Transaction-generated data

In the contemporary world of commerce, from grocery store to the Internet, all legal transactions between buyers and sellers are recorded. A transaction may be conceptualized as the exchange of one value for another (e.g., money in exchange for a good). In the marketplace, payment increasingly occurs through credit cards or digital cash, and record-keeping practices assume the form of electronic/digital data. Therefore, the consumer represents not only a potential buyer, but also a source of data. Practices of documentation constitute a form of consumer surveillance carried out by private, for-profit organizations—whether the organization is a third party or the actual seller. Data collection in seemingly simple exchanges “captures” personally identifiable information (e.g., telephone number, ZIP code) unnecessary for the purposes of the immediate transaction. Through the collection and collation of extensive personal information, private corporations can create consumer profiles to inform business strategy. In response to the burgeoning use of surveillance techniques in economic transactions, particularly with respect to e-commerce, Americans report in a number of surveys (e.g., 1997 Privacy and American Business Survey and a 2001 Harris Interactive Survey) that they feel as if they have lost control over the use of their personal information. They also interpret these practices as an encroachment on individual privacy.
The contemporary collection and collation of personal information through economic transactions is more extensive and intensive than in the past. The extensiveness of this surveillance results from bureaucratie organizations formally tracking an increasing number and range of individual behaviors. In principle, the systematic record keeping of economic transactions represents one of the oldest practices of human civilization, preceding even literacy. For example, the Inca Empire used a system of knotted cords. The Roman Empire mastered systematic written record keeping, which the Church perpetuated in a less organized fashion through medieval Europe. With the rise of the nation-state and the expansion of capitalist markets, record keeping rationalizes economic transactions with more methodical accounting practices, and bureaucratic organizations control a greater proportion of daily life. The intensity of consumer surveillance is apparent in the expanding quantity and precision of data generated and integrated per transaction. In the United States, the sociohistorical roots of this mushrooming can be identified after World War II. Three conditions essential for the proliferation of personal data collection systems include new technologies, government policy, and market forces.
The role of computer and telecommunication technologies in introducing more intense surveillance technologies is widely recognized. The effect of computers on economic record keeping has been widely discussed in academic literature, public policy, and business circles since the early 1970s. Computers transform record keeping into data processing. The translation of personal information “captured” through exchange into an electronic format facilitates the collection, storage, analysis, retrieval, and mobility of consumer data: computer software automates record keeping for bureaucratic organizations. By the 1960s, automatic data processing had dramatically reduced the cost and revolutionized the possibilities of the record-keeping practices that had been used for thousands of years. Telecommunication technologies also facilitated the adoption of electronic exchange (e.g., credit cards and debit cards), which also supports consumer surveillance. A contemporary example illustrates the effect of new technologies on economic transactions. When a consumer calls a toll-free business number, software systems can automatically access a customer profile before the operator answers the phone. That profile can include data that are internal to the company (e.g., billing records) or external, such as “lifestyle data,” which might indicate the place of residence, estimations of home value, and annual income. Not only do such data open or close possibilities in the relationship between a particular customer and enterprise, but the outcome of the interaction feeds back into that profile to affect subsequent interactions.
U.S. government policy has helped facilitate the heightened surveillance of consumer behavior. In the postwar era, the federal government has consistently financed technological innovation from the earliest and crudest computers to the Internet. For example, the United States Census offers geographic and social data to myriad private companies for commercial exploitation. The ZIP Code Improvement Plan and the 911 emergency system standardized addresses, making residential information more user-friendly and marketing techniques, such as direct mailing (i.e., “junk mail”), more affordable. In the 1970s, the Claritas corporation capitalized on these federal subsidies by pioneering a data-processing method known as geodemographics, a body of analytic techniques that identify neighborhoods and households by lifestyle categories to predict consumer behavior and reach niche markets. Geodemographics merges spatial and demographic information with data from more than 500 million consumer purchases per year. This research classifies the American public into 62 distinct lifestyle “clusters”—each associated with distinct tastes, values, and living arrangements.
