Tech Regs Are Coming

Over world history, we have seen a lot of things regulated. We can see patterns in these regulations, and we understand many of them – it isn’t all a mystery.

As far as I can tell, these patterns suggest that recent tech like operating systems, search engines, social networks, and IM systems are likely to be substantially regulated. For example, these systems have large network effects and economies of scale and scope. Yet they are now almost entirely unregulated. Why?

Some obvious explanations, fitting with previous patterns of regulation, are that these techs are high status, new, and changing fast. But these explanations suggest that low regulation is temporary. As they age, these systems will change less, eroding their high status derived from being fashionable. They will become stable utilities that we all use, like the many other stable utilities we use without much thought. And that we regulate, often heavily.

You’d think that if we all know regulation is coming, that we’d be starting to argue about how and how much to regulate these things. Yet I hear little of this. Those who want little regulation might keep quiet, hoping the rest will just forget. But silence is more puzzling for those who want more regulation. Are they afraid to seem low status by proposing to regulate things that are still high status?

Similarly puzzling to me are all these internet businesses built on the idea that ordinary regulations don’t apply to stuff bought on the internet. They think that if you buy them on the internet, hired cars and drivers don’t have to follow cab regulations, rooms for a night don’t have to follow hotel regulations, ventures soliciting investors don’t have to follow securities regulations, and so on. Yes, regulators are slow and reluctant to regulate high status things, but can they really expect to evade regulation long enough to pay off their investors?

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  • Alyssa Vance

    Who is this “we” that regulates things? The large majority of business regulations now in place in the US were put there between 1930 and 1970. The people who did that regulation are now all dead, and the nominal heirs to their authority can’t even pass a budget on time (!). Much less impose a complicated set of rules on technology they can’t even use themselves, let alone understand properly.

    • Dieter Engel

      Well, I’m not sure how you’re measuring the “large majority”. I suspect if you use shear tonnage, by the pound, the federal register has published more regulations since 1970 than the 1930-1970 timeframe.

      Also, I have to disagree with the idea that the politicians now are more ignorant of the subject of their regulations than they were in the past. Looking at the EPA and other regulations passed during those 40 years, they have almost all universally failed to benefit anybody, and have produced a massive quantity of negative unintended consequences.

      Some examples: The 2008 housing crisis (though the Federal Reserve which caused it pre-dates your time period, the CRA which also helped cause it comes just after)… the entire “health care is too expensive” crisis is almost completely due to regulations passed between 1900-1970ish. etc.

      • Ronfar

        I don’t think environmental regulations have “failed to benefit anybody”. For example, the air in New York is a lot less polluted than the air in Beijing.

  • Robert Koslover

    Oh Geez. “Those who want little regulation might keep quiet, hoping the rest will just forget.” Well Robin, now you’ve done it!
    http://en.wikipedia.org/wiki/Pandora%27s_box.

    And this (via analogy) is basically now our future, and it is all your fault: http://www.dailymotion.com/video/xszuc7_dilbert-the-competition_shortfilms
    [Skip to 17:00].

    So next time, please remember that along with great power (to have dangerous ideas), goes great responsibility (to keep those dangerous ideas to yourself).

    Oh well.

  • lambdaphage

    I don’t understand why proposing to regulate high status status should be low status– is the argument that if one uses high status
    stuff, one naturally wouldn’t want it regulated, so the only people who favor regulating it are those who don’t use it themselves, i.e. low status people? Seems like a lot of moving parts in that argument.

    • Mahmet Tokarev

      In this case I think it’s more that they risk seeming like fogeys who can’t change with the times.

      • lambdaphage

        But there’s also status to be gained from denouncing internet-centric business models for ushering in some sort of vague nightmare scenario for consumers or workers resulting from people exchanging rooms or rides for money. (See: hacker news whenever AirBnB or Uber comes up.) Putting your Hanson hat on, you might see this as people signaling their egalitarian bona fides and concern for the less well-off (presumed intuition: “if no one regulates, then the better off will exploit the worse off through market transactions”?)

        For that matter, why not form a coalition of low-status actors in order to regulate something precisely _because_ it’s high-status? Most people have no problem with things like excise taxes on luxury goods like yachts; I find it dubious that they’re really just trying to signal being double-super-secret old money.

        I guess this just illustrates my frustration with explanations of the type: “it’s status-signalling all the way down.” It’s often totally non-obvious to me* how status-seeking is supposed to motivate people, so we might as well just reply to the object-level arguments people make about policy on the merits.


        * I anticipate the obvious reply that this is simply because I’m too low-status to get it.

