Articles

Charles Assisi

July 24, 2017, 2:24 p.m.

July 24, 2017, 2:24 p.m.

A brief history of money, identity and Aadhaar

Is the current debate in India around privacy misplaced? All evidence suggests it is about the evolution of money and the need for a uniform identity

[By Gerd Altmann under Creative Commons]

Nandan Nilekani, widely credited as one of the chief architects of the digital identity revolution in India, often likes to say, “India and other Asian countries are moving from being data poor to data rich.” Like many others have, on every forum, he also argues, “Data is the new oil,” a phrase attributed to Clive Humby, a British mathematician, in 2006.

If one were to go by historical precedents, some things are implicit in these phrases.

  1. Data is a resource.
  2. Any country rich with resources can either get rich or get plundered.
  3. All evidence has it that resources are first exploited or plundered.
  4. History also has it that any resource, if not protected adequately, will be exploited. Oil is a case in point. And Dubai is a recent example that comes to mind. Originally a trading outpost, it shot into prominence on the back of oil. But after running out of this natural resource, the city state has tried to reinvent itself. While it looks magnificent to the eye in passing, fact is, it is in recession or perpetually on the brink of one.

When looked at from this perspective, when the nine-judge bench re-convenes at the Supreme Court to decide whether Aadhaar violates a citizen’s fundamental right to privacy, much thought will have to go into what prism to look at privacy from. Because the verdict may have unprecedented outcomes and may trigger a global debate.

The history of money offers some pointers on how the debate around privacy ought to be looked at.

Every citizen has a fundamental right to privacy. But it cannot be absolute and must be wedded to caveats

  1. Every democratic society that believes in a free market accepts that all citizens have a fundamental right to earn money. But with a few caveats. That they will not violate the laws of the land that have been arrived upon by consensus.
  2. By the same yardstick, every citizen has a fundamental right to privacy. But it cannot be absolute and must be wedded to caveats.

Why? Some answers may lie in the metaphor that is oil.

The city of Dubai

Data is exponentially more valuable and can be used to build many “new Dubais”

Once upon a time oil was a commodity. Wars were fought over it and magnificent cities like Dubai were built on the wealth it generated. But it was a finite commodity. The era of oil as a currency is over. To that extent, metaphorically speaking, people in countries like India are sitting on a resource—data, on the back which precise profiles can be built of each person down to who we are in terms of our habits and behaviour. That is exponentially more valuable and can be used to build many “new Dubais”.

But there is a fundamental difference between oil and data. Oil is a finite resource. Data is an infinite resource. How can be it be plundered best and exploited is limited only by imagination.

To get there though, we first need to wrap our heads around another metaphor. The City of Dubai exists within each one of us. It lies in the data we carry—our biometrics. This is data on who we are at a more fundamental level—our identity. And as has been articulated earlier, data is the new oil. To that extent, it is also the new metric of currency, or money.

Entities of all kinds, private and public, are waging war against each other for access to it. Most idiots though are giving it away for free. Much like many in the Middle East did with their oil resources. That was because when oil and its potential was first discovered, those sitting on it didn’t know what it was worth. They simply conceded control over vast tracts of land containing it, to those who could see the future, in return for what they thought was something tangible. Now they are staring at a bleak future. This cycle keeps repeating itself. Because we do not know much about the history of money.

If some perspective may be needed, The Ascent of Money: A Financial History of the World, a volume of genius by Niall Ferguson, is a good place to start. While it is difficult to summarise Ferguson’s exhaustive thesis and research in a few lines, I’ve made a crude attempt.

The idea of money

Once upon a time, when the Mayan civilization was at its peak, money as we understand it now was an alien concept. The Mayans could understand only that which was tangible. They sought compensation for services in terms of what they thought they may need. Nothing more, nothing less. So, in return for four hours of work on the field, they’d ask for a sack of corn, or coffee beans, or something else.

Incidentally, this civilization resided on one of the richest resources in the world—silver. But the Mayans saw no real use for it.

Meanwhile, civilizations in other parts of the world—in Europe, China and India—were thinking along different lines. The Indians, for instance, were fine-tuning the idea of “zero”. It was intellectually stimulating and they could see how many problems it could solve.

