Research Topics: Economic Analysis

Indicator Programs at Redefining Progress

Introduction Almost everything in this world needs an indicator which will allow us to know and recognize how every performance varies. With such instruments, we can be able to determine on what part needs improvement. But before we depend too much with these indicators, it is important to know how reliable it is so that errors would be avoided as time pass by. By that, the real progress of the activity will be viewed correctly and further improvement will be made. Although the GDP use to measure the economic growth of a country, it was cited that something is wrong in its manner of measuring progress. This error probably creates such imbalances that affect the economy and the society.  The global upswing continues to be accompanied by major economic imbalances as of now. Unfortunately, did most of us understand this very serious situation regarding our economy? Although many economist have been trying so hard so figured out what would probably be the real solution to this. Still, there are a large number of people who are incapable of understanding such dilemmas that are continuously occurring. Are they just not really aware of it? Or they just take things for granted to hide the truth about it? In every society the government plays a very important role but what if they are the one who can’t be responsible enough? Having a problem that deals with the economy is a very complicated and broad topic because it almost comprises everything. In the case of the GDP’s (Gross Domestic Product), it was being criticized by its poor manner of measuring economic growth. How will these condemns affects the economy? And does the government have something to with it? And if they do would they acknowledge their fault or blame it to the people? Are these accusations supports valid truths? As the famous philosopher Voltaire says, “It is dangerous to be right when the government is wrong”. Nonetheless, all these upbringings had a corresponding solution.   Defining GDP               The Gross Domestic Product is usually define as the gauge indicator that economist uses to measure the economic stability of a certain country. It focuses on the region in which an income is generated or where the output is produced rather than who produces it or either how it is being produced. Some economist says that if the GDP is higher, the growth of the economy is rapidly exceeding. But there are concealed imperfections behind these measurements conducted. That’s why a lot of criticisms are being thrown with these concepts of GDP mainly because there are a lot of things to be considered to come up with a right conclusion on how it really implements the correct measurements of the economic growth.             What are the concerns comprising the Gross Domestic Product? As stated, it tends to be an indicator of economic boom. The major advantages of using GDP per capita as an indicator of standard of living are that it is measured frequently, widely and consistently. However, it disadvantage is that it is not a measure of standard living. It is only intended to be a measure of a particular economic activity within a certain country. In this case, the negative aspects of it merge unintentionally. The GDP fails to delineate the “health” of the economy because it only views limited scope of the subject matter. In what way? There are a lot of misconceptions resulting to deficient knowledge and carelessness of such economists. By that, criticisms tend to arrive and they targeted the wrong concept of GDPs way of measuring economic progress. In fact GDP measures almost everything except the things that makes life worthwhile. However, GDP was not created to play such role. It’s just that it doesn’t make enough clear distinction between those transactions that adds to the well – being and those that diminished it. Instead, it provides the tally of all these activities without separating the productive to the destructive ones. It records every monetary action positive so as a result, it worsen the social structure and natural habitat in the economy.             With this breakdown happening. Should the government start to make some move about it? Or they would just sit back and relax because most of these activities boost the value of GDP and therefore, the economy is heading on the right track.   The Shortcomings               The GDP was face with a lot of pros and cons. The negative and the positive effects that it can bring to our society might lead to something devastated in the near future. But what is really wrong with the GDP? Income is use as the basis for poverty evaluation. Part of the central concern of the economic theory and economic policy is the income distribution. Such classical economist like David Ricardo, Adam Smith and Thomas Malthus were mainly concerned with the income distribution between land, labor, capital and production as the main factors. However, in the modern period, the economist was mainly concerned with the distribution of income across the individuals and households. In this case, GDP fails to consider this factor because apparently it ignores the differences of the income between the rich and the poor although there is a wide gap between the two. It takes no account to the inequality of income, wealth and the spending power as well. It had been a long topic of argumentation regarding this. The poor becomes poorer and the rich becomes richer. That’s why economist has come up with various strategies that might overcome this problem. The income inequality metrics was use by the economist to measure the proper allocation of income and economic equality among participants in an economy. It measures the inequalities and not the probable cause of inequality. For an accurate measurement of it, they should take in consideration the available source of income and proper implementations of taxes.              More often, GDPs concern only lies with the amount it measures as a whole. But it doesn’t give importance to the welfare of its community. Just like for instance, there are a great number of consumer on a new product. And it will be probable that it can cause a higher value for GNP. But unfortunately these products quality are not taken into consideration other wise, the value of GNP here are merely a result of inefficiency and waste. Compare to if consumers will buy high durable goods. Although it will only provide a lesser value in terms GDP. Nonetheless, it will give the consumers a great satisfaction with the product they were using. Another example is when a calamity hits a country and leaves tremendous damages. The rate of GNP will tend to rise because of there will be a lot of constructions made for the infrastructures but do they know the negative outcome of it? The lives and properties destroyed are such things that are too much too handle especially if the country is not that progressive. So this is the question that bothers most economists. How can you say that a country is on top of its growth in terms of GDP if they were suffering from such disaster?  There are a lot of undesirable situation that can cause the rise of GNP. But do we need all this misfortunes to happen just to be able to achieve a progress? Even the use of health care that was implemented by the government is another example of it. It can also raise GNP but who will be delighted seeing most the people in his country is suffering from diseases. It was such a very unfavorable scenario to look at.             Externality is also a part of GDPs criticism. This is an impact on any party not involved in a given economic transaction. Either the causes were good or bad. There are two types of externalities, the positive externality and the negative externality. In the case of the positive externality, a good example of is having a good invention. This invention will soon benefit not only the inventor itself but as well as the people who might need it. In both ways it provides positive outcome. In terms of the negative side, mostly the externalities occur is the damage in the environment. The best representation of it is the climate change due to the green house gas emissions from coal, oil and gas. This case so far is the number one externality of all economic activity. Unfortunately, GDP also ignores these following consequences. These are some reasons why even ecological environmentalists are not in favor of the GDP because for them it exploits the natural resources and ignores the value of renewable and non-renewable resources to the economy.             Another part of the GDPs criticism is that it doesn’t measure the sustainability of growth and fails to take into account of the black market. The sustainability of growth was simply defined as to meet the needs of the present time without endangering the ability of the next generations to meet their own needs.  In contrary with this, some countries are fond of exploiting their natural resources right now without even considering the fact that the next generations are still in need of that. Although they can achieve high GDP, they didn’t thought that it would only be temporary especially if they start to loose their resources at an early point of time.             