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Data collection risk to users may eventually outweigh social media appeal

Data collection risk to users may eventually outweigh social media appeal

By Amar Bhidé, professor at Tufts University’s Fletcher School of Law and Diplomacy.

Medford, Massachusetts – In a modern capitalist economy, we celebrate innovations that produce market power, but fear the risks of unchecked dominance. Nowhere are those risks more apparent than with today’s information-technology monopolies.

The question of how to encourage transformational, market-dominating innovations while limiting the abuse of market power long precedes the digital age. In the United States, the story of Walmart founder Sam Walton is a case in point. The World War II veteran went from small-town variety-store franchise owner to multi-billionaire mogul, presiding over what would become the world’s largest private employer.

It is a stirring tale of audacity and enterprise, which included innovations – such as establishing distribution centres in sparsely populated regions and building up global supply chains – that business students worldwide now study. And the huge profits Walmart generates for its owners are dwarfed by the value it provides to its customers, who rely on the low prices made possible by the company’s ability to buy and sell on a massive scale.

Yet Walmart also stands accused of desolating downtowns, impersonalizing shopping, and depriving small retailers of their livelihoods. In the future, Walmart could use its market power to squeeze customers (though another, more ambitious behemoth, Amazon, would likely get in the way).

So far, Americans have largely tolerated – and even applauded – the creative destruction associated with business innovation, and have been cautious in limiting potential abuses. Despite rules prohibiting “predatory” pricing and “anti-competitive” mergers, price wars and acquisitions that increase market leaders’ power are permitted in practice. Legally mandated breakups – such as of Standard Oil in 1911 and AT&T in 1982 – are rare, and regulating prices charged by “natural monopolies” (such as electric utilities) is uncommon.

This innovation-favouring approach has helped to make the US a nursery of world-dominating businesses, and it has not changed with the digital revolution, either. The “info-monopolists” Google and Facebook, faced with few regulatory obstacles, have created unprecedented value for consumers – and have secured massive market power for themselves.

These companies have eviscerated traditional media, though many of the losers were themselves oligopolists or monopolists. When they dominated the airwaves, the US television networks ABC, CBS, and NBC charged advertisers steep rates. The one or two newspapers that dominated in each city or town avoided cut-throat price competition. This helps to explain why the struggles of traditional media – many owned by wealthy families or conglomerates – have spurred even less of a backlash than did Walmart’s decimation of independently owned retailers.

Unimpeded growth has no doubt helped to increase the value that Google and Facebook can offer. The more Google searches are conducted, the better the results. The more people who use Facebook, the more reason there is to join. This attracts advertisers, whose payments fund investments in improved technology and added features.

But unchecked market power creates opportunities for abuse, particularly with regard to user privacy. Unlike television networks or newspapers, these digital behemoths don’t merely give advertisers an audience; they tailor ads to individual consumers. This is not a benign difference, because in order to tailor ads effectively – thereby maximizing their value to advertisers (and thus profits for the platform) – these companies collect a huge amount of personal data from their users.

Perhaps because most users don’t know the details of which data are being collected, they have so far shown a surprisingly high tolerance for online surveillance. Most would be outraged if a mega-discounter bugged shopping carts to find out what should be pitched to a specific customer at the checkout counter, even if it helped keep prices low, and machines, not humans, did the eavesdropping. Yet most users never bother to read, say, Facebook’s terms of service before clicking “agree,” and are indifferent to how much surveillance is being carried out.

In fact, extensive tracking has become the new normal. The question is no longer whether Facebook should monetize users’ personal data, but whether it should be required to pay users for their data or even charge users a fee to opt out of data collection.

But it is not at all clear that these companies can be trusted with the data they collect. Despite Facebook’s insistence that it does not sell data to advertisers, the company was recently found to have allowed nearly 90 million users’ data to be harvested by the political consultancy Cambridge Analytica. And subsequent testimony before the US Congress by Facebook founder and CEO Mark Zuckerberg did not prove particularly reassuring, given the lack of real information that he provided. Members of Congress – many of whom have received campaign contributions from Facebook – largely limited themselves to denouncing Facebook’s carelessness, and Zuckerberg earnestly promised to invest more in security.