The Europeans were stuck with clunky Roman numerals and their accounting standards were abysmal. But they were pragmatic people as well and were surrounded by innovative and brave minds. These minds started to ask questions along the lines of: What if I work for four hours now, but have no need for anything right away? Can you issue me something that can be redeemed later? Can I trust it? Can that something be of a kind that will compel you to fulfil your promise to me in return for the work I offer? It had to be a promissory note of some kind.

But back then, this promissory note had to have some intrinsic value. In the early days, it used to be bars of gold, silver, or issued by a “person of good standing” who was solvent and their word on paper would suffice as opposed to pledging gold and silver.

It was an interesting way out. But it created another question. Who is a “person of good standing”?

Much thinking later, a vague idea called banks started to do the rounds. And what were banks intended to do in theory? Issue “promissory notes”.

But back then, only roadside moneylenders existed. They were looked upon as unscrupulous characters—like Shakespeare’s Shylock. For no fault of theirs really. They could lend only to “people of good standing”—else they ran the risk of default.

So, to lend, they had to “identify” the person whom they were lending to, have a “person of good standing” as a guarantor, and charge some fees (or interest as it is called in contemporary terms) for the services they offered.

To cut a long story short, one thing led to another and innovations of all kinds happened. This included the discovery of the potential embedded in the idea of zero that the Indians among others had been at work on, and which made accounting easier. One of the first outcome of this innovation was the creation of an institution called a bank by pragmatic European thinkers.

But to build banks, you needed expertise with money. This money resided only with those who had dealt with it in the past. They were sitting on experience. It was inevitable then that overnight, roadside moneylenders evolve into reputable bankers. Eventually, these entities started to get so powerful that even governments had to get into the business and create the “central bank”.

Central banks in every country now set the rules by which every bank in their country plays by. And they are now the ones who issue the “promissory notes” that we now call money. To that extent, our faith is placed in an instrument called money—and by an extension of that logic, in the apparatus that issues it. This apparatus, for the record, is the government, because the central bank is owned by the government.

While it sounds simple to us folks in contemporary times, to the Mayans, this was an alien idea. They couldn’t wrap their heads around it, and rejected the idea too because it interfered with what they thought was a nice way to live. Which it indeed was. But for that peace, they had to pay a price—face greedy invaders who wanted their silver. They couldn’t. Because they weren’t prepared to fight. It was inevitable then that their civilization went extinct.

The history of money is littered with stories of greed. It drives people to innovate—oftentimes in unscrupulous ways to keep more “promissory notes” (or money) to themselves than they deserve. It puts enormous pressure on the state and often the state and these individuals are in conflict with each other. How?

The state must “identify” people—those that subvert its systems, and those that the promissory notes are intended for

  1. The state has always had a moral responsibility to care for all its people equally. Some states did it for votes, some to usurp power, and others out of benevolence.
  2. Now, students of Economics 101 will know that if one section of society usurps all the “promissory notes”, then the state will have to print more of these to keep the economy lubricated. The more something is in circulation, the less its intrinsic value, and vice versa. To that extent, the central bank must walk a tight rope.
  3. Not just that, the state, particularly those that claim to be benevolent, must find ways to “identify” people—those that unscrupulously subvert its systems, and those that the promissory notes are intended for. Else, the state may have to keep printing more of it, until those notes lose value completely and the system collapses.
  4. In societies like India, the problem is exacerbated, because the population is huge, dispersed, vast swathes are poor, and unidentifiable. To that extent, the central bank (here, the Reserve Bank of India) has a tough job on hand.

To get around this, a decent system is needed to identify just the right set of people. Many societies have attempted to do this. The US has the Social Security Number. By all accounts though, it is crumbling, the infrastructure is a creaky one, and the global economy had collapsed when it showed the first signs of capitulation. This was what the subprime mortgage crisis was all about. Alan Greenspan, former chairman of the Federal Reserve Bank, the authority that issues promissory notes in the US, knew exactly what was going on under his nose. But he chose to look the other way until the economy imploded.

A question of identity

A new kind of identity is needed that can seamlessly integrate into the ecosystem that is money

Since then, much thought has gone into what will it take to create a more robust system in all parts of the world, India included. A new kind of identity is needed that can seamlessly integrate into the ecosystem that is money. Enter Aadhaar.

What is Aadhaar? Just a system crafted to provide every individual who lives in India with a Unique Identity.

