The Weak Case Against Regulation


Facebook faces the test of its young life. But arguments against regulation fail to understand the larger issues at play.

A scan of the past few days in FacebookLand yields nothing but bad news.

But there was a glimmer of hope in today’s news: Former Facebook board member and Zuckerberg mentor Donald Graham, once the scion of the Washington Post (that title now belongs to Amazon’s Jeff Bezos), argued in an Op Ed yesterday: “Don’t Regulate Facebook.” Why? Because “regulation is political” and politics should be kept away from platforms that support free speech.

Writes Graham: “If you want Google, Facebook and other tech companies regulated, you are asking for a system in which President Trump — or (perhaps in the future) President Elizabeth Warren — plays a role in deciding what goes on your Facebook page or what flows from your Google search. Is that really what you want?”

Well, in a way, yes, but this is a red herring. Those in favor of regulation want their government to act as…well…a governor over the market failures of technology companies. That’s kind of the point of business regulation, and of government itself: To express the will of a citizenry that has determined that private companies have overstepped and are taking advantage.

Insofar as the president — whoever that may be — is part of the government, then sure, the president is involved. But the truth is far more pedestrian — presidents rarely get involved in settled regulatory management. They can help set policy, but they don’t actively manage it. Graham’s approach amounts to a facile scare tactic, the kind we’ve seen before:

Graham has some other choice arguments for why we shouldn’t regulate the tech giants, and I disagree with most of them as well. He argues, for example, that regulators slow down corporate innovation, and don’t really understand the industry they regulate. That’s certainly true in some cases. But it seems Big Tech needs to slow down a bit — that’s kind of the point of this debate, no? And sure, policymakers have been ignorant about the impact of tech companies on our society. Addressing that ignorance seems paramount to securing our democracy, not antithetical to it.

Graham then gives us another reason to avoid regulation: “The most important control over Facebook — greater than anything governments could come up with — is the ability of its users to quit.”

This is often called the “one click away” argument, often used by Google (“Our competition is just one click away…”). But while Google may argue that Bing exists and is therefore proof of competition, Facebook’s largest competitor is Instagram, which, erhmmm…Facebook owns. Facebook benefits from a massive network effect, and while it’s possible a new competitor might compel a mass exodus from the service, solving that coordination problem (getting everyone to leave at once) is, well, non trivial for any startup.

Perhaps aware of the weakness of that argument, Graham then pleads with us to not regulate Facebook (or Google) because it will weaken their status as a premier American company. If they are hobbled by regulation, then state-sponsored actors like China’s Baidu or Tencent will prevail. Um….really Mr. Graham? You think US users will flock to Chinese sites once their privacy is protected by US regulations? That’s some tortured logic, sir.

The far harder truth behind the regulatory debate is this: Facebook and Google have a highly profitable business model based on deep surveillance of their customers. Those customers, and their elected officials, have woken up to this fact, and are searching for protections against the misuse of the data those models depend upon. In a future column, I’ll explore new models that the duopoly could pivot towards, but likely won’t because of their inherent innovators’ dilemma. That opens up opportunity for startups to exploit…if they can move fast enough.

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