Both consumer and industry advocates argue that regulation should be “technology-neutral.”
Bert-Jaap Koops has carefully explored the demand for technology-neutral regulation. He begins the inquiry by asking why technology law in particular should be technology-neutral. Koops uses the example of traffic law, where there are no calls for uniform technical rules for bicycles, cars, and heavy trucks.
Koops goes on to explain that “technical neutrality” carries three possible meanings, and these meanings can result in conflict:
From the perspective of the goal of regulation, the statement stresses that, in principle, the effects of ICT should be regulated, but not technology itself; it may thus serve as a means to achieve equivalence between off-line and on-line regulation. From the perspective of technology development, the statement stresses that, in principle, regulation should not have a negative effect on the development of technology and should not unduly discriminate between technologies. From the perspective of legislative technique, [technology neutrality] stresses that legislation should abstract away from concrete technologies to the extent that it is sufficiently sustain- able and at the same provides sufficient legal certainty.
Koops argues that the last justification is the most meritorious to promote sustainable lawmaking.
Applied to US policy debates, these three meanings of technologically neutral regulation have very different outcomes. Consider Koops’ first and third categories. These would militate for broad, preventative, principles-based legislation.
Statutes such as the Fair Credit Reporting Act and the Video Privacy Protection Act, which define prohibited behaviors regardless of technology used, may qualify under this definition of technical neutrality. At the same time, laws such as the Communication Decency Act’s immunity for online platforms would be suspect, because it creates radically different outcomes for online and offline intermediary liability.
Much US regulation, and virtually all self-regulation, violates the principles of Koops’ second definition, which commands that technologies should not be discriminated against. In American parlance, this is often said as “regulation should not pick winners and losers.”
However, almost all anti-marketing regulation is technology-specific, in the sense of picking winners and losers, as are most self-regulatory regimes in privacy. This is because of First Amendment constraints, which require the government to tailor regulation to the affordances of specific technologies. As a result, regulation tends to be reactive, rather than proactive, and target specific technologies. But it is also because of power dynamics. Automatic dialers, for instance, greatly enhanced the ability of telemarketers to call individuals, resulting in millions of “dead-air” hang-up calls. Regulation targets this technology for its power transfer to telemarketers. It is asymmetric as it greatly increases telemarketer efficiency while giving the consumer no tools (or even disabling their tools) to counter the interruption. Prerecorded voice marketing presents a similar, asymmetric threat to individuals. With minimal investment, a caller can cause massive interruption in individuals’ daily lives.
Herbert Burkert argues that information communication technologies have fundamentally altered information handling. To maintain checks and balances in society, Burkert asserts that technology-specific “responses to such changes in the power structure is needed.”51 He points to the electronic data processing industry as one with practices more dangerous than paper file systems, and thus deserving of stronger regulation.
We might think about these lessons in coming decades, when marketing is likely to be delivered to us by robots or by automated systems that can recognize and confront us in real space. Such advertising is typically depicted in dystopian science fiction (the 2002 movie Minority Report, the 2011 series Black Mirror, and the 2013 work The Zero Theorem). We know that these technologies are coming, and we are likely to react to them in a non-neutral way, regulating each specifically as they arise, rather than prospectively, through principles- based neutral regulations.
Bert-Jaap Koops, Should ICT Regulation Be Technology-Neutral?, in STARTING POINTS FOR ICT REGULATION (Bert-Jaap Koops, Mariam Lips, Corien Prins, & Maurice Schellekens, eds., 2006).
Herbert Burkert, Four Myths about Regulating in the Information Society – A Comment, in STARTING POINTS FOR ICT REGULATION (Bert-Jaap Koops, Mariam Lips, Corien Prins, & Maurice Schellekens, eds., 2006).
A kind of paradox is presented by modern technophiles. In the same breath they declare that technology is neutral while touting technology as the actuator of pro-democratic political change.37 In the academic community, many have argued that technology is not neutral but rather a profound “part of our very humanity.”38
In The Whale and the Reactor, Langdon Winner invites the reader to consider the political dimensions of technologies that generate electricity. A society that adopts nuclear power must also have a military-like police force to protect spent rods and by-products of atomic power from misuse. It must have extensive security to prevent a terrorist from flying a plane into the reactor or otherwise triggering a meltdown. Nuclear power distribution is centralized and owned by just a few people, so there are profound economic implications as well.
On the other hand, a society that adopted home solar power would have less of a need for a strong police force. Power generation and ownership would be decentralized and probably impossible to monitor. Simply put, nuclear energy requires a different set of political relationships, and thus Winner labeled it an inherently political technology. Winner suggests other examples of discrimination in design that “enhance the power, authority, and privilege of some over others,” including the allegation that Robert Moses built low bridge overpasses to prevent city buses (and thus the urban poor) from visiting Jones Beach.
