Beware of Calls for a New Digital Regulator, by Dr. George S. Ford
Motivated largely by the “Techlash” against the digital platform giants like Facebook, Amazon, Apple, and Google along with the Net Neutrality debate implicating Internet service providers (“ISPs”) like AT&T, Verizon, and Comcast, there is a growing concern that the nation’s antitrust laws and regulatory institutions are ill-suited for the Digital Age. What is needed, some say, is an entirely new regulator exercising broad powers over the Internet ecosystem (and perhaps beyond).
Among other proposals, the Stigler Center of the University of Chicago wants a “Digital Authority.” Obama-era FCC Chairman Tom Wheeler calls for a “Digital Platform Agency.” Obama’s Ambassador to the OECD Karen Kornbluh seeks the creation of a “Digital Democracy Agency” and Obama’s Chair of the Council of Economic Advisors Jason Fuhrman wants a “Digital Markets Unit.” While each of these proposals has its quirks, all conclude antitrust law and the courts in which antitrust cases play out are impotent to address the selfish excesses of the digital giants.
For example, Wheeler claims that antitrust is a “blunt instrument,” “inherently uncertain and reliably lengthy,” and feels that the worrisome behaviors of the digital platforms may “fall outside of plausible antitrust-based enforcement and remediation.” Fuhrman observes antitrust enforcement “can often be slow, cumbersome, and unpredictable,” making it a poor tool for the “fast-moving digital sector.” The Stigler Center points to more than just costly and sluggish proceedings, arguing that antitrust cannot be relied upon because federal judges are “appointed by an increasingly ideological vetting process” and “are trained in and adhere to” conservative Chicago-school thinking, and that courts are apparently “unaware of the new economic research that calls into question many of the tenets of that framework….” In fact, the Stigler Center boldly asserts the Supreme Court is “hostile to antitrust enforcement [and] more influenced by ideological preconceptions than by evidence.” Echoing these partisan concerns, Wheeler claims that antitrust’s consumer welfare standard is nothing more than a “conservative litmus test for judicial appointments.”
Lacking faith in antitrust as a useful instrument for policing anticompetitive behavior in the digital world, these advocates suggest recourse to regulation. Advocates for a digital regulator seek a “lean” and “dedicated expert agency” that can “craft dynamic rules,” and one that will “reduce barriers to entry and facilitate competition” and that “would push against the tendencies of the network toward centralized control, instead promoting transparency, decentralized citizen control, and privacy.”
So, these voices want a regulator independent of political pressures, nimble enough to issue orders at high speed, and possessing the technical competence to quickly grasp the underlying economics of the digital era.
This is quite a wish list.
If the proponents of a new digital regulator have an existing Federal agency in mind as a model for the sort of independence, speed and righteousness they say is essential, I hope they will share it. Thus far, they have not, and, in fact, they deride nearly all existing regulatory institutions. The Stigler Center says existing regulatory institutions are subject to “well-documented pitfalls” including “agency capture, revolving door syndrome, or incumbent protection.” Kornbluh fears existing regulators are “too slow” and “susceptible to regulatory capture” to be useful and that the “top-down bureaucratic mandates don’t make sense in a fast-paced industry where regulatory capture is a real danger.” Fuhrman worries that “government and regulators are at an enormous informational disadvantage relative to technology companies,” and that “[r]egulators may be captured by the companies they are regulating.” Wheeler, a former bureaucrat, begrudges the current “top-down and rigid regulatory model” with its “inflexible” and “bureaucratic culture” that moves blindly with “muscle memory.” All of which is to say that we have not had a stellar record in using regulatory power to make markets look the way we want. Why do these advocates think a new regulator will succeed where others have failed? Wishing alone does not make it so.
Perhaps this new digital regulator’s superiority comes from a novel design. Wheeler, for instance, proposes that the “new agency will be composed of three presidentially appointed, Senate-confirmed commissioners, with “no more than two commissioners may be members of the same political party.” Yet, this is the same “ideological vetting process” used to select the captured, inflexible, and partisan regulators we have now. The old saw holds that insanity is doing the same thing over-and-over again while expecting a different outcome.
Maybe some magic would do the job? Wheeler demands that those leading this new regulatory agency new regulator have “digital DNA” to succeed. In effect, this “digital DNA” is nothing more than a demand that the President choose, and Senate confirm, the new leadership of the new digital regulator in manner entirely differently than they do all the other regulators. That is, the choice should be based on qualifications and not political connections. Wheeler might as well have proposed a sprinkle of pixie dust. If the choice of leadership is the elixir for the ills of regulation, then why not choose better leadership for all the regulatory agencies?
The proposals for a new digital regulator hinge on creating something we have never managed to create. If the new boss is the same as the old boss, then does the desire for this new regulator survive? Will society be better off with a slow, inflexible, and captured digital regulator that protects incumbents? This ought to be the threshold question, but it goes uncontemplated by the advocates for a new regulator. Before we put the government’s thumb on a trillion-plus dollar sector of the economy, it is too much to ask for a serious analysis of how and why it will work this time? Do we deserve more than wishful thinking and magic beans?
Maybe a new digital regulator can work righteously in the blink of an eye. But the basic analysis for such a novel proposal remains to be done.
Dr. George S. Ford is the Chief Economist of the Phoenix Center for Advanced Legal & Economic Public Policy Studies (www.phoenix-center.org), a non-profit 501(c)(3) research organization that studies broad public-policy issues related to governance, social and economic conditions, with a particular emphasis on the law and economics of the digital age.