The other day I read this article on BBC news about the Grand Ethiopian Renaissance Dam, and since in my previous life I worked on the topic for a certain amount of time, I thought it might be interesting to add some insights that are usually not reported in the news.

Ethiopian government has been working on one of the biggest projects that Africa has ever seen: a dam on the Nile that would generate enough electricity to cover the need of the entire country plus some surplus that would be sold to neighbor states. The project is interesting for a series of reasons: First of all, it would provide a _steady_ supply of _clean_ energy to the country and its neighbors. Second, after the initial investment, the cost of production of hydroelectricity is relatively small and countries like Eritrea would be able to buy electricity at a price which is almost one half of their current production costs. Third, the dam was thought to be modular: After the construction of the dam, the turbines (which are the expensive part of a hydroelectric power plant) can be added one by one. So, one can imagine that if the funds become scarce, the authorities will only install a couple of turbines and start selling the electricity produced that way, adding the remaining turbines only in a second moment.

The construction works only started few years ago, but the dam on the Nile has been a myth every Ethiopian grew up with since the 60s. Actually, I was told by an Ethiopian lady that already her grandfather talked about this dam and that its realization is generally seen by Ethiopians as the definitive solution to every economic problem of the country. In the past years, the government has been following quite aggressive policies to raise the necessary money for the realization of the project, and mainstream media have been depicting these practices as the evil consequences of a not-very-democratic government. However, in the light of the words of the lady, it is easy to understand why some years ago all the public employees voluntarily gave up part of their stipends to finance the dam. It is also easy to understand why a big chunk of the debt is held by Ethiopians themselves. Now, one might be wondering whether it is true that this project is going to be the panacea of all their problems, and if that is what Ethiopians believe, why has the building started only recently.

The answer to the latter question is pretty easy: until 2011 Egypt still had a lot of influence on the region and was strongly supported by Western powers. For Egypt a disruption of the flow of the Nile might have major consequences on its agriculture and therefore has always opposed the project. After the 2011 Egyptian revolution, its position weakened importantly and authorities were more concerned about internal stability than about their external interests. That was the right moment to start building the dam.

The answer to the former question, on the other hand, is more complex and as it usually happens it depends on who you ask to. In the past 4 years the Ethiopian economy has been literally squeezed to fund the project. People have been highly taxed to collect funds and the National Bank, which owns about 80% of the market share and not only is in charge of the monetary policy but also engages in normal banking activities, artificially set the interest rate on loans lower than the inflation rate and the rate of return on capital. In such an environment, it is almost impossible for private banks to survive. This is usually referred to as financial repression, even though (surprisingly enough) Ethiopian authorities do not really like the term. Of course, Western organizations like the IMF have some concerns about the sustainability of this situation and would like to see more involvement of the (Western) private sector. In particular, now that the country started tapping on international markets to finance their debt, there are some major concerns on debt sustainability. On the contrary, Ethiopian authorities ensure that everything is under control and that when they will start selling energy to neighbor countries they will have enough profits to repay everyone.

I guess that at this point history will tell us who is right and who is not: The project has started and Western countries have their hands tied: Ethiopia is one of the few stable countries in the region and therefore plays a key military role there. In particular now, with the dire situation in South Sudan, it is important to keep good relations with Ethiopia and avoid to annoy the authorities.

Modeling an economy with financial repression is a pretty hard task and needs some non-standard tricks. In fact, standard economic theory suggests that real interest rates can never be smaller than the rate of return on capital since at that point demand for credit would be infinite. That is not what happens in reality because the government not only sets the interest rate but also the supply of credit in the economy. Some people are willing to pay more to get credit, but who cares? The only person I know of who has been working on this is Edward Buffie at Indiana University. In his model, interest rates are given exogenously, and the financial sector explicitly modeled to take into consideration seniorage. Even though people like Blanchard think that macroeconomics does not even exist when applied to developing countries, I reckon that it is pretty interesting to see how concepts that are taught in any macro course and that students take as given and reasonable are reasonable only because Western economic agents and governments think that way, but there is no reason to have an economy that works with other paradigms. Maybe it is not efficient but in the end it all depends on one’s loss function, right?

“Information is power. But like all power, there are those who want to keep it for themselves.” This is how Aaron Swartz‘s Guerilla Open Access Manifesto begins. His manifesto concentrates on free access to scientific publications. I certainly sympathize for that view, but that is not exactly the topic I want to talk about. The idea of this post is to start from the quotation above and analyze it in the context of personal data. This topic has been in the spotlight for quite some time now, in particular after the NSA scandal. However, here I am not directly concerned about governments collecting data for intelligence, I am more concerned about firms whose business is strictly related to data collection.

