29 Jan 2021: UPSC Exam Comprehensive News Analysis

B. GS 2 Related

Category: INTERNATIONAL RELATIONS

1. ‘U.S. will rejoin deal if Iran is compliant’

Context:

U.S. Secretary of State confirmed the administration’s position that if Iran were to become compliant with the terms of the now-defunct Joint Comprehensive Plan of Action (JCPOA, or the “Iran deal”), the U.S. would re-enter it too.

Background:

• The U.S. (Trump administration) withdrew from the nuclear deal with Iran in 2018 and unilaterally began re-imposing sanctions on Iran.
• The US tried to push for an indefinite arms embargo on Iran but failed to win support from the UN Security Council on this issue.

Details:

• Now, the U.S. Secretary of State confirmed that if Iran comes back into full compliance with its obligations under the JCPOA, the United States would do the same thing.
• He added that the platform would then be used to build a longer and stronger agreement to deal with a number of other issues that are deeply problematic in the relationship with Iran.

Significance of having a nuclear deal with Iran:

• The international community in general and specifically the United States have mobilized to prevent a nuclear-armed Iran for decades now.
• It is believed that nuclear weapons in the hands of the Iranian regime would directly threaten Israel, destabilize the region, and present a security risk to the US, Europe and other allies.
• America’s Arab allies, such as Saudi Arabia, the UAE, Bahrain, and others are deeply alarmed at Iran’s aggressive regional policy and would feel increasingly threatened by a nuclear-armed Iran.
• The nuclear deal involving Iran is crucial to maintaining calm in the Middle East – a volatile and vital region.

E. Editorials

Category: GOVERNMENT POLICIES

1. Global antitrust and the challenge of Big Tech

Context:

• The Big Tech firms such as Facebook and Google have come under the scanner in the European Union and the United States of America over the issue of abuse of monopolistic power.

Details:

• The policy-makers have a tough task ahead of them over the need to regulate these internet firms from misuse of their monopoly power.
• Parallels have been drawn with the earlier anti-trust investigations in the U.S on the telecom industry.

Anti-trust investigations in the US on the Telecom industry

• The antitrust investigation dealt with a trade group that includes Verizon and AT&T among its members which had been criticized for making it harder for consumers to switch carriers.
• The intention was to reassert the government’s role in policing monopolistic and anti-competitive practices by powerful companies.

Key differences now

• Though the parallels between the anti-trust investigations in the case of the telecom industry in the US and the current Big-Tech firms are conspicuous, there are certain fundamental differences.

1. Non-rivalrous nature of information good supplied

• To begin with, there is the ‘non-rivalrous’ nature of information good that is being provided by the Internet firms of today.
• Everyone has access to use them, and their use does not deplete their availability for future use. These are consumed by people, but their supply is not affected by people’s consumption.
• The consumption of information by one does not alter the value for the others. However, in telecom, due to limited network capacity, the consumption by one has an effect of decreasing value for the others and, hence, is rival in nature.

2. Regulators with defined jurisdiction

• The activities of telecom services are bound by the jurisdictional boundaries of regulators and, hence, the regulators have regulatory and at times punitive powers to ensure orderly behaviour of the licensed telecom operators.
• However, the Internet firms operate without being restricted to the geographical frontiers, therefore, it is often difficult to lay down international rules of obligation and fulfilment by the different country regulators.

3. Principle of Exclusion

• The goods and services provided by the internet cannot be categorically classified as ‘excludable’.
• In economics, the exclusion principle states “the owner of a private good may exclude others from use unless they pay.” It excludes those who are unwilling or unable to pay for the private good, but does not apply to public goods that are known to be indivisible, such goods need only to be available to obtain their benefits rather than be purchased.
• It cannot be conclusively ruled whether the goods and services provided by the Internet firms are excludable, but the telecom is certainly excludable due to the need for consumers to obtain connections from the respective telecom companies and pay the subscription charges for the same.
• The internet firms have been able to leverage this provision to provide search, navigation, and social connectivity free of cost to users, consequently, making these services non-excludable.
• The commercialisation of the Internet has paved way for non-excludability, which means that there will be subtle trade-offs of personal information for availing services of Internet firms.

Monetisation models

• The public goods like national defence, flood control systems and street lighting are non-excludable and non-rival goods in nature; they are provided by governments.
• The information goods as described above are being provided by private firms. This arrangement gives way to certain issues.