  • Dieter Engel

    Regulation is really a poor word for what we’re talking about. Regulations are merely the use of violence to force some economic actors to comply with terms that benefit other economic actors, or to force some competition out of the market or out of business completely.

    All regulations are evil. Even regulations “meant” to “protect” people, because all regulations violate rights. A “regulation” that prevents you from shipping poison and calling it aspirin is redundant with laws against fraud and other related criminal statutes.

    People try to do “taxis” without falling into the taxi regulations because they hope to open up the market and break it away from the protected cartel that it currently is. Same thing with AirBnB.

    These are good things, as with an actual market we can have actual competition and the consumer benefits from better deals and new business models.

    Regulations effect has primarily been to protect established businesses and exclude new entrants.

    Every moral person (And every decent or honest economist) recognizes the damage regulations do and seeks to end them.

    One nice thing about the internet– if the USA starts clamping down on internet based businesses, you can move overseas and conduct your internet based business from a more capitalistic country.

    That’s a lot harder to do if, say, you want to drive a taxi in new york ,and are willing to give people better service at half the price, but are excluded from the market by “taxi regulations” that allow only a limited number of medallions total, without regard to the fact that NYC has actually grown in population in the last 100 years!

    • Christian Kleineidam

      I think it’s very useful to have a institution that uses scientific data to decide with substances are poison instead of letting every case by decided by a jury of people without relevant scientific expertise.

      Regulation of medical matters is a much better policy than handling issues through malpractice law suits.

      If you are a business you have an interest of having regulations with whom you can simply comply instead of having to go frequently through expensive legal trials to find out whether the thing you want to do is legal.

      • Sigivald

        The first two paragraphs are not particularly problematic (though I’d note that “poison” is a tricky one – many things we like are “poisons”, such as alcohol; one might even suggest that simply marking things sold for ingestion with a label pointing out a level of toxicity would provide all the rational lawsuit-avoiding information; no need for a Central Regulatory Body, strictly).

        However, that last one doesn’t seem a good fit.

        “X is legal” means “X does not violate any laws or X is explicitly condoned”.

        Having no regulations on X means X is already legal, assuming it violates no non-regulation laws – and further, “following the regulations” does not exactly always provide immunity from lawsuits now – nor should it.

        A maze of regulations can, as I understand it, both impose a huge dead-weight cost and still leave one in legal uncertainty; too many regulations make compliance difficult or even impossible.

  • BenGolden1

    My sense is that for a lot of web businesses, being able to avoid regulation may be an early catalyst, but not necessarily for long-term success. Amazon’s use of interstate commerce laws to avoid taxation helped attract first-time customers, but its competitive advantage over traditional retail involves other important factors, and now that it has an established customer base, Amazon has been entirely open to the idea of government taxing its transactions.

    The situation seems similar for Uber or Airbnb. They have real operational advantages over legacy players such that even subject to a reasonable amount of regulation, they’re likely to maintain an advantage over traditional cab / hotel companies. I wouldn’t be surprised to see these companies eventually embrace their own regulation, though they’ll likely want to grow as much as possible first, so as to have greater influence on how regulations are written.

    • Mahmet Tokarev

      Yep, and first movers in tech have an additional incentive to support regs because it will squeeze out upstart competitors.

  • Anon

    It’s also much harder to regulate something that can be hidden and moved around effortlessly, like an internet business.

  • IMASBA

    Legislators are generally quite old and not very tech-savvy (lawyers and such), this is partly why it’s taking a particularly long time for reasonable tech regulation to show up en masse. Unreasonable tech regulation proposals appear all the time though, so it’s not true there’s only silence.

    “Yes, regulators are slow and reluctant to regulate high status things, but can they really expect to evade regulation long enough to pay off their investors?”

    Yes, they do expect that and that may not even be a very bad gamble.

    • one of the dudes

      This is the simplest answer that passes the Occam’s razor test. The network effect does create a natural monopoly, but we are a generation away from understanding and modeling it enough to regulate.
      Besides, we are past the limit of complexity that centralized representative democracy is able to deal with.

  • arch1

    1) Even though I’m not real up on this it seems to me that I *am* starting to hear discussion about regulation (in the areas of taxation, privacy/security, bandwidth, etc.) in the mainstream media.

    2) An additional damping factor on discussions might be quite rational: those otherwise disposed to regulate correctly perceive that they don’t know enough to regulate intelligently, and/or the rate of change is too high for normal regulatory approaches to make much sense.

  • Ronfar

    Since when is the Internet not regulated? You have to say you’re over 13 to sign up for most internet forums because of a U.S. regulation that says you can’t collect personal data from children under 13 without the permission of their parents. And privacy-related regulation in Europe is much stricter.

