The Costs of Tech Policy Inaction

Lost in the Super Market offers a useful point-counterpoint guide to thinking about the challenges that the United States faces as it considers how to regulate the digital economy. As with many important questions, those on opposite poles in this debate make valid points that policymakers of all political persuasions would do well to consider. The libertarian critique of greater technology regulation should cause champions of a more activist approach to proceed with humility. At the same time, regulatory skeptics make a fundamental mistake, in my view, in assuming that the United States can freely choose between greater state intervention in digital markets and a continued laissez-faire approach. Given the global nature of technology competition, the rest of the world has a vote, and it has already decided that our technological future will not be guided by the invisible hand alone.

The European Union has led the way over the last decade with the General Data Protection Regulation (GDPR) and now the proposed Digital Markets Act, which would rewrite rules governing the digital marketplace, as well as the Digital Services Act, which would impose new regulations on so-called “gatekeeper” platforms. Australia recently enacted legislation that requires internet platforms to pay news providers for content and gives news providers the right to request an arbitrator to decide the amount of compensation if negotiations fail; Canada and other countries are considering similar regimes. After years of heralding the progress of its domestic champions, China has recently started to crack down on the market power of tech giants like Alibaba.

I offer no endorsement of any specific approach, but simply note the indisputable fact that the rest of the world is in regulatory innovation mode where the digital economy is concerned, while the U.S. policy apparatus is largely stuck in place. One doesn’t need overly “globalist” sensibilities to recognize the long-term effects of our indecision. At a minimum, the United States will continue to effectively cede regulatory power to other countries, as American technology companies alter their business models in order to conform with regulations abroad—this is the so-called “Brussels Effect” in action. In the worst-case scenario, continued regulatory divergence will isolate the United States even from close democratic allies. Fissures in the transatlantic digital relationship are already widening as a result of the recent Schrems II decision by the European Court of Justice, which is just the latest in a string of rulings that threaten to cut off data flows from the E.U. to the United States.

Digital estrangement from other democracies poses a serious threat to America’s long-term competitiveness. Technological innovation thrives at scale. That means that China, with a population of 1.4 billion people, has an inherent advantage over any individual, developed democracy. And now that it has built world-class universities and fostered an indigenous entrepreneurial class over the past three decades, China increasingly will be in a position to leverage that advantage. If one considers the world’s democracies part of a common technology ecosystem, however, the score is more even. The combined population of the U.S., the E.U., Japan, Korea, and America’s “Five Eyes” allies is over a billion people. The balance tilts decidedly in favor of the democratic world if India, Brazil, and other newly industrialized democracies are added to the fold.

Even if America’s technology companies are not locked out of foreign markets altogether, the country’s failure to update our regulatory infrastructure for the digital age makes the United States less competitive by undermining trust in our technology sector. Until I was in government, I failed to appreciate the extent to which the Snowden revelations in particular have cast a pall of suspicion over U.S. technology companies operating abroad. That episode—along with Congress’s persistent failure to enact meaningful data privacy legislation—have not only eroded trust, but also the natural advantage U.S. companies should enjoy over competitors domiciled in authoritarian states.

President Biden has said he wants the United States to “set the rules” for the digital economy—a worthwhile goal certainly. But in order to lead, we must have a destination in mind and some flexibility in charting a course that others will follow. I applaud the Biden administration’s recent efforts to promote greater regulatory cooperation with the E.U. on issues like artificial intelligence through the proposed E.U.–U.S. Trade and Technology Council and wish them well in pursuing similar initiatives with other partners.

But in the end, American leadership—and American competitiveness—in technology will require Congress and the Administration to make what admittedly will be difficult and complicated choices about how to better align U.S. regulation of the technology sector with the direction in which other “techno-democracies” are heading.

Expecting the rest of the world to stay put while we deliberate isn’t realistic; neither is an effort to convince the Europeans and others to abandon deeply held views on privacy and other issues in order to accommodate American preferences (or indecision). Moreover, the unsettled nature of the debate in this country about how best to regulate digital domains makes it difficult for U.S. trade negotiators to push back against regulations in other countries that are motivated by protectionism but justified by a desire to protect privacy or advance other legitimate policy ends.

The regulatory skeptics are right to point out that more regulation could make digital markets less efficient and come with unanticipated costs. But the costs of inaction are substantial as well and could pose a serious threat to America’s historic place in the global economy.