Big Tech and the Dystopian Fears Undermining Sound Policy
Sens. Amy Klobuchar (D-Minn.) and Chuck Grassley (R-Iowa) have just unveiled their long-awaited draft American Innovation and Choice Online Act. If passed into law, the bill would effectively outlaw a wide array of common tech industry practices in which platforms favor their own products. This despite scant evidence that such practices are detrimental to consumers, that they prevent rivals from entering online markets, or that they harm innovation.
The pervading urge to regulate tech firms is rooted in doomsday scenarios that have almost no bearing on real-world costs and benefits. Often, debate centers on a mix of far-fetched claims — like fears that Big Tech is about to anoint dictatorial governments, eliminate free speech, or reveal your deepest secrets to the world — alongside more plausible, but unverified, assertions that tech firms stifle competition and innovation.
This conflation of tangible issues with dystopian fantasy is evidenced by the early pronouncements surrounding Klobuchar and Grassley’s bill. For instance, supporters declare that the “Senate must continue to reassert its power over the handful of men whose corporations undermine economic dynamism, eviscerate the free press, and threaten our democracy itself.”
In that sense, the senators join a long list of policymakers who have called for regulators to forestall “dystopian” fears about the future. Early examples include 19th century concerns about the power of “robber barons” and large corporations or 20th century alarms from groups like the Club of Rome about the effects of capitalism and population growth. More recently, skeptics have claimed vaccine mandates are a first step down a slippery slope to dictatorship or that gene-editing technologies could be weaponized by hostile actors, threaten food security, and magnify economic inequality. These doomsday scenarios have much in common with the fears being voiced about Big Tech. Not only are they hypothetical — and thus impossible to completely dismiss, because science cannot prove a negative — they also tap into the same deep-seated fears about humanity’s potential demise. Most tellingly, they are largely untethered from the actual costs and benefits of the underlying technologies.
The benefits of cost-benefit
While policymakers should not completely ignore fears about the future, it is critical that they address them in a sound and evidence-based manner, even where doing so means contradicting popular but misguided narratives. This can be done by sticking to the tried-and-true framework of cost-benefit analysis.
As its name suggests, cost-benefit analysis is rooted in the simple idea that decision makers should favor policies whose social benefits exceed their cost. Accordingly, hypothetical risks are only dispositive if their expected cost to society outweighs the associated benefits. For example, the threat of nuclear accidents should be weighed against the gains derived from clean and reliable energy. Cost-benefit analysis is thus antithetical to the sort of “precautionary principle” that is routinely invoked in, e.g., the European Union.
This sounds simple, but policymakers must contend with tremendous uncertainty. Literally every policy could have disastrous consequences. It is thus necessary to find a path that eschews reckless risk-taking without needlessly paralyzing society due to ungrounded fears of catastrophic harm. In that respect, an obvious starting point is to base policies on empirically verified claims, and to compare projected policies against realistic alternative arrangements. But all too often, that is not how things are done.
The global regulatory pushback against Big Tech — including the aforementioned American Innovation and Choice Online Act — neatly illustrates the pitfalls of dystopian policymaking. Indeed, there is sparse evidence to support claims that online industries are especially prone to market failure, or that regulation would ameliorate, rather than exacerbate, potential inefficiencies. Instead, this and other initiatives are merely driven by possibility theorems and highly abstracted theories, with lawmakers invoking the mantra that “we must do something” — a hallmark of dystopian policymaking.
In contrast, there is reason to believe that self-preferencing by platforms — which would effectively be outlawed under recent proposals — frequently benefits consumers. The market disciplines platforms who would try to force inferior products and services on their users. It would ultimately hurt the attractiveness of platforms’ core products, weakening them to competition from rivals
That is not to say that all is rosy. Every policy entails both costs and benefits. Antitrust law and tech regulation are no exception. Thankfully, antitrust enforcers already have the necessary tools to address these challenges.
The consumer welfare standard — antitrust law’s version of cost-benefit analysis — requires authorities and courts to weigh the pro- and anti-competitive effects of a practice on a case-by-case basis, reserving outright prohibitions for the few categories of conduct that systematically harm consumers. With this standard serving as the lodestar for competition policy, the United States emerged as the world’s foremost economic power, and a leader for innovation and startup creation.
Despite that, the consumer welfare standard also has become a focus for interventionist reformers who demand a more expedient stick to go after Big Tech. These include not only the senators and their counterparts in the U.S. House, but also recent administration appointees like Federal Trade Commission Chair Lina Khan and White House adviser Tim Wu.
Ironically, in seeking to address their fears about a hypothetical dystopian future, they would abandon the tool best-situated to protect consumers and competition. Their proposals are paradigmatic examples of a cure that is worse than the disease.
Perhaps it is already too late to avoid tech regulation and save the consumer welfare standard. But there is at least a lesson to be gleaned for future policy initiatives. There will always be critics peddling doomsday scenarios to achieve their idiosyncratic preferences. Evidence-based policy is the best shield against these regulatory whims.
Dirk Auer is a senior fellow with the International Center for Law & Economics, where his work focuses on the law and economics of antitrust, with an emphasis on innovation policy, digital markets, and European competition law.
