Don’t Underestimate the Government’s Ability to Make Tech Issues Worse

In the midst of a busy year-end schedule in Congress, the House and Senate have continued the near constant drumbeat of hearings about “Big Tech,” including a hearing on algorithms and potential harms in front of the Senate Subcommittee on Communications, Media, and Broadband. There are valid concerns about the harms that occur online, both with children and more broadly, but lawmakers should resist knee-jerk reactions. As Senator Mike Lee (R-UT) correctly pointed out, “the federal government’s intervention into these complex issues could, and probably would, do a lot of things to make these situations worse.”

There is a notion that the U.S. is lagging behind Europe and even China when it comes to regulating the technology sector. However, conflating more regulations with being technologically ahead is wrong, and it has harmful consequences for consumers and long term economic growth. Despite being one of the largest economies in the world, the European Union’s heavy-handed approach to regulation has created an inhospitable environment for technology startups. Meanwhile, it’s hard to imagine that China’s crackdown on technology industries is for anything but nefarious purposes. Congress can act proactively on issues like a reasonable federal data privacy standard, but it would be a mistake to assume the U.S. is behind simply because we aren’t similarly heavy-handed. Proof of that is available simply by looking at where technology companies are choosing to set up, staff, and grow their businesses.

With this novel sector of the economy, Congress has a unique opportunity to avoid past mistakes. For decades, politicians have promised to go to Washington and cut red tape, like President Trump posing next to a huge stack of paper to signify the bureaucratic complexity that arises from burdensome regulation. As NTU’s Thomas Aiello wrote on infrastructure regulations, the National Environmental Policy Act (NEPA) mandates that agencies consider the aesthetic, historic, cultural, economic, and social effects of proposed actions. While well-intentioned, these regulations have created so much bureaucratic complexity that it took three times as long to complete a NEPA study in 2011 than it did in the 1970s. With a new and dynamic industry, Congress should avoid imposing onerous regulations that have hobbled other sectors of the economy.

Burdensome regulations and complexity can significantly raise barriers to entry and insulate incumbents from new competition. Dr. Dean Eckles, an Associate Professor of Marketing at MIT Sloan School of Management, noted that the General Data Protection Regulation (GDPR), Europe’s data privacy regulations, led to increased consolidation. American Enterprise Institute’s Dr. Mark Jamison similarly warned that many of the “solutions” proposed by lawmakers would actually create monopolies where none currently exist. While lawmakers are eager to promote more competition, one of the best ways to do this is by keeping barriers to entry low for new competitors.

Unfortunately, in the rush to punish “Big Tech” there has been an alarming push for both more complex regulations and more discretion for enforcement agencies. In doing so, lawmakers risk making a dynamic market stagnant. Clear and reasonable rules can promote competition by allowing competitors to focus on consumers. However, some of the proposed legislation from lawmakers and the actions at relevant enforcement agencies threaten to create a regulatory minefield. Representatives Cathy McMorris Rodgers (R-WA) and Gus Bilirakis (R-FL) raised the issue of ambiguous and questionable decision making in a recent letter to the Federal Trade Commission, an agency that under Lina Khan has been notorious for its lack of transparency and willingness to undo clear bipartisan standards. Again, Senator Lee neatly summed up this point saying, “statutory ambiguity tends to lead to regulatory complexity. Regulatory complexity itself further entrenches incumbents.”

This hearing also notably demonstrated that while there is a general shared concern among lawmakers, their views on how the government should respond are extremely mixed. As Senator Lee warned about the dangers of making problems worse, Senator Ed Markey (D-MA) called for a ban on algorithmic processes because young, privileged, white men are profiting from it. This is the inherent danger of drastically increasing politicians' role in this sector of the economy. While calls for transparency, accountability, or general oversight from the government may sound benign, how lawmakers choose to address issues in the technology sector can vary widely. While the technology sector has issues that can be addressed through light-touch and targeted reforms, there is an inherent danger of politicians attempting to use the powers of government to enforce their own goals. Big Tech isn’t nearly as powerful as big government.

Consumers should never underestimate the federal government’s ability to take a problem and make it worse. As NTU Foundation’s Josh Withrow noted, the past is littered with dire predictions of companies which were supposed monopolies at the time but were displaced by new competitors. Regulations and bureaucratic red tape, once passed into law, are rarely ever rolled back. Lawmakers should proceed judiciously in approaching this novel sector without creating unnecessary barriers to entry that characterize other sectors of the economy.