Below the Fold : The ghost investor

Media and internet firms are in denial about their dependence on public institutions.
March 1, 2018

It’s hardly surprising, given the size and market power of today’s internet giants, that questions about their impacts on public life and governance are rising fast and furious. What is surprising, however, is how consistently we refuse or neglect to acknowledge one of the central pillars of these entities’ private success: the public sector itself, in the form of public services, government support and a mass citizen consumer base.

In telecommunications, popular industry rhetoric implies that internet and mobile wireless providers exist in a bubble, or that they self-generated before landing on Earth with Promethean connectivity. Large carriers typically oppose opening their networks to independent competition because of all the money they say they’ve invested. But this conveniently glosses over any federal or provincial funding they may have received, the rights of way they were granted, historical government-protected monopolies, and the many hours of our elected representatives’ time they have appropriated with their lobbying.

The contradiction between industry’s claims of self-emancipation from the state and evidence of their underlying dependence also shows up in the arguments of some carriers, before the CRTC, that people’s inability to afford internet access is a poverty problem and therefore the government’s alone. In other words, the private sector has nothing to do with public welfare, despite depending on the public sector for infrastructure, investment, roads, education, health care, a (relatively) functional legal system and other essential elements of growing a business.

Internet platform companies similarly depend on the public, even more so when you consider their exploitation of users’ online activities, personal data and relationships. However, in contrast to telecom companies—who pretend the public sector does not exist, is an inconvenience or has nothing to do with them—internet firms seem to think they are the public sector. Mark Zuckerberg’s “Building Global Community” manifesto and Reddit’s “we consider ourselves…the government of a new type of community” (emphasis added, HT Sarah Jeong’s Internet of Garbage) come to mind as prominent examples of this mindset.

While laudable, these ambitions can be hollow when put next to track records of damaging real communities and undermining public policy: Airbnb exacerbates housing crises; Facebook facilitates fundamental threats to democracy; Twitter enables targeted online abuse; and Google’s search ranking and ads perpetuate systemic discrimination through harmful stereotypes. But perhaps the most blatant hypocrisy, shared by industries old and new, is the siphoning off of public funds through tax avoidance and tax havens.

According to a recent report by Canadians for Tax Fairness, BCE Inc. (Bell Canada) paid an effective tax rate of 4.53% over a 10-year period ending 2014. Its statutory tax rate is 26.5%. Based on those numbers, we can estimate that this taxation gap produces a public deficit of roughly $6.5 billion—over eight times the cost of the CRTC’s broadband funding regime, and enough to fund the federal Connect to Innovate program 13 times over. A recent Toronto Star article updated BCE’s average 2011–2016 tax rate to 13.1%, suggesting Bell still pays less tax, proportionately, than the lowest-income Canadian (15%).

Media coverage has confirmed that Facebook, Apple, Amazon, Google, Microsoft, Uber, Airbnb and Twitter all engage in tax avoidance through numerous subsidiaries and tax havens, sometimes resulting in single-digit or near-zero tax rates. Whether it was the International Consortium of Investigative Journalists (ICIJ) revealing Apple’s scramble to circumvent Ireland’s tax reform, Fortune’s investigation into Uber, Skift on Airbnb or the European Commission’s high-profile crackdown on the whole gang, no platform has been left unscathed.

Nor do any of them deserve to be. These socioeconomic leviathans rely on public infrastructure and state governance to operate; profit directly off of citizens’ everyday behaviours, thoughts, self-expressions, relationships and personal data; and induce far-reaching negative externalities in the fabric of society itself. The absolute least they could do is pay the actual taxes owed on what they made at the public’s expense.

Combining tax inequity with other digital policy issues salts the commons even further. For example, the Paradise Papers leak found significant music royalties in offshore tax havens, meaning some copyright owners take twice from the public domain: first through excessive copyright terms and enforcement, locking away culture and knowledge, then through withholding public funds on the copyright royalties earned.

While those benefiting from tax havens hasten to note they can have legal uses, copyright-owning industries put all their weight behind the opposite view—that no other motive exists than crime—in debates and lawsuits over peer-to-peer file-sharing, online storage websites, blank CDs and the Sony Betamax, all of which are and were also used for legal purposes. The double standards abound.

When protecting digital rights, or human rights, in the face of a breakaway digital economy, it’s important to keep the entire picture in mind. No person is an island, and no platform or company is either, as much as they’d like to think otherwise. As tax inequity rises on the agendas of Prime Minister Justin Trudeau and ministers Bill Morneau, Diane Lebouthillier and Navdeep Bains, it’s not too much to ask that these businesses’ largest yet most invisible investor be able to expect—and actually receive—fair returns as well.

Cynthia Khoo is a Toronto-based lawyer who focuses on internet policy and digital rights. You can reach her at Her column, Below the Fold, appears regularly in the Monitor.