While large-scale layoffs are shaking up the big tech industry, calls for regulation are getting louder. President Biden recently called for bipartisan legislation to protect privacy, address algorithmic discrimination, and safeguard youth.
The tech sector needs to change to create stable markets and healthy innovation. And the most effective way to do that is to learn from trade regulation and the taming of global financial markets.
Financial markets are set up to ensure that our economies function reliably, ensuring flows of resources for investment, insurance and risk mitigation. Yet, as the 2008-09 financial crisis showed, people often take excessive risks when investing in new and untested financial products. When things go south, bank failures and stock market crashes ruin individual lives — or worse, tank entire economies.
Like finance, tech has come to take on infrastructural roles across industries and is embedded globally into many social, commercial and administrative processes. In recent years, the tech industry has demonstrated these same risks: large scale manipulation of democratic elections, algorithmic discrimination, and the erratic and sometimes criminal behavior of tech leaders.
After under-regulation allowed the global economy to collapse, lawmakers shifted their approach from regulating a tool or product to regulating the entire system. Since then, financial regulation has evolved to address these systemic risks. Besides requiring banks to have stronger buffers against shocks, financial regulators introduced stress tests for the banking sector. The solidity of banks is no longer assessed solely on the basis of banks’ individual balance sheets but also regarding the global links they have with other financial institutions.
Today, we enjoy relative stability of the financial markets despite significant political volatility, global public health emergencies, and the climate crisis. We need a paradigm shift towards framing tech regulation as trade regulation to achieve the same.
Building on lessons learned from the financial collapse, there are three key areas to focus on when considering regulating the tech industry:
Center consumer protection. Often, people get enrolled into complex tech products without their knowledge or consent. Here, we can learn from finance. Sophisticated financial products are not for everybody. They carry different risks for customers with different levels of financial literacy. To address this issue, financial institutions today must comply with “Know Your Customer” (KYC) regulation, which requires them to verify a customer’s identity and investment knowledge, and act accordingly. KYC regulation is designed to prevent fraud but also to protect customers from predatory financial products by limiting which products customers can invest in and exposing banks to litigation in case they sell financial services to uninformed investors. Framing big tech services as products, and people forced into these products as consumers, can lead to similarly useful protections for individuals and institutions alike, building on well-established consumer protection mechanisms by either limiting who can use certain services or restrict these services altogether.
Control the global flow of digital services. Tech is data-hungry. Typically, this data is harvested through digital services that are offered by a few large companies. This monopolization does not only hinder healthy competition and threatens innovation, it also heightens inequality on a global scale. For instance, online retailers often allow third parties to sell their products or services through their platforms, helping small companies access larger markets for a small fee. Some online retailers started, however, to use the sales data gathered to undercut competition, leading the European Commission to threaten action against Amazon should it not make significant adjustments. In the financial sector, capital controls limit the flow of money across borders – stabilizing economies and addressing inequality. In contrast, tech’s free-for-all approach to global data harvesting disregards the needs of a large part of their global “data labor force.” No major tech company has a strategy to develop services for a large number of countries from which they gather data. By controlling the extraction, use and trade of data through digital services regulation (including the taxation of those services, especially when they are sold across borders), the tech benefits can be shared more widely across nations, users and developers.
Adopt a systems view on tech. Tech tools interact with each other in often unexpected ways that produce unintended and undesired effects, excluding some customers or preventing others from more favorable conditions. Similar systemic effects arise between banks, which led regulators to assess banks as part of a wider, interrelated system using stress tests that examine the entire banking ecosystem. Yet, tech regulation continues only to focus on the tech product, rather than its systemic impact. For instance, algorithm-driven pricing of airline tickets determines airfares depending on travel dates and destinations. When used individually, such systems might find the best price for a large number of customers. However, when two or more systems compete, they might inadvertently coordinate on higher prices, leaving more customers without affordable options (so-called “algorithmic collusion”). Assessing tech for systemic impact can enhance consumer protection and market competition.
Adopting a trade lens for tech regulation can help protect citizens and enhance innovation and competitiveness, yielding significant benefits for economies and societies. Promoting a system’s view on the tech sector, controlling the global flow of digital services, and centering consumer protection are three easy steps regulators can take in bipartisan efforts to create better tech futures for all and remain strong in the global field of economic competition.
Mona Sloane is a sociologist New York University. She is a Future Imagination Collaboratory (FIC) Fellow, and an Adjunct Professor at NYU’s Tandon School of Engineering. Ekkehard Ernst is chief macroeconomist at International Labour Organization.
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