Aside from subsidizing the cost of data collection, the rollback of the social safety net—witnessed in the United States and most industrialized nations since the 1960s—helps assign a greater value to personal information. Private providers, free from any burden of offering universal access (e.g., insurance companies), assume the responsibilities of public bureaucracies. These economic actors compile personal information to sort the profitable clients from the risky clients. This “risk society” further entrenches the drive to classify and categorize the population based on its revenue-generating capacity. In this sense, cuts to social entitlements aid in the creation of consumer data markets. In a more direct fashion, the government helps create these markets by purchasing the services of data brokers like Claritas. State agencies use “cluster” data to design and administer programs, such as antismoking campaigns. In total, more than 15,000 nonprofit organizations, government agencies, political parties, and private firms rely on the services of Claritas. The accumulation and organization of personal data foster the development of new campaigns, the introduction of new product lines and services, and the location and design of new facilities.
The collection and collation of personal information from economic transactions represents a growing sector in the economy. At the close of the twentieth century, the production and analysis of transaction-generated data had become a $10 billion/year industry. The emergence of the data-brokering industry under-scores the importance of market mechanisms in the intensification of consumer surveillance. In the marketplace, the demand for personal information stems from the need of businesses to acquire accurate information regarding the environments in which they act. Information that is more precise gives a firm a competitive advantage over others. In other words, knowledge of individual customers and potential customers serves the organizational goal of profitability. Thus, as the cost of data collection, storage, and analysis falls because of new technologies and federal subsidization, private firms seek greater quanti-ties and better quality of personal information. Precise, reliable, and valid personal information enables companies to identify the most profitable clients and devise appropriate goods, services, and marketing strategies. Conversely, the collation of transactions into databases, such as “Consumer Return Databases,” allows retailers to isolate less attractive customers, such as those who chronically complain or return items, and develop methods of exclusion (e.g., “digital redlining”).
The strategic interests of private enterprises have spawned a market where data abstracted from the lives of individuals become a commodity. A handful of corporations dominate this industry and own unimaginable sums of personal information. A company called Acxiom has acquired personal data on virtually every consumer in Australia, the United Kingdom, and the United States. However, more traditional merchants participate in personal-data markets by selling their customers’ information for supplemental revenues. Publishing companies, who have sold magazine subscriber lists for decades, were among the first to realize this opportunity. More recently, financial institutions have learned of these income-generating possibilities. In search of these auxiliary revenues, traditional companies stress data collection in what business observers call the “second exchange.” The “first exchange” consists of the transaction of a good or service for payment, and in the “second exchange” the consumer offers personal information for discounts or special offers. Mail-in warranties represent a typical second transaction, and one-third of U.S. households have filed such warranties. Supermarket loyalty cards constitute another form. With loyalty cards, consumers must disclose significant amounts of personal information to be eligible for store discounts, and retailers use such cards to track all purchases back to the person. While this arrangement may initially appear to be a fair deal since the consumer gains a reward for the loss of privacy, a 2003 study by the Wall Street Journal on loyalty cards demonstrates that they do not actually lower prices. They create the appearance of lower prices, but in reality, the discounts simply offset price hikes. In effect, consumers must foreclose more personal information to maintain pre-loyalty card prices.
The combination of more extensive economic transactions and more intensive record keeping engenders what legal scholar Arthur R. Miller calls a “data-mania.” Apologists of consumer surveillance celebrate the democratizing effect of systems like geodemographics, in which the cluster purportedly overcomes distinctions of race, gender, and class in the marketplace. These enthusiasts tout “data-mania” as a new era of efficiency and represent data collection and collation as a matchmaking process. Critics of “data-mania” point to the erosion of personal privacy. Accounts in the mainstream media discuss a limited set of implications that include identity theft and telemarketing annoyances, but schol-arly critics call attention to social power. The asymmetrical flows of information immanent in these new record-keeping practices empower private corporations at the expense of the individual. When transaction-generated data permit companies to sort consumers into groups of assigned worth or risk, new forms of discrimination, such as “digital redlining,” become possible. Thus, the clusters and individ-ual profiles compiled from abstract electronic data have very real effects on the life chances of flesh-and-blood persons.