting consumers changing environment of media regulation we more confidence regarding the way they are sharing can only look forward to the future of possible data on the platform. The GDPR established a regulatory options. general prohibition on the processing of personal data unless such processing is based on at least one of the mandated lawful bases (e.g., consent, SURVEILLANCE ON STEROIDS

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STATES OR TECH GIANTS AS THE NEW SOVEREIGN? Rafal Fabianowicz

Tech giants are increasingly aspiring to occupy fields traditionally belonging to states. They monitor people, trying to introduce supranational currency while moving beyond borders and having a profound effect on what we think. Are states outdated? Or do they still have relevance in the 21st century? Can companies fully replace them, and if so, is it good for anybody? Before answering the questions, this short paper aims at formulating a common understanding of the explained scenario. Tech giants, such as Google and Facebook, are usually huge multinational companies. They are in possession of gigantic databases of information by using very

effective and efficient algorithms. On the one hand, this development has led to the insecurity of personal data. The European Union (EU) took measures by introducing a protection law called the General Data Protection Regulation. On the other hand, by owning this information advantage, such tech giants have been able to develop cutting-edge technology to innovate society. For example, by using Blockchain technology, Facebook is going to introduce a cryptocurrency called “Libra” in 2020—it could be considered as a global currency. Innovations like that might be seen as controversial because changing the way how we pay in the future changes one of the oldest traditions

LIBRA IS FOR EVERYONE

Moving money around the world should be as easy and cheap as sending a text message. No matter where you live, what you do, or how much you earn.

Mobile Libra will be accessible to anyone with an entry-level smartphone and data connectivity.

Stable Libra is backed by a reserve made to keep its value stable.

Fast Libra transactions are quick and easy, no matter where you are sending, or spending your money.

For the world Libra is a global cryptocurrency that will be available around the world.

Scalable Libra will foster an ecosystem of products and services made to help people use Libra in their everyday lives.

Secure Libra is a cryptocurrency built on a blockchain designed with security in mind.

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humanity still maintains: monetary systems linked to different societies—it consequently might also lead to rethinking other traditional ways of life. However, was it not the traditional task of the state to influence the behaviour and thinking of their citizens, by, for example, implementing educational systems? This argumentation leads us back to the initial question of whether big companies take over the roles of the state sector. In what follows, three key issues will be discussed about the relation between the state and multinational organisations, such as tech giants, and their impact on society. By having insights into these areas, we might formulate a conclusion on how to shape the future of societies.

hearings to enforce more regulations in order to protect citizens. The same happened when Zuckerberg received an invitation to the European Parliament, where he had to justify the purpose of his company philosophy. The question arises: What could possibly be the reason for this? Cambridge Analytica had harvested the personal data of millions from their Facebook profiles without their consent and used it for political advertising purposes. This scandal revealed one major problem with multinational tech companies, such as Facebook. Their business model depends on simplicity and advertisement; the aim is to maximise the comfort of the user so that they might realise the results they wish for without strict security standards. Furthermore, the user, by being on this platform, supplies a lot of personal information and leaves their fingerprint online, which, as in the aforementioned example, may be corrupted to create targeted advertisements to earn a profit. Corporations often do not pay attention to safety as long as they can provide results to the economy—but the state does. In the end, Facebook was obliged to implement stricter rules on their platforms.

PROFIT VS CITIZEN INTEREST There is a fundamental dilemma about offering multinational companies the power to gain elements of state sovereignty. Our economic system is based on the model of Homo œconomicus—a man who is economically orientated, whereas companies generally seek to maximise their own interests/profit. In a free market system, the market is sustained by competition, which, in turn, supports, for example, the GDP of nation states and the management of national budgets. PRIVATE–PUBLIC PARTNERSHIPS OR However, the state operates differently. A state has TOTAL STATE CONTROL? multiple functions, such as, among others, to protect The two previous points have portrayed the state citizens, to keep checks and balances (in other words, in quite a positive role to defend the interests of its to separate powers), and to provide welfare to people citizens. Yet states also have their own limitations to in need. In a democracy, for instance, the state specific challenges. For instance, how can a single is obliged to grant a minimum essential standard state cope with issues such as climate change, of living. We could not be sure about such values global terrorism, and cybersecurity? Classic nation any more if companies governed our countries. Of states often focus on domestic policy and traditional course, these are just theoretical assumptions, and foreign policy, and they lack possibilities to resolve one might come up with counterarguments. In a global issues. Still, nation states have developed dictatorship, people might suffer more under an as far as possible by organising themselves into oppressive state, so an innovative company with international organisations, such as the EU, the massive corporate social responsibility might be a United Nations, NATO, and many more. better option. However, such examples would be Still, if we believe it is science that could tackle rather far-fetched and do not change fundamental climate change, we are heading in the wrong philosophies, as described above. direction, and we will fail to save our planet. There is a need to reconsider our attitude to society and DATA SECURITY VS CORPORATE INTEREST to welcome new actors. Multinational tech giants An initial example might help to understand might use their innovations, as well as their profit, the topic. The Congress of the United States to help in areas where a traditional state would fail. of America invited Marc Zuckerberg to public A state alone, for instance, cannot stop flooding, 136