On the other hand, the black market or the underground economy is just another fact that makes GDP an inaccurate way of indicating the growth an economy. The underground economy includes most of the illegal sources of income which obviously are not registered. This includes activities and services such as transportation providers, illegal drugs, prostitution, weaponry, alcohol and tobacco and the most popular now a days, the copyrighted media. All these illegal services tend to make the figures of GDP abnormal. Despite of its unlawfulness, all these services are greatly patronized by a large number of consumers.   The alternatives               Because of the irregularities that GDP have been compromising. The economists come up with an option to replace it. In 1995, Mathis Wackernagel, the director of Indicator Programs at Redefining Progress based in San Franciso  developed one of the very first alternative to GDP. It is the Genuine Progress Indicator or the GPI. It was rendered out of the theories of the green economics as the barometer of economic health. The main objective of it is to cut off the inadequate and misleading way of measuring the economic growth. GDP is often justified by the lack of a concrete alternative, and the belief that there is no valid way to approximate the value of social and economic factors in economic terms. That’s why GPI was developed to demonstrate that both of these obstacles can be overcome. According to Senator Byron Dorgan (1995), the GPI reveals that much of what we now call growth or GDP is really just one of three things in disguise: fixing blunders and social decay from the past, borrowing resources from the future, or shifting functions from the traditional realm of household and community to the realm of the monetized economy.  As part of changed that they want to implement in the economy. They take the GPI as their first step to improve and broaden the accounting framework that guides public policy. But that time, at the Fordham University in New York. They also came up with another gauge of well – being. It is the Index of the Social Health. In here their main focus was to the nation’s health. Like the GPI, they reinforce the need for new definition of growth and progress by measuring the health of the community and not the success of the particular policy or program. More and more community project indicator projects have emerged following the same concept incorporated with the latter. They have this goal of protecting the environment and preserve the well – being that has been the number one bearer of all the negativities the GDP produce.   Adjustment with Genuine Progress Indicator             It would be quite impossible to obtain such progression on the economy without making any sacrifices. Not all things would be beneficial for both parties. So how can it be possible to create a symbiotic relationship between the nature and the economy? After coming up with the GPI, promoting it became their next agenda. According to the speech of Robert F. Kennedy, we seem to have surrendered community excellence and community values in the mere accumulation of material things. We contributed nothing beneficial to our environment.   To minimize the continuous errors that GDP has been input to our system. GPI creates several adjustments. It subtracts the cost of long-term environmental degradation, air pollution, water pollution, ozone depletion, air pollution, noise pollution, loss of farmland, loss of forests, loss of wetlands, it adjusts for net capital formation and net foreign borrowing, it minimizes the cost of crime, auto accidents and cost of consumer durables. At the same time it adds the value of the service from the household infrastructures, highways and streets and the value of volunteer work. In short, the GPI handles not only the monetary factors but as well as the social, environmental and economic phenomena that GDP fails to consider. We’ve been so busy counting everything on which we spend money, and yet we assign no value to several vital activities that really contribute to our well – being.   Conclusion   With respect to Simon Kuznets, the GDPs principal architect. It is very unintentional that GDP was created with this objective of constructing an illusion in economic progress. Having too much of everything might not be better. At this point, everyone should acknowledge the fact that there is an irregularity unfolding the GDPs way of measuring economic progress. The growth of the economy should not be based only on the numerical value it provides to the statistics studies. But as well on how it was accomplished. Everything might appear successful right now. But try to consider the things that are involve in every aspects of the situation given. If you have a car accident, ongoing treatment for cancer, or filing for divorce, the following misfortunes in your life helped “boost” the said economic growth. Quite annoying but that was the fact beyond GDPs way of calculating progress. Aside from that even the things that affects our natural resources helps to climb up GDP into a higher value.  It just like that the more harmful things it can be the better to our economy. Sad but true, that crimes, gambling, pollution and other degrading activities contributed a lot in our economy.  And by this point in time we assign no values to our natural wealth. People can sell all the fish they can caught, cut all the trees they can make for furniture, kill all the animals in the wild for clothing and for food.  Obviously it can provide many earnings to them. They can harvest as many as they want right now but do they ever think of the next generation? They only reduced the flow of goods and services in the future.  Lack of natural capital may lead to a more serious problem. As Paul Hawken stated, the limits to increased fish harvests are not boats, but productive fisheries; the limits to irrigation are not pumps or electricity, but viable aquifers; the limits to pulp and lumber production are not sawmills, but plentiful forests. Nonetheless, our natural resources play a very important role in our economy. At this point the government should justify these things. It is not enough to earn more profit right now. They should make a move on how they can come up with necessary activities that would also be beneficial to the environment. Enough exploitation to our natural resources by this time. The obsession with growth as well as its confusion with the genuine development and the quality of life have caused misleading signals to the leaders and public alike, distorted policy priorities, blunted effective remedial action for environmental and social problems and led us down to a  dangerous and self – destructive path. Maybe it’s the reason why growth isn’t always a good thing. So, the next time you will encounter a headline which states that GDP is growing up it isn’t a good news at all.  In fact, it is more alarming than and quite just as same as reading a headline pertaining to various heinous crimes. With these great numbers of criticisms that GDP is confronting right now, there is no excuse that the following are such critical judgments. The negative aspects of GDP should become an eye opener to everyone of us. It is quite threatening to know all these factors affecting the growth of our economy involves a lot of undesirable circumstances in our lives.  However now that these things have caught our attention, then it would be better to work on it step by step to come up with such accomplishments that will benefit all of us. However, GPI doesn’t claim itself to be perfect. And there is no such thing however. What it tries to express is that its construction is based on the recognition that we do not live in an economy but in a society and that society itself is embedded in a natural environment.  It only corrects the errors inherited in the system of GDP.  Being equipped with a lot of alternatives will just make a better future for all of us. Remember that growth is not merely about jobs or profits. Do not wait for the time wherein you almost forgot the meaning of having a “good life” because you’ve been too much busy contributing to activities which are no longer sensible.   Try promoting the concept of well – being. That happiness is one thing that money cannot buy. There is a need to shift gears in able to surpass all of this. Having trapped with this kind of situation for so long tends to create an illusion that it is all the material things in our life that completes us. What is needed are measures of well – being, prosperity and progress that gives more values to the non – material things in our life that basically makes the true basis of wealth. And in order to achieve it, there should be a restrain from using GDP in measuring our well – being and economic growth statistics. Since it only measures the quantity of the market activity without taking into consideration the social and ecological cost involve. That’s why it became an inadequate and deceptive measure of true prosperity. It was never too late to renew our beliefs. As the world becomes more and more advance, it would be better to value our natural capital more for it has a serious effect in our economy. Let us give the next generation the legacy of valuing the real strength that we have in abundance right now. Let us bind together all the knowledge that we have at this point in order to attain a better future for them. Whatever type of indicator might be develop someday in the near future just to express the growth of economic progress still it would be better if it is always base on what we really need as human beings living in a society embedded in a natural environment. Credit:ivythesis.typepad.com