With the risk of stretching things a little bit, it seems to me that we are slowly going towards a society that is divided into two parts. Those who own behavioral information about their users and the users who provide it. This to me is somehow reminiscent of the class division that was experienced during the first industrial revolution. By analogy with capitalists and workers, I am going to call the information owners, informationists, and the people who provide the data, users (in a first version of this post I tried to called them “daters”, that in my opinion was a more appealing name, but then I realized that they sounded more like latin lovers than data providers). Some people might argue that this has always been the case: To a certain extent, companies has always been informationists and consumers has always been users. Companies always tried to collect as much information as possible in order to target their products and price discriminate among consumers. For example, a thing that few people know is that the message: “This phone call may be recorded for quality assurance purposes”, does not imply that there might be a supervisor listening to the phone call, or that the phone call is going to be used in some training session. In many cases, it actually implies that the conversation is used to train an artificial intelligence that listens to customer calls together with the operator and based on her tone of voice and answers, it suggests which offer the user is more likely to accept. So, it is probably true, that even more traditional businesses have always collect data about their costumers to target their products, but in the last 10 years, thanks to the Internet and an exponentially increasing computational power, informationists have been able to collect an unprecedented amount of information about the behavior of their users. Now, they do not only know what products I am buying, they know when I wake up in the morning. Moreover, the business model of informationists is completely different. Traditional companies collect information to sell real products, informationists usually offer free products to collect behavioral data. Data are no more the mean, they are the goal. Just last week IBM announced they are going to offer an AI service in the cloud to allow mobile developers to make use of artificial intelligence more heavily. Artificial intelligence needs user data in order to learn and do meaningful things.

Now, do not get me wrong I do not want to sound like a Luddite. I think this process is irreversible (like industrialization was) and that is actually going to be beneficial for users in the long run. However, I reckon that this process is not free of difficulties. Control of something like behavioral data might be quite dangerous and create big differences between who has access to the data and who has not. We should start studying more closely this phenomenon and similarly to what was done in the last century create some sort of associations to protect users rights. The power of informationists comes from their monopoly over information. What if users started collecting data themselves in a systematic and anonymous way and share them freely? Similarly, we might need commissions that monitor what kind of data are collected and for which purposes. It might be said that this would slow down innovation, but in the end medical/pharmaceutical research has had to comply with pretty high ethical standards for some decades now and, still, it remains a quite innovative field. At least, we would probably need independent people (i.e., people not paid by informationists) who start thinking about some issues related to AIs that are more and more able to predict our behavior (see for example Google Now) and therefore, potentially, to behave like us. For example, what is going to happen if we were to reach a point close to the technological singularity? Who would be in charge? Should development be stopped at that point? Governments should probably be responsible to provide answers to these questions (in the end it is key for their survival, too), but I doubt that we are going to see any step in this direction as long as policy makers do not even know the difference between the IPv4 and the IPv6. I am not saying that everyone should know it, just someone in the legislative process. But this is probably going to be the topic of another post.

Thinking in these terms gives a whole new view of high-tech companies. When Facebook was quoted on stock markets its market capitalization was around 90 billion of dollars (more than 170 now). Some people started screaming “Bubble!” and, to be honest, I was one of them. I could not understand how a social network like Facebook which at that time was not doing much profits could be quoted that high. Rethinking about this now, I was looking at the thing from the wrong point of view. “Information is power”. And power easily transforms into money, I would add. It is not important how much actual money a high-tech company is doing. An informationist by its own nature is only concerned with the number of users it has. That is the only thing that matters. Sooner or later those data will become of some use. Maybe (probably) in ways we have not thought of, yet.

Random technical questions and ideas I came up with while writing this post:

– Data: How valuable does the market think is this information? How has its valuation changed in the last decade? How to measure it? An idea may be to take market capitalization of traded informationists subtract the expected stream of revenues and what is left is a noisy measure of the potential of information. Of course, this method only captures traded companies.

– Theory: Where does this value come from? Endogenous preference formation? That is, are informationists able to tilt our preferences towards certain products/behaviors? Can firms buy this information (e.g., advertisement spots) to affect our preferences? Theoretically, in equilibrium this should lead to a zero impact since every firm should be wanting to do that. Maybe that is exactly where the value comes from: Everyone has to use it, because otherwise they would lose their piece of market. Or maybe preferences are tilted towards informationists that are able to collect even more data about their clients and so on. Is there some cool mechanism here? Something like: Diminishing returns of capital => exploitation of workers => revolution.