New Technologies Need New Regulations 

European Straits #32

Nicolas Colin

Dear all,

As software keeps on eating the world, it is no wonder why a global columnist such as CNN’s Rana Foroohar is focusing more and more on technology and the new breed of company it brings about. In her latest column in the Financial Times, she writes that “the [technology] industry simply does not have the ability, or the right, to self-police any longer” when it comes to regulating online speech on the giant platforms that Facebook, YouTube and Twitter have become.

Foroohar’s reflections, of course, have been inspired by the aftermath of Charlottesville, as we’ve witnessed many Internet platforms taking the initiative in removing content promoting white supremacy and other hateful views. And this line of thinking sounds familiar to all of us in Europe, where we strike a different balance between freedom of speech and suppressing online content. (Since most tech companies are American, Europe doesn’t really care about putting obstacles in their way.)

Historically, many new technologies and emerging sectors have benefited from subsidies or a deficient regulatory regime. There were various motives: either they were developing in a way that was still poorly understood by the legal system, or they represented an expectation of growth to which the government wanted to give every chance. The latter is clearly what happened with the digital economy in the 1990s. Many rules—net neutrality, fair use, limited liability of online service providers, online retailers not collecting sales tax—contributed to making sure that tech entrepreneurs would have enough room to maneuver and ensured Silicon Valley’s advancement in the nascent digital economy.

Yet those regimes should evolve with technology itself. An interesting precedent is the infamous oil depletion allowance that was approved by Congress in 1926 to let oil producers deduct more than a quarter of their gross revenues from their taxable income. The allowance was initially designed to account for the high risk that came with exploring unknown oil fields in Texas. But later on, it morphed into a toxic, perennial loophole fiercely defended by very prosperous rent-seekers—as well as generations of Texans in Congress and the White House. Indeed tech-friendly regulations once designed to support innovation and entrepreneurship shouldn’t suffer the same fate as the oil depletion allowance: regulations should not end up serving rent-seekers after being designed for innovators.

So how do we opt out of the transitional regime and deploy perennial regulations? The reflex of policymakers and incumbent players is to try and bring new entrants back into the old framework: “Enough playing, now you’re an adult—act like one!”. And yet regulations beyond the installation period are not supposed to resemble those that existed before. As the entire economy undergoes a paradigm shift, regulations and institutions become the object of radical innovation as well. New regulations, instead of replicating those of the past, must be aligned with the new mode of growth: they must match new technology-driven business models; regulators themselves must make the most of technology.

As for regulating user-generated content, the alternative to tech companies policing themselves, as discussed by Rana Foroohar, is not to subject them to obsolete rules that were once designed for newspapers and television. Nor should the new regulatory regime rely on bureaucratic agencies or the courts as we know them, since the whole legacy system is much too slow, not tech-savvy enough, and unable to fathom the enormous load of cases that would come with effectively regulating online platforms. After all, it’s not about keeping watch over a few cable networks; rather it’s about monitoring interactions between billions of users connected throughout vast, global networks!

This issue is critical for large tech companies, but it is also important for startups. An overhauled regulatory regime should not harm the Internet’s core feature: emergent behavior, or the ability of entrepreneurs to constantly explore new territories, design new experiences, and discover new business models. As written by Richard Bookstaber in his latest book The End of Theory, “the world cannot be solved; it has to be lived”. Indeed the Entrepreneurial Age calls for a more entrepreneurial approach to regulation. Here’s an idea (among many): since users are the most powerful party in the digital economy, shouldn’t regulators ally with them and harness their superior power (data, network effects) to better police the applications they use?

The summer is nearly over, and next week I’ll share more about The Family’s coming year, but in the meantime here are a few more readings on this topic:

I’m also glad to share with you the draft program of the new chair “Technology, Policy & Institutional Innovation” I’m co-heading at Sciences Po Paris: follow this link for an overview.

Warm regards (from Paris, France),

Nicolas