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“Modernity has failed us!”—as a poster says at the Global Climate Strike in London.

because of rising sea levels, but an advanced information database of a tech giant might make predictions about where such events might hit first. States could prepare in advance to be able to use their resources accordingly. CONCLUSIONS Private–public partnerships might be the solution to the dilemma mentioned above. Instead of thinking black and white about whether a state or a tech giant should dominate, there is a need for both. A strategic partnership might help to overcome deficits in a complex relationship of

interdependence even in perplexing situations, such as when we experience abuse of power by a state or illegal surveillance by companies. Companies need to strive for a higher degree of corporate social responsibility and to implement tough rules to meet all regulatory concerns, for instance, to avoid data security mistakes of the past with their new currency, Libra. Meanwhile, states should realise that the present status quo of state cooperation is highly inefficient and admit that we cannot overcome global challenges with our current model, a striking example of which is the Current Global Climate Youth Strikes. SURVEILLANCE ON STEROIDS

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8 ANTALL JÓZSEF KNOWLEDGE CENTRE

The Antall József Knowledge Centre (AJKC) in Hungary, during its ten years of existence, has introduced a variety of events targeting Hungarian students enrolled in higher education, as well as domestic and international professional audiences. The Knowledge Centre is named after József Antall (1932–1993), a Hungarian teacher, educator, librarian, historian, and statesman, who served as the first democratically elected Prime Minister of Hungary after the fall of communism (from 23 May 1990to his death on 12 December 1993). The Knowledge Centre’s main objectives, in line with the Antall philosophy, include managing talent and providing students and young professionals with wide-rangingpractical knowledge through various events. The Knowledge Centre is a think tank researching topics of national, regional, and internationalrelevance, such as the Visegrad Cooperation, the future global role of the EU, the US, China, and the Middle East, security policy, sustainabledevelopment, as well as technological andsocial innovation. The whole of AJKC works toward strengthening institutional relations both at the national andinternational level, developing scholarship andinternship programmes, and boosting

professional cooperation via international conferences, workshops, and event series. Our institution’s main office is located in Budapest, and it operates with three international departments—dealing with the EU and the V4, the USA, and Asia and Africa—and three thematic departments—focussing on security policy, sustainabledevelopment, and talent management. In addition, AJKC has two regional offices in Pécs and Győr, as well as an office in Brussels, which was established in 2015 to represent the Antall philosophy in the heart of the European Union and promote the values that he stood for at an international level. The publishing activities of AJKC involve releasing professional publications, scholarly works on political and social sciences (with special regard to security policy and international relations), as well as university textbooks. In our autobiographical series, prominent personalities of the Cold War period, including Ronald Reagan, George Bush, Margaret Thatcher, and Helmut Kohl, recount crucial years and decisions still affecting their lives. Reacting to events of political, social, and economic significance in the 21st century, the professional publications series of the

Knowledge Centre features works incorporating the latest results of international relations and geopolitics, the history of politics, economics, and psychology. Hungarian Memories is an original guidebook series published by AJKC that presents the common history of Hungary and the country under scrutiny in a unique way, then guides the reader through the various regions, while also recounting the story of locations with Hungarian memories accompanied by their picturesque images. think.BDPST is AJKCâ&#x20AC;&#x2122;s most ambitious professional event. The conference, organised in cooperation with Hungary's Ministry of Foreign Affairs and Trade and supported by the International Visegrad Fund, focusses on regional development and the new perspectives of research, innovation, and future technologies. think.BDPST invites the most notable, creative, and innovative thinkers of the business, NGO, and political sectors to share their experiences and inspire one another to develop forward-thinking strategies that will facilitate the development of the whole Visegrad region. The event also aims to position Budapest as an ideal destination for enterprises with a pioneering spirit seeking new

horizons, new markets to enter, or a new territory and knowledge base to include in their plans for the future. The Antall JĂłzsef Summer School is an educational programme for MA and PhD students, as well as young professionals, that examines the Central European region, in particular, the Visegrad Cooperation, and its wider neighbourhood from various aspects through frontal and more interactive forms of education. In 2019, the Knowledge Centre organised the seventh Summer School that revolved around the role of the Visegrad Cooperation in international partnerships such as the EU, OSCE, or NATO. Each year, the Knowledge Centre organises its Foreign and Security Policy Conference, which focusses on the key diplomatic priorities of Hungary, the Central European region, and the Transatlantic Alliance as a whole, such as the future of NATO, stability in the Western Balkans, and EU defence cooperation. The conference series is organised in cooperation with the KonradAdenauer-Stiftung and supported by the NATO Public Diplomacy Division.