How does it work? Identify an individual by capturing their biometric data—in this case, their thumb print and iris scan, plus their name and address. The key word here is, data.

Theoretically, how does this help? It ensures that the “promissory note” issued to an individual is honoured in letter and spirt by the state and not manipulated. To do that, as opposed to handing out doles that can be intercepted by an intermediary, the money finds its way to the intended recipient. But money, as articulated earlier, has gone through many permutations and combinations.

The Mayans saw it as something tangible that could be exchanged.

The original European moneylenders created banks and issued promissory notes issued by a central bank. So much so that this note exists in multiple forms now like mortgages, stocks, bonds, derivatives, futures, and so on and so forth, all of which can be traded on markets of all kinds.

So, to go back to Aadhaar, because money has gone through as many permutations, it need not be doled out physically, but can exist digitally and be transferred digitally. As ideas go, this isn’t new, but it is an evolving one.

But the idea of a digital identity is a new one. Now, all new ideas have multiple versions. This is because when an idea is new, many theories exist on why its proponent may have the best hypothesis. And everyone will give it a shot. They will try to find somebody to fund the hypothesis. Most will fall by the wayside.

History has many examples like these. Let us take banking as a case study because the idea of money is central to it, and therefore there’s a need for an identity.

Once upon a time, the Medici brothers were street moneylenders in Florence and used to hunt for customers. History though remembers them as the House of Medici that comprised bankers and created a political dynasty. With wealth, their power and influence grew. They then went on to become chief patrons of the art and culture revolution during the Renaissance period in Europe. Over time though, they refused to change, stopped adapting, their wealth diminished, and they eventually went bust.

It created room for another entity—the Rothschild family in England—who originally hailed from Germany and had moved to England because they had spotted an opportunity in the emerging Industrial Revolution. History remembers them too as bankers to the Industrial Revolution.

Now, both the Renaissance period and the Industrial age created their own ways of looking at what is value. It also asked how much of the wealth that is created ought to be apportioned very specifically to the people who created it. If it isn’t apportioned in the right way, any system will implode.

This raises another question. What is the right system and how to apportion everything in it in a manner that is fair?

Some clues emerge from Jared Diamond, the American biologist and anthropologist. He tries to explain why some individuals, companies, systems and countries evolve the way they do in his best-selling book, Guns, Germs and Steel where he introduced the Theory of Optimal Fragmentation. He postulates that for any entity to survive, it must be both competitive and fragmented—but within limits and follow a certain cadence.

Recorded history has it that once upon a time, China got to be the predominant power in the world and looked all set to take over because it nurtured intense competition internally and was optimally ruled—until a despot took over and insisted all power be vested in him. The civilization collapsed and Europe gained ascendancy.

Within Europe, those who followed these principles of competition and maintaining just the right amount of fragmentation flourished. Those that went outside its boundaries, could not. Over time, it conceded ground to the United States because the US nurtured fierce competition and was optimally fragmented as well. It was diverse—but not too diverse.

That is why, when oil was struck in the Middle East, the first arbitrators who got there to drill and convert it were those who were optimally fragmented. This included the Americans, Russians, and some Europeans. Middle Eastern nations were either too fragmented like the Aztecs or simply hadn’t gotten the import of the potential of oil. Like the Aztecs, they were sitting ducks, waiting to be shot at, while the others strategised and fought wars over how best to squeeze every drop out of them.

As for India, we were too big. Too fragmented. This wasn’t one country. India was many countries rolled into one. Like the European principalities of yore. It was inevitable then that India end up doing the low-end work. Like supplying cheap labour to the Middle East.

A new Dubai

To get back to the point, what originally started as a system of fair barter for services rendered, morphed into promissory notes. These notes have many avatars as well and follow whatever promises to underwrite the value of the note the strongest. It used to be slaves from Africa, silver from South America, spices from India, oil from the Middle East, and now data from every person on Planet Earth. The raw material here are people—and their behaviour.

And India, ironically, has one heck of a lot of them. 1.3 billion and counting. Overnight, India has begun to look like an El Dorado of sorts. The kind of place where silver existed in the distant past and oil in the not so distant past.

Never was the need for an identity more desperate in human history than it is now

It is inevitable then that innovators will seek to monetise it. But to monetise the raw material, people in this case, they must be identified as precisely as possible. Never was the need for an identity more desperate in human history than it is now.