Indicator Programs at Redefining Progress

Introduction Almost everything in this world needs an indicator which will allow us to know and recognize how every performance varies. ...

The Gross Domestic Product

The Gross Domestic Product

Introduction Almost everything in this world needs an indicator which will allow us to know and recognize how every performance varies. ...

The Investment Decision Making

1. The calculations for the net present value can be use for the decision-making in order to select the capital investment. This is also the summation of the present value of the yearly cash flow for the project which is the total value for the total cash inflow subtracted from the initial cost of the present of the invested projects as well as the cash outflows (Smith, 2002, p. 242). With the basis of the Net Present Value, then the project needs to be accepted because it considered being a positive inflow into the possible investment. It is also the basis that the positive net present value only means that the inflow of the cash has the higher present value as compared to the outflows.   The internal rate of return or sometimes called the time-adjusted rate of return is the earned return for the given proposal. This is also the discount rate for equating the net present value of the cash flow fort the present value into the zero cash outflows. This also signifies that the internal rate of return also assumes that the inflows are invested again in the given internal rate. The internal rate of return has also some of the advantages as it is considered to be the time value for the money and accurate and realistic as compared to the method of accounting rate of return (Shim, et. al., 2005, p. 23). For the internal rate of return, it is sufficient to use the formula: Where: t = time of the cash flow N = total time of the project r = discounted rate Ct = net cash flow   The Internal rate of return will be: £9,236,633.656 = 0        (1 + r)6  £9,236,633.656 = (1 + r)6 r = 13.48% In relation to the internal rate of return, the project must need to accept the project due to the fact that IRR is greater than the invested capital for the given investment. Generally, the project is expected to accept to the project due to the fact that it has many advantages and has the positive return of investment which also signifies that it is an ideal investment for the company.   2. The capital budgeting is the way in making or engaging in the investment decisions for the expenditures of capital or the fixed assets. This had been done due to the fact that the continuing business firm can always moving ahead and its fixed assets as well as the resources are all continuing for the expansion or there is a great need in diversification. The capital expenditure can be an expenditure for the benefit of the expected that can be received for the period of time that exceeds one year. This capital expenditure is also considered to be one that has the intentions of benefitting in the future periods which is commonly including in the investment in the fixed assets as well as to the other development projects. This is also for the purpose of long-term function and also known as the Investment Decision Making, the capital expenditure etc (Chand, n.d., p.584). The capital budgeting though complicated is the most important in the managerial decisions. This is because its main concerned is the carrying and designation of the systematic program of investment. This is also provides the expenditures that had provided and yields for over the number of years. According to Horngreen, the capital budgeting is use for the long term planning for the financing and making the proposed outlays of capitals. This is important because its concern is the allocation of scares of the firm in financial resources in the available market opportunities. This can also have the comparison of the expected value streams in future for the project’s earnings and the subsequent and immediate expenditure for the streams. Aside from that, it also covers the planning of development that is available in the purpose of capital and its concerns in the long-term profitability (Ibid).    There are several importance of the capital budgeting which has the single area for the decision making in management. For the large investment, it is an ample way because the funds that are available in the firm are limited and there are scare resources in the funds. Aside from that, the firms are also raised by the firm from the internal and up to the external resources that are substantial on the capital cost. For the long term commitment of funds, the capital budgeting is the need for the great planning of the capital expenditure due to the fact that the longer time can have the more risk involved. This is also important in the irreversible in nature due to the fact that once the decision for gaining the permanent asset is taken there is difficulty in the reversion of decision. There are also difficulties in finding the market of the capital goods that they acquired. For the complicated decisions of investment, this can also be use for the assessment of the future events which definitely uncertain. This can also have the significant and long-term affect regarding the probability that it concerns and its importance are the voidance of the under-investment and over-investment n the fixed assets. The decisions of investment can have the concerns in the national importance due to the determination of the economic activities, the employment and the economic growth (Ibid, p.585). The errors in the capital budgeting can be costly and disastrous for the keep going of the firm’s survival. Aside from that, the substantial loss for the firm can experience. The poor decisions in the capital budgeting can also be costly due to the large amount of money and the long periods that involved. If ever that the poor decisions in capital budgeting had implemented, the company can lose part or the entire funds that invested for the project and cannot realized the expected benefits. Additionally, there can also have the wasted action taken as in the supplier of the raw material while being harmful also for the competitive positions of the company due to its lack of efficient productive assets if the poor decision of capital budgeting is continued. The investment of the funds can also get problems when the workers are hired for the project which can lay off in failing the project and employment problems (Edwards and Maher, n.d., p.980).   3. The payback method is the simplest process for the determination of one or more primary ideas of project. This can also tell the period in taking it’s earn back of the money that can be spend in the specific project. On the other hand, there is certain disapproval in using this method whereas; it ignores the benefits that can occur right after the pay back period. In relation to this, straight payback method also ignores the time value of the given money (Toolkit Media Group, 2008). In general, the primary criticism for the payback method is that it is theoretically incorrect because it has no consideration in the given cash flows right after the payback period, the cash flow are also not discounted and ignores the time value of the money, and it is possible for the case of the payback period to be higher than the life cycle project. There are also serous errors which can lead to the incorrect decisions. This is particularly true if there are important net cash inflows for the years and after the substantial salvage value or payback period. The other error that can find is that it is correctable wherein several number of companies had modified the past undiscounted payback methods and to the discounted payback method (Lang, et. al., 1993, p. 64). There are also certain disadvantages which accounted in the payback method as it does not take the account of the cash inflows which can yield to the reasons that the true profitability for the project cannot be assess correctly. This method does not also consider the earnings of profit amount on the investment and after the recovery of the investment cost. It does not also take into the consideration of the cost of the capital which is an ample factor for making the decisions of sound investment. This method can also be difficult in determining the minimum acceptable period of pay back and it is primarily a subjective decision. The other disadvantage is the reason that it ignores the factor of interest which is very important factor into the act of