Regulations like GDPR will make Big Tech stronger

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Well-intentioned regulations like GDPR and the EU copyright directive do a lot of things. Weakening big tech isn’t one of them.

Regulations designed to rein in the power of giant tech companies like Amazon, Google, and Facebook have been in the news a lot recently. First it was the general data protection regulation (GDPR) that flooded your inbox with brands re-asking permission for your personal information. Then earlier this month, we saw the EU put an ambitious copyright directive to a parliamentary vote, which would have drastically changed the nature of contributed content on the internet.

For many commentators, the objectives of these regulations are quite clear: to curb the power and profits of large corporations. The wording in the latest version of the EU copyright directive specifically described its goals as improving the “bargaining position” of European content creators. While they don’t explicitly identify who European content creators are bargaining with, the context makes it clear: big American tech companies.

The biggest victims of new laws aren’t existing companies—it’s the invisible ones who never have a chance to get started in the first place.

Rather than actually threatening Big Tech in a meaningful way, these policies could make it difficult for smaller companies to thrive. While such regulations may provide consumers with some nominal level of data privacy, they may actually exacerbate the power imbalance already present in the tech sector. This is because regulations designed to limit the power of Big Tech companies often just minimize the threat of competition, thereby making their market positions more dominant.

While GDPR is already in action, the newly proposed EU copyright directive failed to pass a parliamentary vote. Existing European copyright laws were passed in 2001, well before the meteoric rise of the tech sector and modern social media. While it makes sense to update copyright laws to reflect the new dynamics of the new economy, recent regulatory proposals would not only harm American tech companies, but they could harm the very European media companies they are designed to help..

As a specific example of how this could work, let’s consider what is perhaps the most absurd proposal in the copyright directive: a new policy that would have required platforms on which hyperlinks are posted to pay for the permission of linking to third-party websites. According to some industry reports, Google and Facebook comprise up to 75% of all referral traffic to online publishers. Such staggering numbers should make it exceedingly clear that publishers need tech giants much more than the other way around. That regulators think tech platforms would choose to pay these fees rather than simply banning links to costly publishers not only signals the lawmakers’ willingness to pass wrongheaded policies in the name of “fighting big tech,” but also that they have no idea what they are doing in the process.

If the Europeans were so bold as to require tech platforms to cut deals with publishers in order to link to them, then Google and Facebook would be the only companies large enough to afford such costs. This would mean that the cliched complaints about Facebook and Google “controlling the internet” would turn into reality, rather than just hyperbole. The inclusion of such a proposal betrays a fundamental misunderstanding of how market power works in the internet era—a signal that does not bode well for future iterations of this law that are certain to come to another vote.

Other proposals in the latest version of the copyright directive include a clause that would have made platforms liable for monitoring the copyright status of any content posted onto their websites. Again, this would dramatically alter the entire ecosystem of online media. For instance, one half-true consequence of this policy would be the banning of memes.

Large companies with sophisticated algorithms and open offices full of smoothie-sipping Silicon Valley engineers have enough resources to automate the process.

Large companies with sophisticated algorithms and open offices full of smoothie-sipping Silicon Valley engineers have enough resources to automate the process of screening content to comply with this regulation. But websites that are currently barely making ends meet will have to either ban user-generated content entirely (such as online reviews and article comments) or fork up thousands of dollars for enterprise software that does copyright filtering automatically.

Many of the laws being passed or considered in Europe drastically increase the overhead required to run a technology company: This includes the GDPR’s “right to explanation,” “right to portability,” and “right to erasure,” all of which require companies to build new systems and processes for managing individual requests about personal data. As a result, most small- and medium-size tech companies will be at even less of an advantage than they already are.

So if we agree that banning memes is a bad idea, then what else can regulators do? An important lesson from previous eras of tech hysteria is that regulations don’t cause big companies to fall. Rather, it’s the next wave of innovative enterprises that simply make old companies obsolete.

In the early 2000s, Microsoft and their illegal monopoly was the specter that loomed over every discussion of the personal-computing market. But notice how distant these concerns seem given the emergence of the mobile-phone market—a market that was blown wide open by a mid-sized tech company that invented a disruptive handheld device called the iPhone. Similarly, recall how file-sharing and torrent sites were the crisis du jour of the late 1990s. It wasn’t the giant fines slapped on Napster that ended the mainstream practice of file sharing: Instead, it was the emergence of streaming companies like Spotify that made paying for music a superior experience to illegal downloads.

Neither of these innovations could have been foreseen by regulators, but they could have been stunted before they even had a chance to thrive. This is often the problem with drastic regulatory overhauls: While it’s easy to imagine how new laws will affect existing companies, their biggest victims are the invisible ones who never have a chance to get started in the first place. Because regulations that increase overhead for new companies have the potential to stifle innovation for decades into the future, such laws must be enacted with care.

We should not advocate for a regime of zero oversight, but lawmakers need to be clear-eyed about the potential effects of market-shifting regulations. Big, sweeping attempts to completely re-engineer economic markets often end in disaster. In this case, focusing myopically on reprimanding today’s biggest tech companies may only ensure that they remain tomorrow’s biggest tech companies as well.

 

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