No New Tech Bureaucracy

No New Tech Bureaucracy
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“Big tech” has become a favorite bogeyman of both the left and the right. From calls for more aggressive antitrust enforcement to proposals to break up increasingly powerful tech players, many Republicans and Democrats seek a move toward European-style tech regulation. But of all the things the United States needs right now, this type of bureaucracy is not on the list.

In some cases, domestic fears over the path of technology have led to pushes for a powerful new federal agency. Academic critics have floated a variety of new laws and programs, including an “Artificial Intelligence Development Act,” an “FDA for Algorithms,” a “National Algorithmic Technology Safety Administration,” and a “Federal Robotics Commission.”

In the latest example, Tom Wheeler, Phil Verveer, and Gene Kimmelman recently released a study for the Harvard University Kennedy School’s Shorenstein Center that proposes creating a new federal consumer protection agency charged with regulating big tech companies. They argue that our existing regulations and antitrust enforcement mechanisms are insufficient in dealing with the problems of the digital age, so we need a “new Digital Platform Agency” to ground this emerging sector in “public interest expectations.”

However, there are major problems with virtually every layer of these arguments. The latest proposal — much like some others — might as well have been titled “Let’s Be More Like Europe.” It recommends a new regulatory paradigm that would crush U.S. technological innovation, just as the European Union has done with its heavy-handed mandates on digital entrepreneurs.

Schumpeterian Change Continues

Proponents of cracking down on big tech seem to misunderstand the dynamic nature of the digital marketplace. The Kennedy School study’s main assertions assume that “[t]he digital market is characterized by a tendency to tip toward market dominance and an absence of competition that results in consumers, innovators, and the users of digital information being harmed.” But that’s not in the least bit true.

Just think about how companies like Uber and Lyft upended the decades-long stranglehold that the taxi industry had over local transportation. Or how Airbnb completely changed the way we think about the hospitality sector. Remember Blockbuster Video, the once-great and overwhelmingly dominant video rental chain? Antitrust regulators investigated its supposed market power, only to watch it quickly crumble under Netflix, Hulu, and Direct TV’s innovative approaches to video consumption.

No matter how strong and powerful they may have seemed, the biggest players of yesterday continually become the has-beens of today. Friendster was displaced by Myspace, which was displaced by Facebook. AOL was displaced by Yahoo, which was displaced by Google. Though it may seem antiquated today, there was a period when everyone was talking about how to break up the IBM monopoly, even though marketplace developments took care of that for us for us.

Time after time, the digital marketplace has served as a source of displacement, creative destruction, and dynamism, not stasis. All of this has led to better products and services for consumers at a lower price, often at the expense of entrenched competitors. All of this was done in the context of a light-touch regulatory environment that largely took a permissionless approach to innovation.

The irony is that many of the people calling for more regulation, at least partially and perhaps unwittingly, recognize the incredibly disruptive power of the digital marketplace. The authors of the Kennedy School study specifically highlight how “[t]he 21st century has seen digital technology restructure economic activity and marketplace behavior. Fifty-two percent of the Fortune 500 at the turn of the 21st century no longer exist. In 2000, GE, Cisco, ExxonMobil, and Pfizer, were four of the five most valuable companies in the world; by 2019 they had been replaced by Apple, Amazon, and Alphabet (Google) with Facebook charging hard at number six.”

Yet, they go on to argue that “[c]ontinuing to rely on a handful of dominant digital companies to not only make the rules but also drive the economy can no longer work” and that “[t]he government, as the representative of the public interest, cannot be a spectator to this new economy.” Similarly, many Americans seem to forget how easily consumers have been able to move on to newer and better tech platforms over the past few decades.

America Already Has Plenty of Regulators

Defenders of creating a new federal agency say that we need a regulatory body that will be “agile enough to handle the oversight of data abuses and gaps in competition policy.” But America already has two different regulatory agencies overseeing competition and antitrust policy issues: the Department of Justice (DOJ)’s Antitrust Division and the Federal Trade Commission (FTC).

Are we to believe that adding yet another major federal agency to this mix will somehow lead to more innovative outcomes?

The authors of the proposed Digital Platform Agency (DPA) claim that it “should not duplicate the activities of sector-specific federal agencies” like the FCC, and that it should supplement DOJ and FTC powers. Yet, in the same breath, the authors advocate the DPA should have the authority to enforce “duty to deal” mandates and amorphous non-discrimination requirements to end “bottlenecks to competition” and “other abusive practices.” In other words, it will have antitrust powers!

Incidentally, if those existing regulatory agencies are not doing an adequate job when it comes to the digital marketplace, why not propose eliminating them or curtailing their power first, before creating yet another giant federal bureaucracy? The authors claim the new agency is needed because it will have “digital DNA,” — whatever that means — as opposed to an analog-era outlook and focus. But if older bureaucracies only have “analog DNA,” then why not sunset them — or at least limit their control over fast-moving digital sectors — if they’re not in line with modern, technological, and marketplace realities?

The authors even admit, “the argument that the existing industrial era hierarchical rules-based regulation is inflexible has validity.” Yet, instead of proposing reforms to existing laws and agencies, they just proposed more: more law, more regulation, and more bureaucracy. Asking innovators to navigate a labyrinth of multiple sets of federal regulatory restrictions is a recipe for suffocating, not promoting, technological dynamism.

In fact, their proposed agency has a somewhat ironic acronym because it conjures up thoughts of the European regulatory system, which is replete with a variety of overlapping regulatory authorities, some of which are known as DPAs, meaning “Data Protection Authorities.” Every EU member state has a DPA. European officials are quite proud of their DPAs and the corresponding reams of regulatory requirements imposed on digital companies, so much so they seek to enforce it extraterritorially. Of course, that’s because the EU’s burdensome rules have decimated European entrepreneurs and made home-grown innovation a nightmarish challenge.

Reject the European Model. America’s is Better.

Critics complain these approaches are mostly reactive, instead of proactive and prohibitionary. But what they fail to realize is that this is a feature, not a bug, within the U.S. legal system. The American approach gives entrepreneurs more breathing room and ensures that innovation is innocent until proven guilty. By contrast, preemptive restraints on digital entrepreneurs are like a giant political red light telling creative people not to innovate until they’ve sought and received a permission slip from a variety of different agencies. Worse yet, technocratic regulatory agencies are often easily captured by incumbents that thwart new entrants and inventions.

It’s ironic that proponents of a new tech agency argue that it will facilitate “American dynamism,” when in reality, it’s likely to do the opposite. The United States shouldn’t seek to be more like Europe in this regard. American policymakers should instead suggest that Europe be more like us and stop persecuting some of the world’s most innovative firms. More bureaucracy is rarely the solution to anything.

Adam Thierer is a senior research fellow with the Mercatus Center at George Mason University. Trace Mitchell is a Mercatus Center research associate who focuses on technology and innovation.

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