That is why all kinds of people are at work on it including those that populate entities like Google, Facebook, Apple, Amazon, entities from China, and the ecosystem that is Aadhaar in India. In an altogether different context, I attempted to document how Amazon caught me unawares. But that is pretty much how every entity operates.

Very little is known of how these black boxes work. All we know is that to get better at it, they need to learn more. For that, they need data. And that data must be extracted from someplace. That someplace is people. To that extent, no place can get better than India.

If they crack the problem of identity with precision, much like my bankers understand my finances to predict my financial future and bet on it, they can bet on all of my life. To that extent, the more data they gather, the more intelligent they get.

Not just that, the lines between human and artificial intelligence are blurring. The essay, How Aristotle Created the Computer, explains the nuances of it all in what is without a doubt one of the finest reads of the year. The writer, Chris Dixon, summarises how things are: “What began, in (George) Boole’s words, with an investigation ‘concerning the nature and constitution of the human mind,’ could result in the creation of new minds—artificial minds—that might someday match or even exceed our own.”

That explains why the nature of money has changed again. These entities are paying cash as people understand it to get data. We now resemble the Aztecs from the past who didn’t get the value of silver; or people from the Middle East who had no clue what the fuss about oil was all about. If some freebies are on offer, we’ll take it and part with our personal data.

In our mind, the “cash” is more valuable than the “data” we possess. But businesses and governments know that isn’t true. Our identity and the data that can be gleaned off it is of more value in the longer run.

Raiders of the Ark?

History has it that monopolies and unrestricted liberties are not good. A single despot was all that it took to destroy a booming China that had become a monopoly. When Europe fragmented, it had to concede ground to the US. In much the same way, there must be an optimum. But what is optimum?

When looked at from a free market perspective, must emerging digital monopolies like Amazon or Aadhaar be curbed? No

That is for the Supreme Court and the bench of judges to decide after listening to all the arguments. What I have are a few thoughts and questions.

  • When looked at from a free market perspective, must emerging digital monopolies like Amazon or Aadhaar be curbed? No. Both have worked hard and come up ingeniously against the odds. Curbing them goes against the idea of free spirit and innovation that is fundamental to our society.
  • It may be argued Facebook, Google and Microsoft are private entities and Aadhaar is being implemented by the state. To which, what if I propose it is the state’s job to build a highway—like the US did after World War II? Cities, towns and other hubs of entrepreneurship emerged around these highways. To that extent, Aadhaar is just a highway. It is the state’s job to build it. What anybody chooses to do with it is their problem.
  • As for fundamental rights, how about looking at it this way? Amazon, Facebook, Google, Apple, and all other entities are fighting hard to colonise the new world. To gain control, they want something. It isn’t money as we traditionally understand it, but data. As things are, if we don’t part with our data, we are not allowed to use the so-called highways being built. There are no rules either in India that clearly articulate what is it that they can do with our data (or the “new money” or “oil” or “gold” or whatever precious thing you may want to call it).I haven’t heard a single voice crib about whether it amounts to intrusion of privacy. Instead, all I hear are the raving voices of fans on what a fantastic business model the company has and how people like Jeff Bezos are changing the world.

A universal identity that cannot be manipulated and that fixes leakages is needed

  • By the same yardstick, there is no clarity on the rules that govern Aadhaar. What we do agree upon is that a universal identity that cannot be manipulated and that fixes leakages is needed.
  • Does Aadhaar do the job? As things are, better than the existing systems.
  • Can Aadhaar be manipulated by the state? If what technology can do for Amazon is anything to go by, there is nothing to suggest the state will stop from doing it either if push comes to shove. Both have their reasons. The state needs control over its people and private entities are created to maximise profits. We have precedents from history as well to buttress this fact from the House of Medici and Rothschild—both of which funded public and private projects to further their own ambitions.

Implicit to this is that when the Supreme Court sits down to pass verdict on what constitutes my fundamental right, they cannot, and ought not deny me my right to privacy. But in the larger interest of society and the state, they will also have to place exceptions. Much like restrictions were placed on banking when money started to evolve and people of all kinds started to get into it. And in that narrative, Aadhaar is only a part of the evolution of money. 

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