investing decisions. It cannot also be avoided that this method can have the too much emphasis of the investment liquidity while ignoring the probability of investment and cannot be justified for the number of situations. This can also ignore the value of the money wherein the cash flows that had been received for every year are equally treated. Lastly, it does not take into the account of project life and the scrap value, depreciation, interest factor, etc. (Chand, n.d., p.586). There are also some of the reasons wherein the businesspersons still using the payback method is because it is easy to understand and most want to have the efficient and simple method. Aside from that, it is also useful method for the quick screening for the candidates inside the process of selection wherein it is usually use in the government and in industry for the investment of short-term which relates to the replacement and to the in-house or improvements. This can also serves as the rick indicator as in the desired short paybacks so that it can ease the forecast of cash shortage. With this regard, most of the managers are aware on the future as well as the reason which in favor of the payback periods and most of them are comfortable with the payback of two-three as compared to longer that four paybacks. This also saves the cost when it requires the lesser times as well as the labour when it is compared to the other method. This can also reduces the loss with the aide of obsolescence which can be more suited for the developing countries. Most of the managers also say that it is useful for the concern of the short cash and it is also eager in getting back nto the cash of invested project of capital expenditure. With this method as well, the estimates can be reliable in the results and can also be accurate with the use of the cash flows (Lang, et. al., 1993, p. 65).   4. The term expropriation can have to take the different forms. This can include the imposition of the state for the extensive restrictions on an effective control of foreigners regarding the property. This can also have the deprivation of the interference with the intangible property which includes the contractual rights and the shareholders right which has the decisive significance to the context. The expropriation is basically the action of the government that can take away the private business from the owners or its direct way so that it can threaten the security of the property right as well as to dampen the incentives for the productive investment. This is also occurs when the countries have the property laws which are not well defined and concrete. The expropriation is also considered to be the political risk that involved in the foreign direct investment. This is also characterized by the confiscation of the foreign asset and the payment of pittance. The expropriated business also is quite established and successful and not highly risky for failing. On the other hand, the expropriation can also warrant for reasons as the peculiar in the entity of local government (Baker, J 1999, 165). For any foreign investment, there are commonly vulnerable to the types of the risks which are the political and currency risk. These are the variations of the project which generated by the exchange rates and the economic, political, and organizational particularities of the host country. For the foreign direct investment, the expropriation is considered to be the most dramatic form of political risk though there rare in the threat of the major risk in the process of the capital budgeting. Parts of the risks in the expropriation of the foreign investment are the value of the investment itself, the volatility, and the expected growth. The expropriation of the cost of firm greatly depends on the government perceives the costs that it incur if they choose to exercise the expropriate option. This risk is also depends on the uncertainty of the endowment of host country regarding its management skills and to the number of foreign firms in the host country. The host government’s stability and attitude toward the foreign investment is the most important considerations in the decisions of investment (Hotel Online, 1999). The political risks as well as the commercial risks are of the normal scenario in the process of corporate decision making for invested of the companies abroad. Nevertheless, there are certain points in handling these risks such as the better understanding for the investment environment and the appropriate and effective risk management. In this manner, there can have the great opportunities for the investors in making both productive and profitable investments which can also benefit the people in the development of the world. Additionally, it can also be measured on the rate of return of the investment. Part of the risks also is the inadequate regulations, failure of the enforced law, the poor ownership rights, limitations of the repatriation for the funds, and the exchange of the control restrictions. In this regard, it requires therefore the good management and the good assessment for the non-commercial risks when considering the long-term investment. In this manner, for the safety of my investment, I can use the political risk insurance which is an important instrument for the financier and the investors which can be available for the private and public entities. This can also protect the investors to the politically motivated acts or to the governmental actions which can affect the project’s viability. This can also alleviate the risk of the country which make the country neutral and can minimize the cost of financing and secured the project financing. It is also important to avoid the undertaking of the investment which is difficult to reverse or it requires the higher rates of return for the compensation of the extra risks (FDI Magazine, 2008).   5. The mergers and acquisitions is the general tern that had used in referring the consolidation of the companies. The merger is simply the combination of the two companies in forming the new company. On the other hand, the acquisition is the purchase of the company through another wherein no new company is being formed (Investopedia, 2008). The acquisitions are rarely delivering their value added wherein it expected because it exclusively sustainable and can maintain the competitive advantage value upon inhibiting entry. The controls of the bars, with trying the arrangement and the direct ownership, denies the ready access of the entrants, new geographical market entry, and the increase for the sunk of entry market. Therefore, the new entry can also occur with the joint venture, and the ability of the entrants in undermining the added value for the incumbents. According to the study Millman and Grey, the 83% of the mergers are producing mo benefit for whatsoever while the Sirower determined that the 60-70% of the acquisitions failed to produce the positive returns (Kay, 1993, p146).  In reality, it has been determined that the medium term which is less than the half the mergers and acquisitions are doing the add value. This means that the shareholder that plans to buy will be richer at the end and the shareholders of the purchasing company is seldom. The other reason also which lies to the failures of integrating the two companies right after the merger is the intellectual capital that often walks out in the door if ever the acquisition are not being handled carefully. The other reason is the traditional practice wherein the delivery value of the acquisition are better services and products when they allow the market power and the scale of economies in the learning of the new firms and in the market. This also came from the idea that the performance and value of the two companies that are merged are greater than the sum of the separate parts of individual (Mc Graw Hill Corporate Finance, 2005). As the general conclusion, the mergers usually fails to deliver the promises of the synergy and efficiency as well as delivering the seldom creation of value for the stockholder of acquirers. The synergy therefore will imply that the firms’ combination will be profitable or can have the ability to grow faster in its rate right after the merger as compared to its separate operation. There are also the reason of unexpected defection of the high customer, poor predictions regarding the market growth and the realities of competitiveness, and the entire optimistic prospects for the selling of activities (Damodaran, 2004, p. 331). Credit:ivythesis.typepad.com

