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The Biden administration is inheriting a crisis in the regulation of technology, among other challenges the United States faces. While other policy decisions will surely have a more immediate impact on the economy and how it recovers from recent body blows, the new administration’s response to calls to restrain Silicon Valley’s disruptive tendencies could, in the long term, determine the ultimate course of several key industries.

The threat of greatly expanded legal oversight is particularly acute for the largest tech companies and software platforms, including Amazon, Apple, Facebook, and Google. But across the federal government, the new administration will be confronted with thorny questions about the technologies driving transformation in many other sectors — including financial services, health care, entertainment, logistics, transportation, and manufacturing.

Among them:

The answer to any one of these questions could alter the pace and trajectory of technology innovation. And the issue is not merely domestic. High-tech products and services are taking center stage in international trade disputes with key partners and competitors alike, notably the European Union, China, and Korea. As the information economy increasingly becomes the economy, some industrialized nations have turned to familiar but outdated tools to improve their competitive position against the U.S. — including tariffs, multibillion dollar fines, and other local protectionist policies.

How will the new administration navigate this tricky landscape? Given the broad range of technology disrupters and disruptions, is it even possible to develop a coherent approach, let alone one that carefully balances costs and benefits, many of which are unknown or incalculable?

The short answer is “yes.” And indeed, for many years the U.S. had such a strategy. The general rule, at least for information technologies, was to let new industries and competitors emerge and flourish unhindered by product-specific regulations, subject only to traditional backstops in consumer protection, unfair competition, occupational safety, and securities laws, among others. As key 1996 legislation put it, “It is the policy of the United States … to preserve the vibrant and competitive free market that presently exists for the internet and other interactive computer services, unfettered by Federal or state regulation.” Until recently, that “unfettered” policy was largely followed by both Republican and Democratic administrations.

Looked at one way, the past two decades of unfettered innovation have been the greatest success in the history of government policy, contributing significantly to profound value creation. Venture investor Mary Meeker’s “Internet Trends 2019” report notes, for example, that just the top 30 internet companies alone have a combined market valuation of over $6 trillion. Eighteen of the companies, most of which didn’t even exist in 1996, are U.S.-based. Even before the pandemic, U.S. adults were spending an average of three and a half hours a day on a mobile device, enjoying content and services that are frequently provided without direct charges. In the U.S. this year, unlike in Europe, robust internet service and software have made it possible for those who have access to broadband connections to go to work and school, get medical care, shop for food and other essentials, and entertain themselves from home, without interruption, when there was no physical alternative.

But that rosy view of disruptive innovation ignores the painful social costs of all that success — what economists would call “negative externalities.” These include the substantial decline of traditional retail, caused in part by lower-priced online competitors, as well as the impact on traditional transportation and hospitality businesses from gig-based digital alternatives. Misinformation, harassment, and conspiracy theories run rampant on social media. And as many as 40 million Americans still can’t get high-speed broadband service at home, leaving rural, older, and poorer communities disproportionately cut off from pretty much everything, including access to critical government services.

What’s more, there are troubling signs of emerging side effects being generated by all the data our expanding tech usage is creating, including algorithmic bias, digital redlining, and the monetization of consumer data through advanced analytics, or “surveillance capitalism.”

What to do? One solution, increasingly advocated by members of both major political parties, though for different reasons, is to abandon the hands-off approach and limit the development and use of revolutionary technologies. Doing so, however, could delay or even deny users of the potentially life-changing benefits of many of the technologies listed above.

And regulatory solutions often fail, sometimes making things worse. The cost of enforcing new laws may be high, far exceeding any benefits. As Nobel Prize-winning economist Ronald Coase argued in the most-cited article in economics history, “It will no doubt be commonly the case that the gain which would come from regulating the actions which give rise to harmful effects will be less than the costs involved in government regulation.”1

Regulation is not only expensive, it is often ineffective, thanks to the rapid pace of technology evolution, especially relative to the pace of enforcement. Who remembers that Congress “solved” the spam epidemic in 2003, when it made sending unsolicited email a federal crime? The CAN-SPAM Act is still on the books, largely ignored and almost certainly unenforceable, given the nature of the internet.

