Digital taxes and the fragmentation of the Web: Towards a Non-Aligned Movement?
The world wide web is on a crash course that could lead to permanent fragmentation. Only coordinated international solidarity can stop it.
Some weeks ago, negotiations for a new global tax regime for digital platforms collapsed. The negotiation, agreed by the Organization for Economic Cooperation and Development (OECD), has two central pillars. The first pillar revolves around how to ensure large technological platforms pay part of their taxes to the coffers of each country where they have users. The second pillar revolves around incorporating a global tax floor to stop the race to the bottom corporations have triggered as they had countries compete for investment (granting tax breaks in exchange).
Although nearly 140 governments are formally involved in the negotiation, most news stories in the Global North framed this collapse either as a failure by European Union negotiators to get US representatives to agree to move towards a more equitable framework, or as the arbitrary withdrawal of the US. The story could be richer, but what is a fact is that the US government has made threats that it will impose trade tariffs against the import of products from any country that moves unilaterally towards implementing its own tax schemes. This threat seems credible, especially when President Trump has exposed an aggressively erratic foreign policy.
A debate on tax regimes may seem to be a technical, obscure issue, and as such, one reserved for grey accountants. But it is much more than that. This debate puts the spotlight on the rift that is expanding within the global information system we call the web. It is perhaps the clearest sign that the web is on a trajectory that could lead to its permanent fragmentation… but before we get into that debate, let’s see why the debate around taxes is so pressing today.
Digital taxes in times of COVID-19
The pandemic has not only stalled economic activity broadly speaking (i.e. the cake is shrinking as a whole), it is also shifting value from the distributed physical shops and businesses to the handful of digital platforms that reign over the digital space (while the cake continues to shrink as a whole, some slices are nevertheless growing at the expense of others).
Against the backdrop of these seismic economic shifts, governments are scrambling to ensure workers who have been laid off get enough to eat; hospitals can take care of insured and uninsured patients and key infrastructure and strategic companies remain functional — whether profitable or not. Where does this money come from? In normal times, most of a government’s budget is sourced through taxes.
Yet COVID-19 is leading many businesses to go bankrupt. So who will governments be collecting taxes from? Who has the financial capacity? GAFAM (Google, Apple, Facebook, Amazon, and Microsoft) have collected over $800 billion in annual revenues in recent years, and have presented an aggregate net income (revenue minus costs) of over $150 billion in their latest 12 month reports. To put it into context, that’s 30 times the World Health Organization’s budget for a two year period; and five times the budget of the Government of Nigeria — a country with a population of over 200 Million.
GAFAM revenue and income in context
It is important to underline that the taxable capacity of GAFAM is not just general, in the sense that they regularly report high profits, but also specific to these times. The stock prices of tech companies are surging as they take over an existing customer base, and signal preparedness for the catastrophe-prone world that Wall Street seems more eager to normalize than to address. These five companies are among the eight whose market capitalization grew the most in the past year, despite the pandemic. The pandemic has worked in their favor, in many ways. On July 21st, a new surge in Amazon stock meant Jeff Bezos added $13 billion to his net worth in one day. That’s about as much as the whole Government of Costa Rica gets to spend in a whole year. It therefore makes sense to ensure the contributions of tech firms are at least as extraordinary as their profits.
Market capitalization gains in 2020 by sector
And yet, how can the governments actually collect taxes from the digital platforms? To give you a sense of the scale of the problem, the non-profit Fair Tax Mark estimates that between 2010 and 2019 GAFAM+ Netflix have leveraged tax avoidance schemes to pay between $100–155 billion less than what the actual tax rates would have required. That’s more than all the money rich countries pledged to provide so-called developing countries in the form of climate finance throughout 2020.
Given these general economic challenges unleashed by COVID-19, and the difficulty to tax big corporations, how will the governments fund social assistance programs and public services? In the European Union, much of the COVID-response expenditure is being financed by debt. Now consider the situation of governments that were already battling recession, inflation, and/or an “unsustainable level of debt” before the pandemic forced their economy into a full halt. That is the dire reality of many governments in the so-called Global South. The choice for these governments is limited to: a) extraordinary taxes on those who have savings and/or are making extraordinary profits in this pandemic; or b) crippling inflation. And it’s not even clear option a) will be enough to cover the costs.
Let’s forget the threat of retaliatory tariffs by the US, which certainly keep governments in the Global South from actively exploring the development of new corporate taxation regimes (they tend to stop at frameworks that levy taxes from their own citizens for using these services), and reflect on what this global taxation system could look like.