OUR RELEASES

Lee Kuan Yew: From Third World to First

Lee Kuan Yew: One Man’s View of the World

Born in the former British colony, Lee Kuan Yew (1923–2015) is the founder of Singapore. When the Japanese occupied the country during World War II, he abandoned his studies at the National University of Singapore and continued them in England after the war, ultimately attending Cambridge University. Upon returning home, he first practised law, then he became a politician. In 1959, he was elected prime minister of the country, a position which he held until 1990. After that, he attained an honorary position in government up until his death. It is the result of Lee Kuan Yew’s efforts that today Singapore is a global centre for trade and finance. After its separation from Malaysia, the Asian city state went through an incredible development: GDP per capita multiplied, and Singapore became a city of order and security, now listed among the least corrupt countries, where there is rule of law and separation of power. The young state has for decades been considered one of the most competitive countries of the world. The question is, however, whether it can preserve its place on the world stage after the death of its founding father.

Lee Kuan Yew was the first Prime Minister of Singapore, governing for more than three decades from 1959 to 1990. Lee and his cabinet oversaw Singapore’s transformation from a relatively underdeveloped colonial outpost with no natural resources to an Asian Tiger economy. In the process, he forged an effective system of meritocratic and highly efficient government and civil service. In this book, Lee Kuan Yew draws on that wealth of experience and depth of insight to offer his views on today’s world and what it might look like in 20 years. In his broad-sweeping narrative that encompasses America, China, Asia, and Europe, the author parses the societies of these regions, probing the psyche of their peoples and drawing his conclusions about their chances for survival and just where they might land in the hierarchy of tomorrow’s balance of power. What makes a society function? What do its people really believe? How much can it adapt?

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ANTALL JÓZSEF KNOWLEDGE CENTRE

OUR RELEASES

Odd Arne Westad: Restless Empire

Bartholomew Sparrow: The Strategist

In Restless Empire, historian Odd Arne Westad traces China’s complex foreign affairs over the past 250 years, identifying the forces that will determine the country’s path in the decades to come. China’s rising influence on the world stage has shown what the country stands to gain from international cooperation and openness. The nation’s success will ultimately hinge on its ability to engage with potential international partners while simultaneously safeguarding its own strength and stability. An in-depth study by one of our most respected authorities on international relations and contemporary East Asian history, Restless Empire is essential reading for anyone wishing to understand the recent past and probable future of this dynamic and complex nation.

For more than thirty years, Brent Scowcroft has played a central role in American foreign policy. He helped manage the American departure from Vietnam, helped plan the historic breakthrough to China, urged President George H. W. Bush to repel the invasion of Kuwait, and worked to shape the West’s skilful response to the collapse of the Soviet empire. The Strategist offers the first comprehensive examination of Brent Scowcroft’s career. Professor Sparrow details Scowcroft’s fraught relationships with such powerful figures as Henry Kissinger, the controversial mentor he ultimately outgrew, and Condoleezza Rice, whose career he helped launch. Through compelling narrative, in-depth research, and shrewd analysis, this book brings colour and focus to the complex and often secretive nature of US foreign policy.

ANTALL JÓZSEF KNOWLEDGE CENTRE

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AUTHORS

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AUTHO ST

Baritz, Sarolta Laura OP Dominican sister and economist, one of the leading figures of the training programme and mission called Christian Social Principles in Economy at

Christian Ethics and Big Tech Giants—A World Turned Upside Down, with Potentials

Sapientia College of Theology of Religious Orders

Czékus, Ábel Researcher of international finance and globalisation and PhD candidate at the Doctoral

Big Companies: How Their Regulation Can Help Innovation

School in Economics, University of Szeged

Fabianowicz, Rafal PhD student at Andrássy University Budapest in the field of political science

States or Tech Giants as the New Sovereign?

with a focus on climate change

Kelemen, Zoltán Assistant lecturer at the Institute of International

The Neomedievalist Approach to Big Corporations

Studies, Corvinus University of Budapest

Koltay, András Professor of law at the National University of Public Service

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Online Gatekeepers and the Future (and Present) of the Democratic Public Sphere

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Mátyus, Imre A new media researcher with a special interest in free and open-source software communities and an assistant lecturer at the Department of Communication and Media Studies of the

Hacker Culture and Open Source or Tech Giants and Patent Protection—Where Does Real Innovation Come From?

