California “Data Dividend” Plan Would Hurt Consumers, Increase Government Power

California “Data Dividend” Plan Would Hurt Consumers, Increase Government Power

Earlier this year, Governor Gavin Newsom proposed a so-called “data dividend” because, he says, “California’s consumers should also be able to share in the wealth that is created from their data…” The Governor provided almost no details then, and few to none since, but the idea seems to suffer from a lack of careful consideration.

Consumers have been trading various details about themselves for “rewards” for years. Entire online businesses were built by trading a screen saver or website widget in exchange for the consumer voluntarily providing such information as an email address, home address or a social security number. More recently, such trades typically involve consumers revealing certain preferences and personal information.  That’s why it might be revealed on Facebook which Harry Potter character you are most like, who you will marry, or which flower best matches your personality.

Clearly, many consumers place little value on keeping various details about themselves “private,” but they have willingly entered into agreements to receive something they valued in return for their information. Instead of letting the individual continue to determine the value of their data, Gov. Newsom wants state government to set a mandated price for the information.

But what exactly is this data and how hard is it to collect? Newsom’s proposal seems to be about data collected online, such as web sites visited and what products were reviewed.  In the analog world, this would be the equivalent of government charging for an observation. This is no different than a salesperson noting that a certain customer prefers a certain brand or style of suit so that they receive better service on their next visit. In the online world, this behavior might translate into more relevant advertisements appearing on web pages that are free for consumers to use – other than having to see some ads. This tends to be the sort of data that consumers benefit from having collected, as they are better served in the future.

As the goal of Newsom’s scheme is to take money from companies to give to citizens, there are few mechanisms to make that happen. The most obvious is a tax. Regardless of the exact mechanism, this will be a new tax on companies that are using data. Presumably those tax dollars will be redistributed with government taking a cut and basing distribution based on politics instead of economics. In the end, government grows, but citizens are left in the same position they were before – except that those things that they purchase will now cost more when accounting for the new tax.

Rather than growing government, the individual should be empowered. Californians – and all Americans – should continue to be allowed to enter into transactions that are of benefit to them, however they define that benefit, without interference from government dictating the value to them. This sort of freedom of contract must be preserved, as it is the foundation of a marketplace where individuals are empowered.

Other problems lurk. Some have suggested that a data dividend plan would operate like Alaska’s Permanent Fund, which doles out 25 percent of all royalty payments from companies seeking access to Alaska’s oil and gas. In that case, the value of the minerals of the state are distributed to the people. In California, the situation would be in reverse. The Golden State’s plan is to take an individual’s data, not a natural resource but rather an individual resource, and use it to extract payments to the benefit of the state.

The fundamental problem is found right in the Governor’s statement.  The people of California should not merely be able to “share” in the wealth created from “their data,” they should individually and completely benefit from their data as best they can and in ways they appreciate.

Bartlett Cleland is a senior fellow in tech and innovation at the Pacific Research Institute.

Nothing contained in this blog is to be construed as necessarily reflecting the views of the Pacific Research Institute or as an attempt to thwart or aid the passage of any legislation.