Understood in this way, claims that “technology is neutral” may be a technique to mask the political motives of technology companies: “All too often the design of technologies simply conceals the ideologies and political agendas of their creators.”39 Evgeny Morozov thus recommends that policy “clearly scrutinize both the logic of technology and the logic of society that adopts it . . .”40
37 ERIC SCHMIDT AND JARED COHEN, THE NEW DIGITAL AGE: RESHAPING THE FUTURE OF PEOPLE, NATIONS AND BUSINESS (2013). (The authors say such things as “technology is neutral but people are not” and “Technology companies export their values along with their products, so it is absolutely vital who lays the foundation of connectivity infrastructure.”)
38 LANGDON WINNER, THE WHALE AND THE REACTOR (1986). See also Gary T. Marx, Coming to Terms and Avoiding Information Techno-Fallacies, in PRIVACY IN THE MODERN AGE: THE SEARCH FOR SOLUTIONS (Marc Rotenberg & Jermaine Scott eds., 2015).
39 EVGENY MOROZOV, THE NET DELUSION (2011); Evgeny Morozov, Don’t Be Evil, THE NEW REPUBLIC (August 4, 2011).
40 EVGENY MOROZOV, THE NET DELUSION (2011).
Chairman Michael Pertschuk was one of the most qualified FTC leaders ever. Educated at Yale Law School, he clerked for a federal district judge, practiced at a firm, and then spent fifteen years on Capitol Hill. His Hill experience brought him great expertise in consumer protection, as he was chief counsel to the Senate Commerce Committee during the expansion of consumer rights in the 1970s.
Pertschuk led the FTC during its most controversial years. In his 1982 book, Revolt against Regulation, he gave a personal account of lessons learned from the newfound skepticism of government regulation.55 He offered consumer advocates seven lessons in consumer regulation. They should ask:
- Is the rule consonant with market incentives to the maximum extent feasible?
- Will the remedy work?
- Will the chosen remedy minimize the cost burdens of compliance, consistent with achieving the objective?
- Will the benefits flowing from the rule to consumer or to competition substantially exceed the costs?
- Will the rule or remedy adversely affect competition?
- Does the regulation preserve freedom of informed individual choice to the maximum extent consistent with consumer welfare?
- To what extent is the problem appropriate for federal intervention and amendable to a centrally administered national standard?
Pertschuk’s book is an anomaly for Washington memoirs, which typically involve some trope about “reforming Washington,” with failures attributed to intractable “bureaucracies” and the like. Pertschuk wrestles with questions fundamental to whether consumer protection is effective, and declares that his experience taught him the (albeit limited) value of cost–benefit analysis
MICHAEL PERTSCHUK, REVOLT AGAINST REGULATION (1982).
DoubleClick was among the founding NAI Members.
Back in November, I posted the Department of Commerce’s Privacy Shield checklist. The next logical step was to request DOC’s procedures for removal of companies from the Privacy Shield (submitted Dec. 1). Today, DOC-International Trade Administration responded with a “no records” response. It is not clear to me what date the search took place, and ITA is careful to say that their search did not include non-ITA Commerce elements. I’m following up on that.
“…fraud is endemic to modern capitalism,” so said Professor Edward Balleisen at a National History Center talk on his excellent, comprehensive, thoughtful Fraud: An American History from Barnum to Madoff. We need histories of consumer protection. Balleisen provides one such history, focusing on the idea of fraud—specifically those wrought by businesses against consumers and investors. The concept of “fraud” is complex, it is defined differently through disciplinary lenses, and when we think about FTC privacy and many other consumer protection efforts, we are addressing conduct that is different from Balleisen’s focus. Yet, Balleisen’s book offers lessons for consumer protection more broadly and I learned a great deal from it.
Balleisen’s observation of the policy pendulum of anti-fraud efforts is most clearly stated on page 309, and anyone involved in modern debates on the FTC will recognize it:
Forceful antifraud tactics tended to generate complaints about autocratic governance that ran roughshod over individual rights and American values, which then prompted adoption of procedural protections, which in turn limited the effectiveness of administrative remedies. Post–World War II proceduralism deepened the democratic legitimacy of antifraud regulation, but at the cost of extending the rights of accused businesses, whether in criminal or administrative contexts.
My copy of Balleisen’s book is heavily marked up. So here are two key questions answered by the book and some other reflections–
Why, despite our rich information environment and seeming greater accountability brought about by technology and institutions, do frauds still persist, largely in five basic forms (pump and dump, pyramid scheme, bait and switch, advanced fee frauds, control fraud)?
- There are businesses committed to fraud. The proceduralism described by Balleisen allowed committed fraudsters (Holland Furnace, Fritzel Television) to slow down intervention.
- Committed fraudsters keep a “squawk” fund to “cool of the mark” by paying the consumers who do complain.
- Especially in areas where products/services are new and norms do not yet exist, new market entrants have more space for deception.
- Concerns about the pace of innovation and creating breathing room for it makes tolerance for fraud a part of a dynamic economy.
- A turn to individualism in the 1970s caused institutions such as the BBB to embrace squawk fund approaches—instead of pursing big, collective actions, BBB started remedying individual claims, thus leaving the target free to continue operations.