The Investment Decision Making

1. The calculations for the net present value can be use for the decision-making in order to select the capital investment. This is also ...

AN ANALYSIS OF ONLINE PRIVACY AND DATA PROTECTION MEASURES IMPLEMENTED BY THE EU AND OTHER COUNTRIES

I.        Introduction Information equates to power, as the age old maxim goes. Amassing a considerable amount of information will essentially lead to having the equivalent amount of power. The problem in this regard is that the ones who, more often than not, end up in a disadvantage are those who are subject of that information. Decades before, it has been shown as one of man’s greatest fears. Images of the all Seeing Eye and Orwell’s account of Big Brother manifest these deep seated fears. In this day and age, everyone has access to a considerable amount of information. However, there are some who have the propensity of using this information for unscrupulous ends. As seen in the account of Orwell, those who amass this amount of power will most definitely use it for oppressive means. It is in this instance where issues of information security, data protection, and online privacy emerge.   With the technologies that society possesses and the interconnectivity that it tenders the public, claims of the death of privacy surfaces. To a certain extent, there is some veracity on the claim of having no privacy nowadays. However, this does not mean that society can’t do anything about it. Specifically, there are technological and legal means that could protect information from falling to the wrong hands. This paper will be looking into the means on which privacy is protected. In the same manner, an examination of other regimes will be provided to show the specific actions carried out in different settings.       II.      Definition of Privacy Social sciences have characterised man as a social being. Interaction and communication are said to be inherent traits of a person. It is the foundation on which communities and societies are built. So much as man has an inherent need to intermingle and build a network with his/her peers, so is his/her need to exercise his/her “right of solitude or the right to be let alone.” This right is collectively known as privacy. Studies have claimed that it is a type of civil liberty which every single individual is entitled. Some studies even intimated that the individual needs privacy in order for him/her “develop a sense of self.” This is important because having a sense of self tends to prevent the state from manipulating the behaviour of the public. However, invasion of privacy is a very real issue nowadays. The access of the government and business entities has been reportedly taken actions tantamount to the intrusion of the privacy of people. Moreover, this is exacerbated by the emergence of internet and computer technologies. Though the communication between individuals has considerably improved, certain privacy risks materialised into the fray. Even business transactions through the online means has become rather commonplace in today’s society. Nonetheless, convenience, interactivity, and ease of communication have a high price. In any transaction or activity made in the web, people are required to disclose some information. The problem lies on the security of this information. There are instances where this data is used for illegal means. Bainbridge sums it all up when he claimed that privacy rights can be compromised by the unauthorised access to the personal and private information stored in information systems regardless on whether consent is given or otherwise. III.    Protection of Privacy: By Using Technology Privacy has become an “elusive concept.” Nowadays, no one is safe as invasion of privacy has taken so many forms and methods as provided by advancements in technology. The tone of the discussions above imply that emergence of new technology has compromised the right to privacy of individuals. This idea has been reflected in the recent work of Vilasau claiming that as new technologies materialise the individual’s right to privacy will essentially gain higher risks. It was mentioned that in instances that people access the internet, they leave a trail. This trail could include the user’s name, address and even sensitive access numbers on financial accounts. These set of data are said to go through the process of storing, controlling, cross-referencing and consequently exchange through the internet. With this bulk of information open for access, it is apparent that technologies have made significant threats on the safety and security of the private information of the public. The following discussions will be pointing out the courses of actions taken to use technology as a means to limit the possibility of invasion of the right to privacy. A.    Privacy Enhancing Technologies Privacy enhancing technologies (PETs) are merely one of the many aspects of technology that assists in securing information and maintaining privacy for the public. In the study of Wright (2007, 1) he mentioned the importance of PETs in keeping sensitive information secure and how the European Commission (EC) have taken strides to help develop these PETs in the region. The idea of PETs is far from being a new concept. The said concept has been floating around as long as ICT has flourished in the recent years. The EC defined PETs as ICT “measures that protects privacy by eliminating or reducing personal data or preventing unnecessary and/or undesired processing of personal data, or without losing the functionality of the information system.” This means that PETs are employed to keep technologies from collecting personal data and induce a certain level of strict compliance with an established set of rules and regulations geared to protect the data. In the article of Wright he also mentions that the implementation of PETs would be useful so as to complement the existing regimes of data protection and security. The EC have taken steps to make this initiative implemented all over the region. Thus, in Europe, PETs has consequently been a part of the regulatory framework that protects the public from invasion of privacy and other crimes against their right to privacy. The following discussions will be discussing several types of PETs that are available at the disposal of any state government. In the same manner, a description on how they help in the protection of data and privacy will be given and eventually be the basis of this study’s analysis.   B.     The Potential of Encryption The process of encryption is normally used to protect information that are stored in a computer and data which are sent out using the web. On account of recent literature, encryption is normally equated to an instrument of security. This is mainly because it is used as a means to protect sensitive information from unauthorised access. There are studies that have indicated the effectiveness of encryption tools and software in protecting data. However, one must realise that encryption alone would not be a sufficient instrument in battling all forms of privacy invasion techniques. This form of PETs is rather important for huge corporations whose correspondence are often classified and normally includes certain trade secrets. Thus, to protect these secrets, complex encryption software is employed by numerous companies. This is especially true in the financial sector. With the development of online banking and the countless amounts of transactions done online, encrypting these data is imperative to protect the welfare of their consumers. One great criticism of this process is that the entire procedure is cumbersome. It fails to provide a more convenient and efficient way to use. There are numerous inexpensive and even free encryption software available at the disposal of the public. However, the knowledge of such existence or which encryption software works the best remains to be the primary hurdle of its effective use. This hurdle is also manifested in the inability of most of the users to operate specific types of encryption software. In the end, instead of using them, they end up being overlooked and totally disregarded. Correspondence thus takes place explicitly with its contents open to anyone who has the skills to access it.     