The expressive dimension of taxation: defining value
The OECD plan aims to create a right to tax the global profits of multinational companies, whether they have a physical presence in a country or not. The exact share corresponding to every country in which a platform has users would be calculated based on a series of metrics, the exact definition and weighting of which are part of the now shaky negotiations. Official documents from the negotiation process, nevertheless, suggest the revenues emerging from sales in each country will be the core element. The proponents of this system seem to have seen enough base erosion and profit shifting to trust multinational corporations to report local profits transparently.
However, the global debate reflects growing tensions around two key issues: distributive justice and value systems. And a failure to conclude this negotiation in a manner that is deemed fair to all parties is likely to broaden the gap between key actors and lead towards the fragmentation of the web. The stakes are high…so let’s go a step deeper into these two key tensions.
The distributive justice issue can be deemed internal: it does not question the way in which the web is geared towards creating value and its limitations, but the way in which such value is to be distributed.
In regions such as Latin America and Africa, revenues from sales are not high. People’s incomes don’t allow them to consume at the rates of the average US or EU citizen. The South would thus benefit from a framework where the size of the user base within that country and the data that are extracted from it weigh more than the revenues from sales. For reference, the EU and North America account for less than 30% of Facebook users; while Asia, Africa and Latin America account for more than 65%. The number of users and data extracted could thus operate as a proxy for what is actually valuable: the knowledge that is being created by these users through every click, and every piece of information they upload.
If what is valuable (users and data vs revenue) continues to be defined in ways that systematically benefit the North at the expense of the South, the debate around taxation of digital platforms risks to be perceived as not just continuing but further entrenching the colonial relationship between North and South.
Over time, if unresolved, the tension highlighted by this critique is likely to fragment the web along national borders. When people repeatedly feel they have not been treated fairly they tend to eventually walk out. In digital terms, this often materializes in the form of a firewall: internet service providers and app stores are mandated to block all traffic to websites and apps that are not complying with the law. Countries like China, and more recently Russia, continue to develop technology and infrastructure that allows them to effectively remove themselves from the global system of information. With tensions between the US and China increasing, and with Chinese technology providers gaining traction and trust across the Global South, this critique should be taken seriously. China’s firewall capabilities take time to master, but with financing and a political will nurtured by the feeling of injustice, effective implementations might start popping up earlier than expected.
Also, if a global agreement does not materialize and governments across the world develop their own systems unilaterally, we might also start seeing providers pull their services from markets in which compliance costs are perceived to outweigh expected profits. We’ve seen this happen when the EU’s General Data Protection Regulation (GDPR) took effect, and — at least temporarily — thousands of US newspapers decided to block EU visitors in order to avoid compliance risks.
To picture what a fragmented web could look like, those of you older 30 might recall the DVD regions. If your device recognized the DVD had been purchased outside your region, it would not play it. Technology was designed to ensure respect for political borders.
The tensions linked to the value system as such, in turn, can be seen as an external challenge: it makes no concessions, and questions not the way value is distributed, but how its defined in the digital realm and, consequently, the way our digital ecosystem is managed.
This criticism focuses on two aspects: first, the way our current system turns free time into work, and second, the limited definition of what counts as knowledge, and the limitations this imposes on the allocation of resources towards its development.
On digital labor: mainstream social networks rely on design elements to ensure that users stay engaged for as long as possible. This is in order to achieve two objectives:
a) to expose each individual user to as much advertising as possible; and
b) to maximize the number of times a user performs an action (clicks, scrolls, engages) that can be supervised, in order to establish behavior patterns that help optimize the general systems of curation and ad-targeting, improving the platform’s capacity to operate effectively on all users.
In essence, the tech giants that manage our global system of information are focused on extracting information from us whilst maximizing profits by selling our attention to advertisers. And to achieve this they have been willing to develop mechanisms capable of causing addiction. This should be considered unacceptable, not only because it means that people’s freedom of thought is being attacked, but also because it hijacks the limited amount of free time laborers have gained, and turns this free time into labor once again.
On knowledge creation: Our collective and global information system should not be managed by profit driven corporations. Capitalism is inherently at tension with Knowledge, and knowledge creating systems: In capitalist systems knowledge is at the service of profit. As such, capitalism strives to put the web into a manageable box, a process that — by definition — severs its filaments and constrains its development. Capitalism hinders our ability to leverage the web to enable human understanding in its most profound sense. Within a capitalist logic, managers are forced to systematically divert resources away from knowledge creation that cannot be translated into pounds or cents.
