Why governments fear regulating technology companies

Any item you can think of delivered to your home in a matter of hours and at a low price; rides taking you from one side of the city to the other quickly and conveniently; staying connected to your friends and family, seeing their every update with the swipe of a finger.

Source: AdrianHancu (iStock)

These are among the most obvious examples of the convenience offered by Amazon, Uber, Facebook and other ‘big tech’ platform companies. For older generations, these firms have revolutionised the market, offering wider choice, more convenience and better prices. Younger generations rely on them even more, integrating them into the fabric of their lives from an early age – 50% of US teens say Amazon is their favourite website, and in the UK Uber is more popular among millennials than any other age group.

This extreme convenience has political consequences. People have become dependent on the innovations delivered by the platforms. Regulation that could limit the ability of platforms to deliver this convenience will not just be opposed by platform companies. It will be opposed by many consumers too.

This power that tech companies hold – which Kathy Thelen and I call ‘platform power’ – presents governments with a novel regulatory challenge. In the past, business was regulated by government to protect the interests of consumers. In the case of tech companies that reach a certain scale, the consumer interest argument is hard to sustain – Amazon delivers outstanding value, even if it operates as a dominant player in online retail. The challenge for government lies in the fact that consumers appreciate this convenience. As a result, they can often be mobilised on behalf of those companies, implicitly (and sometime explicitly) forming part of the bloc that supports such companies.

This power poses risks in terms of regulation and challenges for governments and politicians. Who wants to be the politician who denies customers the wonders of Amazon Prime? And yet, in the current moment there is much talk of regulating big tech firms. If platform power is so important, how can this be? We argue that the vogue for regulating big tech results from fissures in the consumer-platform alliance, which can come about in two ways.

The first is when an event underscores that the platform firm’s interests diverge from those of consumers. This is what happened with the Facebook and Cambridge Analytica data scandal in 2018, when it was revealed that personal data of millions of Facebook users were used for targeted political advertising without their consent. This revelation generated a backlash against the social networking site, with Facebook facing calls for tighter regulation and its CEO Mark Zuckerberg called to testify before the US Congress. Perhaps even more importantly, the public understanding of personal data and its power changed, highlighting that the interests of tech giants were not as aligned to the consumer as they might have thought.

Much the same dynamic lies at the root of the recent European General Data Protection Regulation (GDPR). Just at the moment the GDPR legislation was being considered by the European Parliament, Edward Snowden’s leak of intelligence agency documents revealed that tech companies such as Google, Microsoft, Yahoo and Facebook gave the US government access to their servers to track online communications. The companies once seen as liberators were revealed as government spooks.

The second way in which the consumer-platform alliance is broken is priming people to think as citizens first, rather than as consumers. In Denmark, a campaign against Uber pivoted around the risks posed to the welfare state by a company whose model seemed to skirt the tax collection and social rights of workers that prevail in the rest of the Danish economy. The Danish public strongly values the welfare state – which is funded by taxpayers – and the risk posed by a company like Uber, which was seen as not paying its fair share, was enough to swing people in favour of regulation.

One of the interesting features of platform technology companies, as compared with traditional firms, is that the existence of platform power means that they are often in favour of having a public political battle, as they think the public will be on their side.

In 2015 in India, for example, Facebook undertook a highly public campaign to introduce ‘Free Basics.’ This mobile app gives free access to a selection of data-light websites and services. Zuckerberg called it a way to allow everyone with a phone to “join the knowledge economy while also enabling the industry to continue growing profits and building out this infrastructure.” And it could also could have created the possibility of a huge, captive market for Facebook. A group led by Nikhil Pahwa campaigned against Free Basics, highlighting that Facebook would dominate the internet and violate the principle of ‘net neutrality’ (the concept that internet service providers should treat all traffic equally). The case was decided in front of a regulator, rather than the parliament. In the clash of citizen values – greater internet access versus net neutrality – the regulator sided with the net neutrality argument.

Independent regulators, which do not have to worry directly about approval ratings and popularity, can maintain a level of independence from tech companies that governments and legislatures may find harder to achieve.

Regulating platform companies is a complicated task because of their close ties to consumers. Younger generations are often more trusting of big companies than they are of governments, and yet they are the ones who will need to tackle this challenge head on. Will the increasing number of privacy and data-related scandals around the world politicise younger consumers – who are also citizens – in favour of more stringent regulation? Or will they instead trust the large companies who have brought them such incredible convenience and a seamless user experience? The answer to this question will help determine the future course of platform politics and technology regulation.

Pepper D Culpepper is Blavatnik Chair in Government and Public Policy at the Blavatnik School of Government.

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