C.    Managing Identity: Platform for Privacy Preferences (P3P) Another means of protecting data is called platform for privacy preferences or P3P. It is a format for online policies involving privacy concerns that are readily understood by the common computer. It is compiled by the World Wide Web Consortium (W3C) in 2002.. Basically, this is a means of protecting the users who access sites for e-commerce. In the application of P3P, the user is able to specify his/her own user setting to protect his/her private information. Some of the existing internet browsers in the market have instituted the P3P functionality in their software. The problem is that the applications imposed in these softwares are not comprehensive. At the most, it could carry out programmed processing of cookies and display privacy policies.  In the same manner, the user is also given the liberty to choose the level on which cookies are automatically blocked. In the same manner, there is also the possibility that P3P could improve the privacy policies of new jurisdictions which essentially have gaps in their policies. It could also be used to monitor the compliance of sites in jurisdictions where P3P are the standard privacy levels. In any case, the implementation of P3P permits the users to be aware of the privacy policies without combing into the entire site. The main criticism in this application is that it is too complex for the common user to comprehend and even use. For instance, the average user does not know how to activate the default P3P settings in their PCs. Furthermore, the policies made by the W3C do not have enough bite to make the websites comply with their terms.[1] These also mean that there is the possibility that non-compliant sites may not be accessed by the users with P3P as their sole privacy security.   D.    Automated Tools on Privacy Instituting an automated privacy audit will also help a particular individual or company to protect its data. Nonetheless, this method does not actually enforce policies or even provide a definite protection for the data. These technologies are present to give the user assistance and allow them to be acquainted with the flow of information and the practices that comes with it.  In addition, this measure will be able to make companies aware if they are complying with the policies enforced unto them like those P3P policies. Knowing the level on which the company’s course of information allows them to adjust to the prescribed standards given by the policy. In the same regard, it would also be handy in keeping its operation within the prescribed criterions of their respective policies. The main problem seen in these types of application is that it does not provide a comprehensive audit on which the company requires. This equates to the fact that the review of the flow of information in the company will be limited. Given that information flows everywhere, either within the confines of the company or even outside the reach of a tracking system, it is understandable why there is yet an audit tool that could effectively monitor the overall information in a company.     E.     Downfall of Spam-a-lot One of the most common, and arguably most annoying, methods of invasion is through spamming. With the obvious effect of congesting the email accounts of users, it is also a way to advertise among web-based retailers. The problem in this context is most of the time their products are explicit and somewhat offensive. It is also described as one of the most dynamic means of invasion of privacy, which regrettably has only one way of addressing it: spam filtering. However, there is no all-encompassing spam-filtering programme that could be used for users. Spammers find a way to bypass any barrier or filtering programme that are placed in their way. There are attempts to create a super-filter but developers are still yet to come into grips with the practicality of the application.     F.     Cookie Monsters Cookies are often used by websites for authentication purposes. For instance, online stores like Amazon.com tend to use cookies to verify the location of the users of their sites. However, there are risks in this method as the stored information could be used for unethical means by other individuals. This is the reason why cookie cutters are created. These are utility programmes that make browsers steer clear of any form of exchanging cookies.     To date there are several means of managing cookies though cookie cutters. There are some that obstruct all cookies from exchange. There are some programmes that are calibrated to block certain types of cookies. Aside from blocking cookies, these programmes are also useful in sending sensitive information and block pop-ups or some other banner ads that could be irritating. Normally, these programmes are free. There are some web browsers that have incorporated their cookie cutters in their systems which displays how easy it is to use. The main issue is seen in the user as some may not be aware on how to activate these programmes in their respective PCs.    G.    Anonymity One of the ways that privacy and data are protected is through anonymity. Recent improvements in technology have introduced internet anonymizers. These are applications that help users in keeping their identity under wraps as they go online or send correspondence on the net. The application works by limiting the possibility of an IP address being connected to a particular user as he/she uses web applications. Anonymizers often work as proxies to cut off the recognizable data that could identify the user. Though this process tends to be cost-effective, the issue of trusting a third party as proxy tends to show signs of high uncertainty. This may well be the troublesome element found in this type of PETs. However, more advanced anonymity services, to deal with the uncertainty issue, totally taken third party proxies out of the equation.  They operate independently but studies show that their services tend to be rather costly making them viewed as impracticable money-wise. All in all, this type of PETs allows the user to guarantee that none of his/her personal information is given in the web. This also shows that the end users have a pre-emptive means of protecting their data and privacy. H.    Promise of Cryptography Arguably, one of the most effective and widely used PETs is cryptography. Basically, the principle behind this process is by reducing the need to acquire information.  In this manner, the less information required and given in a particular transaction or correspondence, the lesser possibility of other people invading others’ privacy and personal data. This process is normally seen in sites that engage in e-commerce with the reliance of electronic currency to complete the transaction. These are also used simultaneously with anonymizers to ensure that the limited information provided is secured.  This is also considered as one of the more seasoned PETs in the market. However, it has been observed that its use has yet to be embraced by a good number of organisations. One interpretation is that businesses shun this application because they could earn more profits with more information from their customers. Normally, these data are used to determine the overall behaviour of the market.  