The US should NOT have a digital regulator
AEIdeas
Sometimes we in the US import bad ideas from Europe. This has been the case with the EU General Data Protection Regulation (GDPR), which California is importing even though the GDPR is stifling tech development in Europe. Perhaps this is only fair since the idea of net neutrality regulation originated in the US, but the EU has largely adopted it, probably to the harm of its citizens.
The latest bad idea Europe may be exporting to the US is that of forming a specialized digital regulator. The UK is apparently moving this direction based on the recommendation of Jason Furman, who headed President Barack Obama’s Council of Economic Advisers. Bloomberg reports that the idea is gaining momentum in the US.
Here are three reasons why creating a digital regulator would be bad for the US.
Reason 1: Creating a US digital regulator would impose a flawed end-of-history paradigm on what has been a vibrant, forward-looking industry.
The stated responsibilities of a digital regulator include requiring current tech leaders to share elements of their big data systems with rivals and expunge or export personal data (whatever that is) upon request. Regulatory advocates say this is important because the leaders’ big data capabilities constitute an insurmountable competitive advantage.
But this assumes we are at the end of history for digitization; that is, nothing more can be done to create new value. This ignores what neuroscientists and psychologists are learning about human cognition, what computer scientists and mathematicians are learning about distributed systems, etc.
As a simplistic cognitive system, big data is poised to be overtaken. But forced sharing of resources locks current big data strategies in place for an unnaturally long period by making it more economical for businesses to stay in the current big data ecosystem than to step out of it.
Reason 2: A US digital regulator would become a place for rent-seeking by government and industry.
With digitization spreading across all industries, a hypothetical US digital regulator’s jurisdiction would clash with that of just about every other government agency, including state and local ones. Federal agencies would probably form committees to resolve conflicts, slowing decision-making. State and local governments would find themselves in court over jurisdictional conflicts.
And industry players would battle for regulatory favors rather than for customers. So those with the best lawyers and lobbyists would win, not those with the best products, business models, and customer care. As the distinguished economist and regulator Alfred Kahn observed, in the inherent conflict between the creative destruction of the marketplace and the implicit regulatory mandate of an orderly industry, the regulations win and the market stagnates.
Reason 3: A US digital regulator would outlive its usefulness.
Professor Kahn also observed that regulatory agencies, like all institutions, find things to do and perpetuate themselves. Once a regulatory agency is formed, a system of institutions forms around it, which benefits from the agency’s continuation. Congressional committees form to provide oversight. Law firms develop specialized practices. Consultants and academicians become experts in the agency’s work.
The economic value of each declines if the agency disbands, making the system hard to dismantle. The Civil Aeronautics Board, which once regulated airlines in the US, is one of the few regulatory institutions to actually deregulate itself out of a job.
What should be done?
We should resist the end-of-history illusion: When we think that the future will be much like the present even though, when we look back, we see great change and upheaval. That we cannot see beyond the horizon does not mean there is nothing there.
US leaders should resist thinking like some European leaders who say they can bring order to the chaos of creative destruction. They cannot. They can stop innovation and change, but they cannot make it tidy.
(Disclosure statement: Mark Jamison provided consulting for Google in 2012 regarding whether Google should be considered a public utility.)