University of Szeged

Molnár, Attila Károly Historian of ideas, Director of the Thomas Molnar Institute for Advanced Studies and the Századvég Publishing House, author of several books on polit

Utopian Aspirations and Dystopian Fears Concerning New Media

ical and social thinking and religion

Németh, Áron Senior Retail Business Development Manager at Erste Group Bank AG in Vienna, responsible for microbusiness segment coordination, former Head of Products and Processes for Small

Battleground Banking—An Epic Battle Where Only One Thing Is Certain: That Clients Will Win

Business at UniCredit Bank Hungary, and one-time consultant of PwC

Papp, János Tamás media law specialist and research fellow at the Lecturer at Pázmány Péter Catholic University, Institute for Media Studies, the National Media

Caught in a Web—How Can Legislation Help Us Get Our Private Life back from Social Media?

and Infocommunications Authority

AUTHORS

143

T H O S

A J PhD, Historian Editor, In Focus

Csepregi, Zsolt MA, International relations expert Deputy Director for International Affairs

Baranyi, Tamás Péter

Interview with Gábor Bojár Modern Thalassocracy—Myth or Reality?

City States of the Future—A Global Model or Unique Examples?

Pálmai, Zsolt MA, American studies specialist

What to Do with Facebook

Transatlantic Relations Manager

Pál, Zsombor Szabolcs PhD, Historian Researcher

Interview with Judit Varga Interview with Gábor Bojár The Origins of Innovation Frenzy

Papp, Viktória Anna LLM, Specialist in international law and China; BSc, International relations specialist International Relations Manager

144

AUTHORS

Setting a New Pace—Chinese Tech Companies and Their Connection to the State

T H O S

A J International Relations Manager

Schwarcz, Emese MA, International relations expert

Japan vs South Korea—When Trade Interests Collide with State Interests

Talárovich, Orsolya MA, East Asian studies specialist

Good or Bad?—China’s Social Credit System

International Relations Manager

AUTHORS

145

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4 5 NEW–OLD WAYS City States of the Future—A Global Model or Unique

think.BDPST

Examples?

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8 ABOUT AJKC All photos are owned by AJKC.

9 AUTHORS The pictures of the our authors and guest authors are either owned by AJCK or used by courtesy of the authors.

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It was thirty years ago that the world turned upside down in Eastern and Central Europe. Our future, perhaps for the first time during the tormented 20th century, finally seemed to look bright, as we threw off the Soviet yoke and left the spectre of Communism behind. Changes came as a shock, as nobody really expected them—although many had hoped for them. However, the first years, despite all the faith pinned on them, proved to be controversial, as people set their hopes too high, looking forward to achieving a Western lifestyle within a few years. In spite of the initial hopes turning sour, the past thirty years still provide us with a perspective to claim that the overall balance of the changes is positive; no one thinks nowadays that continuing the Socialist dream would have been a viable option for the country. The next two issues of In Focus magazine—first a Hungarian edition, then its English version— aim to weigh the nature of the changes and pinpoint the main takeaways that can serve as an inspiration for the present and the future. In this attempt, the magazine strives to connect generations—help those who were witness to the events remember and those who were not there understand the importance those years, while also honouring the memory of József Antall, whose name our institution bears.

Previous issues of In Focus are available for free on the Knowledge Centre's webpage www.ajtk.hu.

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IMPRINT – Publisher: Antall József Knowledge Centre Publishing Director: Péter Antall, Director, AJKC Editor-in-Chief: Zsombor Szabolcs Pál Translator: Márta Kőrösi Language Editors: Márta Kőrösi, Mónika Vajda Proof-readers: Márta Kőrösi, Mónika Vajda Contributors: Csilla Lichtenstein, Zita Mihály Layout: Gergely Kiss, Csilla Lichtenstein Pre-press Preparation: Péter Somos Cover: Adrienn Mérész, Dalma Kerékjártó Printed and Bound: Printing Solutions Bt Managing Director: Ádám Szöllősi

CONTACT INFORMATION – Antall József Knowledge Centre 1093 Budapest, Czuczor utca 2. +36 20 310 8776 www.ajtk.hu www.ajtkkonyvmuhely.hu

ISSN 2677-111X HU ISSN 2677-111X