On the part of the financial institutions, they tend to discourage the use of encryption techniques as it works to their disadvantage. Specifically, these applications limit their ability to keep track of clients who owe loans and mortgages.. For credit card companies, they tend to place importance on the information provided by the clients like the reflections on their purchases or their respective billing addresses. I.        Subconclusion The discussions above have manifested the potential of PETs as a means of maintaining privacy for individuals. This shows that to some extent, the public is able to protect their privacy and personal data even in the emergence of a highly technological and internet-driven world. However, it must be emphasised that with the potential of PETs to protect, it could also be used as invasive tools as well. To prevent this, a balance between the application of these PETs and the complementing policies should be achieved. The following parts will be taking these regimes and individual policies into consideration. IV.   Protection of Privacy: Through the Privacy Regime As mentioned in the earlier part of the paper, the right to privacy is essentially a civil liberty. This means that the right of a person to be left alone is backed up with some legal foundation. In the case of the Europe, there are several directives that deal directly with the protection of privacy. These regimes often cover both national and regional applications. The following discussions will be focusing on the laws being implemented in UK and the European Union in terms of data protection and securing privacy. A.    European Convention on Human Rights (ECHR) The European Convention on Human Rights (ECHR) has been one of the instrumental laws in shaping the legal framework for rights to privacy. Specifically, the ECHR claims to an individual’s right to privacy in Article 8. It states that “ 1. Everyone has the right to respect for his private and family life, his home and correspondence. 2. There shall be no interference by a public authority with the exercise of this right except such as is in accordance with the law and is necessary in a democratic society in the interests of national security, public safety or the economic well-being of the country, for the prevention of disorder or crime, for the protection of health or morals, or for the protection of the rights and freedoms of others.   In UK, this is infused in the Human Rights Act  1998 which focuses on the general entitlement of an individual to his/her own privacy. In the study of Benjamin he mentioned that the act compels the state to establish legislative measures to ensure that the privacy of the public is precluded from any form of interference.. However, the Act also mentioned that there are exemptions on which this right could be displaced: in accordance with law; legitimate objectives; and if it is necessary in a democratic society. The first category indicates that the interference of the state on private matters should be based on established legislations and laws. This means that for an act of state or law enforcement to be legal, they should comply within what is written and prescribed by the law. In the case of legitimate objective, elements like national security, crime and disorder, morals, and other civil liberties should be in imminent danger of being applied. Basically, this means that a matter should first be subject to public interest and may compromise the social order before the states interfere with private lives. In all of these, the ECHR also pointed out one, and probably most important justification of infringing one’s right to privacy is the indispensable nature of the interference. In the case of UK, these requirements of privacy are all detailed in the Human Rights Act 1998 which similarly points out the role of the public authorities in the protection of a person’s rights as maintained in Article 8 of the ECHR. In Article 6 of the Human Rights Act 1998, the authorities of the state are mandated to act in compliance of the claims of Article 8 of the ECHR. The need of the state to comply with the obligations under the ECHR rules and concurrently operate effectively as an authority of the state is manifested in the Regulation of Investigatory Powers Act 2000 (RIPA). In Section 1(5) of the said law, it states that “ Conduct has lawful authority for the purposes of this section if, and only if (a) it is authorised by or under section 3 or 4; (b) it takes place in accordance with a warrant under section 5 (‘ an interception warrant’ ); or (c) it is in exercise, in relation to any stored communication, of any statutory power that is exercised (apart from this section) for the purpose of obtaining information or of taking possession of any document or other property…”    This means that the state could also establish some level of control in the World Wide Web in terms of protecting personal data and ensure privacy protection. Benjamin called it as a measure of progress in the context of surveillance as a whole.  In the same manner, cases like the R. (on the application of NTL Group Ltd) v Ipswich Crown Court[2] have also taken strides in protecting the privacy rights of the public. This case basically sealed the requirement of authorization for any act that will infringe the right to privacy of a private person. Thus, the state or any other non-state body has been precluded in carrying out initiatives in a random manner, especially if the said act infringes the rights of the person.   B.     Privacy and Electronic Communications (EC Directive) Regulations 2003 (Collecting personal information) One of the more recent developments in protection of privacy in the EU is seen in this Regulation. This was ratified in 2002 and adopted for transposition in 2003. Basically, this Regulation covers not only those carried out though telephone class and services, it covers the entire ambit of electronic communications. This Regulation is an improvement from the earlier Telecommunications (Data Protection and Privacy) Regulations. In the new Regulation, it covers new technologies like SMS, internet messaging, and even mobile communications. In the same manner, the use of cookies has been covered by this Regulation. Specifically, it provided the website controller a standard on which cookies are allowed to be used to identify the preference of a user. The ratification of this Regulation has affected the areas of direct marketing, specifically through online means and through the telephone. As Regulation 22(2) of the Regulation indicates, transmission of unsolicited marketing is barred unless the user has responded his/her consent in the matter. C.    Directive 95/46 on the Protection of Individuals with Regard to the Processing of Personal Data and the Free Movement of Such Data This Directive was implemented in 1995 to protect the personal data of the citizens of member states. In this piece of legislation, personal data is characterised as   In looking at the definition provided, it appears that the directive has given a considerably broad definition of the term. In its simplest sense, a personal data exists when another person in able to connect a set of information to a particular individual. Basically, the directive states that the personal data of an individual should not be, in any way, processed. This indicates that any operation that is tantamount to the use of the data for storage or dissemination is barred from any individual in EU. However, there are conditions on which personal data could be processed. These conditions include transparency, legitimate purpose, and proportionality. In Article 10 and 11 of the said Directive, it encourages the controllers of the data to inform the individual that his/her personal data is being processed. This also indicates that it is imperative that the controllers of these personal data should ensure that the process comes in a fair course. In the instance that transparency is satisfied, the data subject is allowed certain rights. As indicated in Article 12 of the Directive, the data subject is allowed to rectify, delete, and block the data that are being processed inaccurately or in total contrast with the data protection regulations provided by the state.   