Overly broad legislation can also create new problems, some of them severe. Recently, the U.S. Supreme Court heard arguments in a case involving the 1986 Computer Fraud and Abuse Act, one of a few tech-specific laws Congress has passed. The law was intended to criminalize hacking and other computer security violations but was so poorly drafted that it has become the weapon of choice for prosecutors looking to punish behavior that, while distasteful, isn’t illegal, including violating a website’s terms of service. Based on the Justice Department’s interpretation of the law, everyone from cybersecurity researchers to employees posting on Instagram from work could be charged with a felony.

So how can we balance costs, benefits, and time when it comes to managing the impact of emerging technologies? How can governments encourage innovations that improve the quality of life, reduce inequity, and empower individual autonomy, yet still help us evade their worst excesses and unintended consequences?

My advice to the new administration is to start with what has worked, not just in the past few decades but over the past two centuries. That means, first and foremost, putting down the pitchforks and toning down the rhetoric. Policy makers must instead return to collecting real evidence and dispassionately weighing pros and cons before intervening.

Here are five basic principles that do just that:

1. Don’t regulate in haste. The worst time to change the law is in the middle of a crisis. There is neither the capacity nor the patience for sober analysis, or careful consideration, of how new regulations might conflict with existing laws and individual rights. In response to perceived failures to moderate political content fairly, for example, both Republican and Democratic lawmakers are calling for the reform or repeal of a law known as Section 230, which shields service providers large and small from direct liability based on user activity. But without Section 230, it’s doubtful that Twitter, Facebook, YouTube, Reddit, Yelp, or eBay could even exist. Likewise, calls to “break up” tech giants, notably the congenitally mismanaged Facebook, reflect emotion more than logic. Breakups wouldn’t help consumers. In fact, given economies of scale, the opposite is much more likely.

2. Let the technology regulate where possible. Disruptive innovation and traditional law operate on entirely different timetables. Innovation is fast; law, by design, is slow. Letting most technical and business problems sort themselves out based on self-regulation, best practices, and other forms of “soft law” makes for timelier and more efficient — if still imperfect — solutions. The best legislation establishes general principles and gives expert regulators the power to enforce them when necessary. That has long been the theory behind U.S. antitrust law, for example, which doesn’t even define monopoly but rather details the types of harms to consumers (not competitors) that can be considered as evidence of unfair competition.

3. Intervene only when the public interest is truly at stake. When tech-driven disrupters appear unexpectedly, industry incumbents — whether taxicab companies, brick-and-mortar retailers, or professional service providers — frequently turn to litigation and lobbying to slow them down or even get them banned. That’s especially true when the new entrants offer dissatisfied consumers substitute products and services that are both better and cheaper, speeding industry change. But there’s no inherent reason to save failing legacy businesses. Instead, policy makers should free them to compete in a transformed industry by adopting the same technologies, if they can. In financial services, for example, traditional banks are now embracing the blockchain and cryptocurrencies — technologies of which they were once wary.

4. Narrowly tailor remedies to measurable harms. When markets fail to correct for ongoing consumer harms, regulatory fixes should solve definable problems, using the least intrusive tools available. To do that, lawmakers first need to understand what the challenged innovation is and the nature of the issue and then focus intently on crafting solutions that don’t simply introduce new problems. Congress regularly fails at the first step, with hearings on disruptive innovations, notably social media, painfully exposing how little elected officials understand about the markets they want to regulate. It’s well past time to bring back the nonpartisan Office of Technology Assessment, which educated lawmakers on innovation until it was inexplicably shuttered in 1995.

5. Sunset everything. Technology changes, while law remains static. That means any technology-specific rules should require regular review and reauthorization, forcing stakeholders to consider how markets have changed, how industries have evolved, and how the next generation of disrupters will reset the calculus of costs and benefits. Rules first enacted in 1988 to encourage early satellite television services, for example, were wisely designed to expire every five years. Although the rules were renewed as recently as 2014, Congress subsequently determined that the protections were no longer necessary and let them sunset at the end of 2019.

Many of these deliberative principles go back as far as the founding of the United States. But in the heat of disruption — whether spurred by a health crisis, a political crisis, or a seemingly sudden leap in technical capabilities — it can be hard for lawmakers to keep everything in the proper context. That’s true for consumers as well. With the future at stake, it never hurts to remind ourselves that doing less is sometimes the lesser evil.

References

1. R.H. Coase, “The Problem of Social Cost,” The Journal of Law and Economics 3 (October 1960): 1-44.