But could the data that Facebook or Google accumulates ever really be safe? No matter how much one spends on protecting large databases, it is far-fetched to believe that nobody inside or outside such a massive and complex organization could breach it. America’s own National Security Agency could not prevent Edward Snowden, a low-level contractor, from walking off with a trove of state secrets on a thumb drive.

In some cases, such as healthcare or banking, the public benefits of digitally stored data justify the risks. But, for the most part, limiting data collection is a much safer bet than relying on data protection.

Ensuring that today’s info-monopolists can legally collect only a very limited amount of personal data – say, what newspapers receive about their subscribers – would protect users, without fatally diminishing the platforms’ appeal to advertisers. Without such limitations, the risks these platforms pose may, in users’ eyes, begin to outweigh their benefits – a development that could have political implications as far-reaching as the info-monopolists’ economic rise.

Copyright: Project Syndicate, 2018.



About The Author

Sanlam 2018 Annual Results

7 March 2019


Sanlam’s 2018 annual results provides testimony to its resilience amid challenging operating conditions and negative investment markets

Sanlam today announced its operational results for the 12 months ended 31 December 2018. The Group made significant progress in strategic execution during 2018. This included the acquisition of the remaining 53% stake in SAHAM Finances, the largest transaction concluded in the Group’s 100-year history, and the approval by Sanlam shareholders of a package of Broad-based Black Economic Empowerment (B-BBEE) transactions that will position the Group well for accelerated growth in its South African home market.

Operational results for 2018 included 14% growth in the value of new life insurance business (VNB) on a consistent economic basis and more than R2 billion in positive experience variances, testimony to Sanlam’s resilience in difficult times.

The Group relies on its federal operating model and diversified profile in dealing with the challenging operating environment, negative investment markets and volatile currencies. Management continues to focus on growing existing operations and extracting value from recent corporate transactions to drive enhanced future growth.

The negative investment market returns and higher interest rates in a number of markets where the Group operates had a negative impact on growth in operating earnings and some other key performance indicators. This was aggravated by weak economic growth in South Africa and Namibia and internal currency devaluations in Angola, Nigeria and Zimbabwe.

Substantial growth in Santam’s operating earnings (net result from financial services) and satisfactory growth by Sanlam Emerging Markets (SEM) and Sanlam Corporate offset softer contributions from Sanlam Personal Finance (SPF) and Sanlam Investment Group (SIG).

Key features of the 2018 annual results include:

Net result from financial services increased by 4% compared to the same period in 2017;

Net value of new covered business up 8% to R2 billion (up 14% on a consistent economic basis);

Net fund inflows of R42 billion compared to R37 billion in 2017;

Adjusted Return on Group Equity Value per share of 19.4% exceeded the target of 13.0%; and

Dividend per share of 312 cents, up 8%.

Sanlam Group Chief Executive Officer, Mr Ian Kirk said: “We are satisfied with our performance in a challenging operating environment. We will continue to focus on managing operations prudently and diligently executing on our strategy to deliver sustainable value to all our stakeholders. The integration of SAHAM Finances is progressing well. In addition, Sanlam shareholders approved the package of B-BBEE transactions, including an equity raising, at the extraordinary general meeting held on 12 December 2018. Our plan to implement these transactions this year remains on track.”

Sanlam Personal Finance (SPF) net result from financial services declined by 5%, largely due to the impact of new growth initiatives and dampened market conditions. Excluding the new initiatives, SPF’s contribution was 1% down on 2017 due to the major impact that the weak equity market performance in South Africa had on fund-based fee income.

SPF’s new business sales increased by 4%, an overall satisfactory result under challenging conditions. Sanlam Sky’s new business increased by an exceptional 71%. Strong growth of 13% in the traditional individual life channel was augmented by the Capitec Bank credit life new business recognised in the first half of 2018, and strong demand for the new Capitec Bank funeral product. The Recurring premium and Strategic Business Development business units also achieved strong growth of 20%, supported by the acquisition of BrightRock in 2017. Glacier new business grew marginally by 1%. Primary sales onto the Linked Investment Service Provider (LISP) platform improved by 5%, an acceptable result given the pressure on investor confidence in the mass affluent market. This was however, offset by lower sales of wrap funds and traditional life products.