In addition, Article 6 of the Directive also indicated that personal data could be acquired if there is a legitimate purpose. Specifically, these set of legitimate purposes may well be reflected from the standards set by Article 8 of the ECHR. In the same manner, any person or organisation is not permitted to veer away from these set of legitimate purposes. Lastly, the requirement of proportionality is reflected in several stipulations in the Directive. For instance, Article 6 maintains that that state have the responsibility of installing the appropriate safeguards for personal data. This Article specifically points out to those stored for scientific or statistical use. On the other hand, certain restrictions are added in instances where personal data are classified as sensitive. These include information informing the political orientation, religious beliefs, or race among others.   D.    Data Protection in other Countries The initiative pertaining to the protection of privacy is a universal occurrence. This is not limited to huge economies alone. The following discussions will be focusing on the initiatives taken by Spanish and Malaysian governments in protecting the personal data of their constituents.   1.      The Spanish Experience The protection of personal data in Spain is manifested in numerous state legislations. However, it is important to point out that the main element of the right to privacy of Spain is based on Article 18.4 of the Spanish Constitution. Specifically, this part of the Constitution intimated that the state “shall limit the use of computerized information to guarantee the honour and privacy of all the citizens and their families and the full exercise of their rights.” The study of Vilasau has been very informative in providing information on how Spain protects its people’s right to privacy. In the study, it was pointed out that a distinction regarding the privately and publicly owned files should first be distinguished. Regulations have been established to readily know which type is considered private or public. The problem in this regard is that the law only establishes the individual rights of the people. Sanctions and consequent repercussions on its infringement are said to be inexistent.   2.      The Malaysian Experience In the study of Mazahir and Jawahitha (2006) they discussed the capacity of the Malaysian laws in protecting the rights of the public in terms of privacy protection. Their definition to the right to privacy is based on Art.12 of the United Nation’s Universal Declaration of Human Rights 1948 which claims that “no one shall be subjected to arbitrary interference with his privacy, family, home, or correspondence, nor to attach upon his honour and reputation. Everyone has the right to the protection.” Like the rest of the world, the individuals in Malaysia are also concerned for their personal data. In this regard, the state has taken the initiative to ratify several legislations that would protect the rights of the people. These include the “Computer Crimes Act 1997, the Digital Signature Act 1997, the Communication and Multimedia Act 1998, the Penal Code, the Official Secrets Act 1972, the Consumer Protection Act 1999, and the Banking and the Financial Institutions Act 1989.” All of the noted laws above are geared towards the protection of what Mazahir and Jawahitha called as e-privacy. As seen in the titles alone, it appears that the infringement of such rights in Malaysia is tantamount to a crime. This shows immense comfort for the public because these laws not only serve to protect their rights but also to serve as a deterrent for future violations. V.     Analysis The discussions above have shown that the measures taken to protect the privacy and secure the personal data of people, particularly in the European context. It has been observed that there are indeed specific courses of action that individuals could undertake to protect their privacy and personal data. However, the imposition of numerous laws and legislation that seemingly overlap tends to imply that individuals themselves do not want to use applications like PETs as Lloyd claimed in his book. This could be triggered by the lack of proper knowledge to operate these applications or mainly because they are too lethargic to protect their own privacy. To an extent, one could not blame the public if they tend to lack knowledge or be frustrated on these applications as they are indeed complex and as discussed above, overly cumbersome. This dilemma is realised by the European Union and its member states. The availability of technologies and the inability of the users to make the most out of it compel the EC to take action and establish laws that would compensate the elements lacking in the data protection in the region. As seen above, the directives imposed by the EC has consistently developed throughout the years. This shows that the EC is doing its best to keep up with the developments of technology and the consequent effects on securing the privacy of the public. The way this paper sees it, so long as personal data is a basic requirement in transactions, the need for complementing technologies and legislation is also required. There is much promise in the area of privacy enhancing technologies. However, these will never be effectively applied if the complement legal frameworks are not established.   VI.   Conclusion Securing privacy will always be a continuing battle for both the individual and the state. This paper sought to provide a reaction on the statement that claiming that privacy is dead. This paper begs to differ. Personal data will always be secure provided that the data subjects will continue to be watchful of their rights and carry on being vigilant of any possible infringement. Privacy will be secure to a certain extent provided that the end-users will be willingly gaining knowledge on the means of enhancing their own privacy through PETs. Though it may sound overly optimistic, there will come a time that PETs would be as user-friendly as any other applications related to online activities.   In the same regard, the member states of the EU should eventually find solace in the fact that their leaders and representatives are constantly finding ways to control and manage the flow of personal data through electronic means. Every time that a law relating to this area is ratified, it adds up to the overall security of the personal data of people. In the same regard, it established a firm and compelling support system for the public in the instance that their right to privacy has been infringed in any way. All in all, the future of an individual’s right to privacy lies on the capacity of the state to keep it safe from unscrupulous entities or at the very least ensure that proper justice is given once a particular person is aggrieved.     Credit:ivythesis.typepad.com

AN ANALYSIS OF ONLINE PRIVACY AND DATA PROTECTION MEASURES IMPLEMENTED BY THE EU AND OTHER COUNTRIES

I. Introduction Information equates to power, as the age old maxim goes. Amassing a considerable amount of information will ...