These tensions are already fragmenting the web, not along national borders but along proprietary systems. Whereas the early development of the world wide web was fueled by interoperability and open standards, over the past decades corporations have increasingly abused basic design principles and legal norms in order to keep information and people locked into their services. This type of corporate fragmentation of the web is often less discussed, but has a similarly destructive impact when it comes to knowledge creation.
Towards a tech agenda that prioritizes the development of knowledge
Most, if not all, debates pertaining web tech today circle around five basic questions:
1) How will the system through which knowledge is created be funded?
2) Who will manage it?
3) What knowledge will be created?
4) Who will have access to such knowledge?
5) How will we distribute the value created by that knowledge?
The debate surrounding the taxes to be levied on the digital platforms is located within this last question, which has become particularly sticky because of the pandemic-induced economic crisis. But the debate is, and should remain, much broader.
Knowledge (and its egotistic twin, power) lies in the ability to connect pieces of information. In its original decentralized design, the web counted on us to connect pieces of information by placing hyperlinks between them, and thereby creating new meaning. The web’s openness allowed us to benefit somewhat equally from this collective endeavor of uploading and establishing connections between pieces of information.
Today, the web’s growth, but more particularly its commercialization and the subsequent centralization of the web around a couple of tech giants, means that the system is now being built and controlled by these actors. Big tech has exclusive access to the tower from which the full tapestry of cobwebs created by these connections becomes fully visible. Big tech now has privileged access to the knowledge that emerges from our collective work on the web, and a privileged position through which to define what knowledge is produced, prioritized and consumed.
For example, it is estimated that Google and Facebook have influence over +70% traffic to major publishers. The way in which people access content from these publishers is defined by an opaque set of algorithms that seek not to increase human understanding of public events (or life itself), but user engagement.
This is a petty task. Even the founders of our current tech giants understood so. The founders of Google argued in the academic paper that launched the search engine that: “The goals of the advertising business model do not always correspond to providing quality search to users”.
Yet, a number of factors, including the lack of alternative business models , and the overarching small-state neoliberal mindset of the 90s and early 2000s within which these companies evolved and grew, enabled advertising to entrench itself as the standard business model. And leveraging network effects, economies of scale and armies of lobbyists, these companies expanded the model to the point that Google and Facebook today many people consider them synonymous to the web.
We need a radical shift. We need our information systems to be geared towards solving the big challenges we face as humans on this planet: helping us understand how to mitigate, adapt and distribute the impacts of climate change; and helping individuals flourish, by creating a state of abundance that guarantees people’s basic needs will be met, freeing up mental space so they can explore and understand who they are, and providing them with tools to engage meaningfully with others in this journey.
The need for a digital non-aligned movement
The possibility of solidarity at a planetary scale is becoming more material. The pandemic, understood as a planetary event, reminds us people all across the world are fighting the same virus, one that exposes our common humanity.
The need for solidarity at a planetary scale is also taking a new flavor, since in this process of reorganizing our knowledge creation systems we cannot expect the rich nations of the North to lead, but need their populations to stand in solidarity. Why? In practical terms, the governments from the North struggle to move away from a system of extraction that has become widely embedded into social, cultural and economic practices. But perhaps more importantly, the cultures of the North are so intertwined with the rationalities that bred capitalism itself, that the North struggles to imagine any articulation of a technological future that is radically different from our present.
If the web is to avoid fragmentation, it will be because the South steps up to the challenge, and its leaders manage to harness support and solidarity from across the planet in such quest. Why will the South be at the avant-garde? The South needs it: its material conditions trigger regular howls of social unrest. But more importantly perhaps, the South has the necessary imagination: it has, after all, seen its own cultures shattered by colonialism, only to see the pieces of it repurposed into a new narrative, favorable to its new rulers. Also, the South has the necessary leverage: it is where most of the 50% of the world population that do not have access to the internet reside — people whose knowledge has not yet been parsed by the global information system. As such, collectively, the South is key to all the actors thinking about the future.
Since the unequal power relations outlined throughout this piece are not new, perhaps it is a good moment to re-fuel and bolster the ranks of a space that was designed to counter central powers through coordinated solidarity: the non-aligned movement.
This movement sprouted during the Cold War to ensure the peripheries could resist attempts by the US and the USSR to exercise control over its politics and resources. The current context calls for a strong comeback — in the digital sphere at least.
A new digital non-aligned movement could not only help to transform the tax system, it could also advance the agenda of ensuring our global networks serve a much needed planetary model of knowledge. To achieve this we will need to stick together and act as a block — conscious of the little we have to lose, but all that is yet to be gained.