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Commentary By Mark P. Mills

It's a Terrible Time to Regulate Big Tech

Economics Regulatory Policy

A new Rasmussen poll finds half of Facebook’s users say they might bail out of that social media site because of privacy concerns. For Facebook’s detractors, there’s surely some schadenfreude. And its competitors sitting on the sidelines are doubtless salivating over the prospect of nabbing customers.

“The stampede of media coverage focusing on digital disruptions and the sins of Silicon Valley excess is fueling momentum for Big Regulation.”

At stake here, however, is much more than the site’s sloppiness or lack of transparency in using customer data. The existential threat that should worry us is the prospect of overreaction to revelations that an outfit called Cambridge Analytica manipulated Facebook’s loose rules of the road -- following a playbook pioneered by Barak Obama’s supporters -- in an effort to help Donald Trump win the White House. There’s a lot not to like about that “technique.” But what will be worse is if these would-be reformers pressure Congress to “do something” not just about Facebook in particular but about Big Tech in general. 

The stampede of media coverage focusing on digital disruptions and the sins of Silicon Valley excess is fueling momentum for Big Regulation. Bill Gates, among others, has warned that current behaviors are a path to government intervention. Another recent, poll, this one by Reuters/Ipsos, shows that almost half of Americans want more government regulation of tech, while only 20 percent do not. 

We’ve seen this movie before. A radically new technology — rail, electricity, aircraft, radio, telephone — yields products and services embraced by consumers, spurring economic growth and conferring wealth and status on new captains of industry. Then, as older industries and social conventions get disrupted, discomfort replaces admiration of the new industries’ often arrogantly paraded market and political power. Congress soon swoops in to fix real and imagined ills with intrusive regulation.

Had Benjamin Franklin lived today, he might have modified his iconic aphorism to read: There are only three things inevitable in life: death, taxes, and regulations. But the unintended consequence of Big Regulation is that regulatory lock-in preserves the monopoly status of the big players of the moment. Historically, corporate titans initially equivocate, but end up acquiescing to, if not encouraging, federal oversight. Big players can afford the lawyers, compliance teams, and lobbyists needed to take advantage of a regulatory regime that conveniently suppresses smaller competitors. 

Meanwhile, competition and innovation are stifled, progress is hobbled, businesses are destroyed, and others flee overseas. That’s why, after decades of stultifying command-and-control, each of the industries noted above was ultimately deregulated. Who believes the telecom revolution would have happened without the deregulation of Ma Bell in 1984? 

This is a particularly bad time for the heavy boot of government to come down on tech. America’s on the verge of a computing and communications transformation as monumental as was the shift from mainframe to smartphone or from copper wire telephony to the fiber optic internet. 

Today’s digital enterprises are mainly centered in information-centric activities, the easiest to digitalize — news, advertising, communications, entertainment, finance, and the like. Physical stuff, the world of atoms, is a much harder nut to crack. We’re in early days of algorithmic improvements infusing the hardware of our economy: food, factories, mines, power plants, vehicles, and hospitals, which collectively make up 90 percent of the GDP. Yet-to-emerge digital health-care, cyber-manufacturing, or virtual transportation companies will eventually reach Apple or Amazon scales because of sheer market size. 

Those new companies and the economic boom will come, history shows, mainly from new disruptors, not incumbents. Tomorrow’s giants are likely amongst the 100-plus top U.S. start-ups you’ve never heard of, so-called “unicorns” (apparently not that rare) by virtue of reaching an impressive $1 billion valuation. However, when it comes to public or political muscle, even the combined value of those 100 unicorns pales against the $1 trillion valuation each tech giant now approaches. Those 100 and the other myriad “invisible” entrepreneurs without clout in this debate will be collateral damage — along with the loss to our economy — with Big Regulation. 

We’re doomed to repeat history if Congress believes there are only two options for dealing with Big Tech’s infractions: federal oversight, or complete autonomy because the Silicon Valley elite are “making the world a better place. Consider: The railroads, which made America a better place, were about the same age as today’s Internet when Congress took control in 1887. There followed a century of destructive regulation before the Staggers Rail Act of 1981 deregulated and resuscitated that industry. 

Or: the electric industry, about the same age as today’s tech industry when, in 1935, Congress took control with the Public Utilities Holding Company Act. It didn’t matter that you could “live better electrically,” per the utilities’ slogan. Regulatory sclerosis remains, despite PUHCA’s repeal in 2005 because state regulators still have a firm stranglehold on that sector. 

Self-regulation is the only way to escape the prospect of crushing federal oversight of tech. Credible self-regulation isn’t autonomy, nor something any individual company can undertake, nor is it the fox watching the chicken coop. It requires an industry-wide, independent consortium, one with “teeth.” Ample precedents and case law, including Supreme Court decisions, provide guidance on structure. 

Key features of a meaningful self-regulatory organization (SRO) include involvement of all relevant private and public stakeholders. Also essential: transparent mechanisms for modifying or even adding rules to be adopted by government entities. Hybrids have standards originating on the private side, but coordinated with government entities in order to codify those standards and enforce compliance. 

Past SROs include privately developed technical compatibility or safety standards (e.g., boilers, electrical), medicine and the law (government endorsement of those passing a bar exam administered by peers). Even the environment has some self-regulation. Congress enacted in 1995 a voluntary policy that voids EPA penalties when businesses self-audit and report.  All are applicable to the new features of tech ecosystems. 

Self-regulation can’t fix everything. “Creative destruction” by definition entails some losers. And the Supreme Court long ago ruled that monopolies in themselves are not illegal. And there are adequate rules and remedies for conventional misbehaviors, none of which are avoided by an SRO. 

An earlier ground-breaking study “discovered” that self-regulation is in fact often inefficient, but less so than government regulation. Winston Churchill’s apocryphal aphorism about democracy’s flaws applies here: “Everything else is worse.” Surely today, though, the very IT tools causing disruption can be put to work to innovate a modern tech SRO with superior efficiency, collaboration and transparency. 

The biggest challenge remains the political gamble being undertaken by tech’s leaders. A recent Stanford University study of Silicon Valley “elites” documented the obvious. That community is far more aligned with Democrats than any other region of the country — the party, it bears noting, with an affinity for Big Regulation. Meanwhile, the same study found those elites heavily oppose regulations. It will be interesting to see how this circle is squared in today’s environment. 

So far we’re seeing a boatload of old-fashioned lobbying and PR. Meanwhile, the regulatory sharks are circling. It brings to mind one of the most famous lines in modern moviedom, “You’re gonna need a bigger boat.”

This piece originally appeared in RealClearPolitics


Mark P. Mills is a senior fellow at the Manhattan Institute and a faculty fellow at Northwestern University’s McCormick School of Engineering. In 2016, he was named “Energy Writer of the Year” by the American Energy Society. Follow him on Twitter here.

This piece originally appeared in RealClearPolitics