1. Issue of monetization

• The financing of public goods is covered by the government from its revenue, largely through tax-payers’ money, while private firms need to have monetisation models to cover the costs of providing their services free of cost.
• Therefore in a bid to cover the free provision of services, the Internet firms have resorted to personalised advertisements and third-party sharing of the personal information of their users for monetisation purposes.

2. The network effect

• The network effect is a phenomenon whereby increased numbers of people or participants improve the value of a good or service. The Internet is an example of the network effect. Initially, there were few users on the Internet since it was of little value to anyone outside of the military and some research scientists.
• However, as more users gained access to the Internet, they produced more content, information, and services. The development and improvement of websites attracted more users to connect and do business with each other. As the Internet experienced an increase in traffic, it offered more value, leading to a network effect.
• Therefore, these Internet platforms require an ever-increasing subscriber base and aspire for a sizeable share of the market. This results in the near-monopoly of some firms in their defined markets.
• In a bid to attain/maintain certain positions in the market, these firms may indulge in anti-competitive practices in the form of acquisition of rivals to vertically integrate, setting up of entry barriers by refusing to interconnect and interoperate with competing firms, and leveraging their capital base, thereby engaging in predatory pricing, and driving out competitors.

Indispensable applications

• However, network effects create a huge consumer surplus, the Internet firms have now become an intrinsic part of the day to day lives, for example,
  • Google Maps is an essential component of mobility in our day-to-day commute to various destinations. Google Maps Application Program Interface (APIs) are being used by almost all logistic and transport companies.
  • Google Search has become synonymous for access to information on the internet.
  • Google Scholar is a necessary tool for academicians to explore relevant research artefacts.
  • Facebook APIs are used for advertisement by almost all firms across the industry.
  • The CEO of Google, recently announced that its Search is being expanded to provide accurate and timely information on vaccine distribution to enable quick recovery from the COVID-19 pandemic.

• Hence, the policymakers are faced with an issue of regulation of these Internet firms from abusing their monopoly power while simultaneously not hindering the positive externalities and consumer surplus they create.
• This is a very difficult challenge ahead of the policymakers as it is not an easy task to categorically prove that the firms are guilty of abuse of their monopoly power.
• The strong network effects mean that it is not practically tenable to ban or curtail these services, even in the presence of alternatives such as Signal and Telegram for messaging, the network effects bind customers to their often used platform WhatsApp, even if it is not their preferred choice.

Possible solutions

• The Australian government in its media legislation has pointed out that Google and Facebook must negotiate fair payment with news organisations for using their content in Facebook’s newsfeed and Google’s Search.
• Controlled expansion of products and services without hurting the interests of consumers and smaller competing firms shall be the mantra used by these firms to minimize litigation, lawsuits.
• Another way that can be looked into for controlling any abusive behaviour of the Internet firms is to use the power of public opinion, case in point being the public response to the Telecom Regulatory Authority of India against the Free Basics programme of Facebook in India. The response meant that the programme was put into the back-burner. The Free basics programme was a blatant violation of Net Neutrality principles.
  • Facebook’s free-but-restricted internet service, Free Basics, has been banned in India after the country’s national telecoms regulator ruled that the program and others like it infringe the principles of net neutrality.
  • The ruling was not directly aimed at Free Basics, but the general practice of zero-rated internet services — those that let users access certain apps and websites without eating away at their mobile data.

• More recently, the huge public outcry and exodus of users from WhatsApp to other messaging platforms like Telegram and Signal have caused a delay in the recent changes to the privacy policy relating to the sharing of personal information between WhatsApp and its parent firm, Facebook.

Conclusion

• The issue in hand is not just the responsibility of the governments and regulators, there is also an onus on the Internet firms to adhere to core ethical principles in conducting their businesses.
• History is replete with incidences where firms in pursuit of attaining monopoly profits have ended up in the ditch, examples are the Enron scandal, and the collusion between large banks and financial institutions during the 2008 financial crisis.

H. UPSC Prelims Practice Questions

Q1. Consider the following statements with respect to Lala Lajpat Rai:

1. He founded the “Arya Gazette”.
2. He co-founded the Punjab National Bank.
3. He is the founder of the Servants of People Society.

Which of the given statement/s is/are INCORRECT?

1. 1 only
2. 3 only
3. 1 and 2 only
4. None of the above