The strong growth in new business volumes at Sanlam Sky had a major positive effect on SPF’s VNB growth, which increased by 7% (14% on a comparable basis).

Sanlam Emerging Markets (SEM) grew its net result from financial services by 14%. Excluding the impact of corporate activity, earnings were marginally up on 2017 (up 8% excluding the increased new business strain).

New business volumes at SEM increased by 20%. Namibia performed well, increasing new business volumes by 22% despite weak economic conditions. Both life and investment new business grew strongly. Botswana underperformed with the main detractor from new business growth being the investment line of business, which declined by 24%. This line of business is historically more volatile in nature.

The new business growth in the Rest of Africa portfolio was 68% largely due to corporate activity relating to SAHAM Finances, with the East Africa portfolio underperforming.

The Indian insurance businesses continued to perform well, achieving double-digit growth in both life and general insurance in local currency. The Malaysian businesses are finding some traction after a period of underperformance, increasing their overall new business contribution by 3%. New business production is not yet meeting expectations, but the mix of business improved at both businesses.

SEM’s VNB declined by 3% (up 6% on a consistent economic basis and excluding corporate activity). The relatively low growth on a comparable basis is largely attributable to the new business underperformance in East Africa.

Sanlam Investment Group’s (SIG) overall net result from financial services declined by 6%, attributable to lower performance fees at the third party asset manager in South Africa, administration costs incurred for system upgrades in the wealth management business and lower earnings from equity-backed financing transactions at Sanlam Specialised Finance. The other businesses did well to grow earnings, despite the pressure on funds under management due to lower investment markets.

New business volumes declined by 13% mainly due to market volatility and low investor confidence in South Africa. Institutional new inflows remained weak for the full year, while retail inflows also slowed down significantly after a more positive start to the year. The international businesses, UK, attracted strong new inflows (up 57%).

Sanlam Corporate’s net result from financial services increased by 4%, with the muted growth caused by a continuation of high group risk claims experience. Mortality and disability claims experience weakened further in the second half of the year, which is likely to require more rerating of premiums in 2019. The administration units turned profitable in 2018, a major achievement. The healthcare businesses reported satisfactory double-digit growth in earnings, while the Absa Consultants and Actuaries business made a pleasing contribution of R39 million.

New business volumes in life insurance more than doubled, reflecting an exceptional performance. Single premiums grew by 109%, while recurring premiums increased by a particularly satisfactory 56%.

The good growth in recurring and single premium business, combined with modelling improvements, supported a 64% (71% on a comparable economic basis) increase in the cluster’s VNB contribution.

Following a year of major catastrophe events in 2017, Santam experienced a relatively benign claims environment in 2018. Combined with acceptable growth in net earned premiums, it contributed to a 37% increase in gross result from financial services (41% after tax and non-controlling interest). The conventional insurance book achieved an underwriting margin of 9% in 2018 (6% in 2017).

As at 31 December 2018, discretionary capital amounted to a negative R3.7 billion before allowance for the planned B-BBEE share issuance. A number of capital management actions during 2018 affected the balance of available discretionary capital, including the US$1 billion (R13 billion) SAHAM Finances transaction. Cash proceeds from the B-BBEE share issuance will restore the discretionary capital portfolio to between R1 billion and R1.5 billion depending on the final issue price within the R74 to R86 price range approved by shareholders.

Looking forward, the Group said economic growth in South Africa would likely remain weak in the short to medium term future, and would continue to impact efforts to accelerate organic growth. The outlook for economic growth in other regions where the Group operates is more promising. Recent acquisitions such as the SAHAM transaction should also support operational performance going forward.

“We remain focused on executing our strategy. We are confident that we have the calibre of management and staff to prudently navigate the anticipated challenges going forward,” Mr Kirk concluded.

Details of the results for the 12 months ended 31 December 2018 are available at