- Frauds are often small scale and your typical collective action problems emerge in policing them (daunting costs of representation, limited recovery, risk of countersuit or retaliation, embarrassment, and the problem of “unclean hands”).
- Information asymmetry still exists!
- Fraudsters can take advantage of the biases and heuristic reasoning approaches that most of us use.
- We are strongly moved by forms of social proof over more objective evidence.
- We are overconfident, especially when we have a little knowledge of a subject. There is the problem that many of us cannot recognize our own incompetence (the Dunning-Kruger effect).
- We reason through “available” examples—easily recallable fraud events. As old frauds (such as the lightning rod sales of the last century) are interdicted, we forget about them and their lessons.
- We are vulnerable to anchoring, which skews our perception of price.
- We are loss adverse—and so when we anchor to a price, we act impulsively to capture discounts from the anchored price.
- We are not good at separating bundles, and so sellers that engage in bundling can influence our perception of value (act now and get not one, but two non-stick pans!).
- We are optimistic.
- Gullibility, dreams of quickly-acquired wealth.
- Only a small number of people need to fall for a fraud for the enterprise to be successful.
- The Holder in Due Course doctrine—obliterated by the FTC in the 1970s, the ability for a seller to transfer a debt obligation to a third party created intense incentives for fraudulent sales.
- On some level, we admire the guile of fraudsters—think about our centuries-long fascination with stories such as Reynard. The OED has over 300 words to describe deception, deceit, and trickery.
- And there are many, many ways of cheating. Balleisen covers the many ways 19th century companies defrauded each other—wetting cotton to make it heavier, enclosing a low-value project within an envelope of high-quality material, and so on.
- We are unwilling to criminally prosecute many consumer frauds, and when we do, convicted defendants receive laughably small sentences in light of the scale of their thefts.
- On some level, we resent victims of fraud, and suspect that victims were somehow complicit in the scheme. The OED has 200 words for dupes.
Related to the above, what are the tensions/tactics that enable fraud today?
- Product complexity. Complexity makes quality assessment difficult, leading us to fall back upon easily-manipulated signals, such as social proof.
- This is, by the way, one reason why I think institutions such as Yelp will aid consumer protection little. Yelp—and even the BBB—are easily manipulated. There are even services that will do it for you, just like buying “puffs” from a 19th century newspaperman.
- Economic complexity. As our economy becomes more complex, we have to rely and trust people we do not know—even people not in our own country.
- Agreement complexity. Basic business models such as compounding interest cannot be defined by many consumers.
- Corporate secrecy.
- The ability to quickly incorporate.
- Being able to acquire the “trappings of success.” Ponzi was known to have bought the most expensive car in production—merely possessing it offered proof of his legitimacy. Balleisen shows other examples—the importance of fraudsters to claim having a prestigious address, of having been in operation for many years, of having trademarks or other signals of brand.
- Disclosure pollution. If a regulatory regime requires disclosure of some fact pointing to a problem, “pollute” the communication by making tons and tons of disclosures. I suspect that drug companies do this with side effects of prescription medicines.
Some final reflections–
I was surprised to learn of the historical vigor of the Better Business Bureau. I’ve long thought it to be not the most agile or effective institution. But Balleisen recounts decades when it was a serious force for consumer protection enforcement. In its heyday, it was a key actor in big fraud investigations, and it assisted public authorities in prosecutions. Balleisen shows how a conservative faction asserted control over its priorities, defanged it, and in the process, made it slouch into a kind of arbitration service for individual claims, and an opponent of anything but self-regulatory approaches. Some of the problems that Balleisen paints in the 1970 takeover, such as the problem of adverse selection in BBB membership, replicated themselves in the self-regulatory regimes for the internet.
Thoughts of “fraud” conjure images of Ponzi and Madoff. Conservatives and liberals alike disapprove of fraud as such. A problem that arises is that we use the same institutions and laws to pursue pure fraudsters as we do companies that do not live up to their advertising promises. This brand of FTC target sees himself as an honest businessman not to be painted with the same brush as hucksters. Balleisen gives the historical example of Macy’s and its promise that all of its prices were 6% lower than competitors—we know that this claim cannot be true in all situations. Macy’s saw deviance from the 6% target as just an imperfection that does not amount to deception or wrongdoing. Today, when companies like LabMD react viscerally to FTC intervention, it acts out just as its forebears. It rightly sees itself as a honest business–why is the federal government breathing down its neck? Businesses that read the situation that way always do the same thing—they accuse the FTC of pinkoism and of standing on an insecure constitutional foundation. Balleisen’s point is that their interventions introduce more and more proceduralism, but they rarely limit the substantive authorities of consumer protection institutions.
Balleisen’s book does not end in a bang. He adheres to the idea that there is no “silver bullet” to fraud, that many institutions and legal tools are needed to contain it, and that prevention (incentives for truthfulness, public education, consumer friendly defaults) should be the strategy rather than ex post remedy. He does carefully present the conservative reaction to the FTC but seems unconvinced of its cogency, or perhaps unconvinced that the critiques justify dismantling of new institutions.