  • Ronfar

    In principle, in most U.S. states, if you order something from Amazon.com or even a mail-order catalog, you’re supposed to pay the sales tax yourself on your tax return – they call it a “use tax”. In practice, nobody does this because 1) it’s too difficult and 2) nobody ever gets caught when they don’t. So Internet retailers only have a tax advantage because the taxes that are supposed to be paid on e-commerce are unenforceable.

  • Christian Kleineidam

    Regulation is a political question. Al Gore did succeed in keeping a lot of the internet from getting regulated.
    There much money invested into lobbying to keep things lowly regulated.

  • http://www.juegos2.info/ Juegos 2

    Now the new era, everything will be expanded and no longer constrained as before. Maybe it’s cause

  • Sigivald

    I’d argue for “don’t regulate them at all”.

    Cab regulations and many if not most or all hotel regulations are dead weight rent-seeking by established concerns.

    (Who wants “more regulation” of, say, Uber? Only taxi companies and their political money-recipients, as far as I can tell.

    Apart from that, occasionally people in moral panics over Whatever New Thing – and I certainly see no reason to encourage them in the idea that their hyperventilation justifies any actual intervention.

    Subvert the entire paradigm of “everything must be regulated”.)

  • Lord

    Tech changes too rapidly for regulation to make much sense and we are not any closer to that not being the case. Aging doesn’t mean they change less; it means they disappear or morph into something else. Remember when IM was a thing? Regulations generally only codify case law and we have barely had any of that yet. We have a few laws on privacy, on bullying, and a few others but what rights and rules new tech should follow are still up for grabs. VCR/DVRs? This is not about utilities, it is about morphing into the next big thing before becoming obsolete.

  • dmytryl

    Regulations are generally necessary when there is a tragedy of the commons, when the product lends naturally to a monopoly (e.g. electricity), or when there are trust and safety issues.

    By large, none of that is the case for things like consumer operating systems, and whenever that is actually the case (the operating system on your airplane), it is very much regulated.

    Frankly I don’t see what the hell this has to do with status at all; if there is any correlation, it is other way around – writing airplane software is definitely higher status than consumer software, a nuclear reactor is higher status than coal power plant, and so on and so forth, mostly because the costlier is the potential screw-up, the more quality is required and the higher are the hiring requirements.

  • http://www.frivjuego.co/ Friv juego

    Thank you so much! Regulation is a political question. Al Gore did succeed in keeping a lot of the internet from getting regulated. It’s also much harder to regulate something that can be hidden and moved around effortlessly, like an internet business.

  • Bob McGrew

    The model of Uber is wrong. Regulation in these industries has primarily been captured by insiders as a way to prevent competition. Using the “Internet competitors are unregulated” premise is just a way of breaking into the market that regulators won’t immediately slap down. As a new, hungry entrant, it’s not too hard to be better than the established players, and most of these businesses are even innovating.

    Once they too are insiders, regulations will block new entrants and make their investors more money, not less.

  • SundaraRaman R

    One recent thought I had related to this is regarding Windows XP: it’s chock full of security holes, even Microsoft is soon ending support for it, and yet apparently 18% of world’s computers still use it. Windows XP is the powerhorse behind many many botnets that criminals use for Spam, DDoS, etc., making the Internet worse for everyone ultimately. Should this be regulated, should it become illegal to connect a Windows XP system to the Internet unless it’s fully patched and added with firewalls and antivirus software?

    I’d say yes, except politicians are clueless in this area and will probably screw this up, and also this open up a dangerous can of worms which would definitely be abused – imagine a SOPA but not just for the Internet, for any software anywhere, may even extend to hardware. Until we get more enlightened and knowledgeable representatives, I’d hope regulations like this don’t come forth – they give too little benefit compared to the damage they *will* end up doing.

  • Samuel Hammond

    As far as I can tell, these patterns suggest that recent tech like operating systems, search engines, social networks, and IM systems are unlikely to be substantially regulated. For example, these systems have very low transaction costs, and very powerful mechanisms for voice and exit.

  • Lydia Laurenson

    I work in high tech and I recently wrote a piece that suggested (very gently) that maybe Google should be regulated in some fashion. I was pretty nervous about it, partly because I like Google as a company and have friends there (and have interviewed there), but also partly because they’re powerful, you know?

    The people who are most likely to have a window onto high tech works are usually also working in high tech. I do think there’s a wave moving to regulate high tech more thoroughly, but a lot of us don’t want to be the first person to say it.

    (Here’s the article, incidentally, over in the Futures Exchange vertical on Medium: https://medium.com/futures-exchange/b0c49f6853ca )

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