View: The right approach to Big Tech regulation

Global sentiment is to tame Big Tech, and rightly so. It has been more than a decade since the Big Tech saga began. But regulators across the world are still grappling with concerns arising from the reach of the digital world in everyday lives of people that range from data protection to unfair trade practices. But while the urgency in government action to protect the consumer interest is understandable, it is crucial to deliberate upon the appropriateness of regulatory measures.Most measures taken by regulators to address issues like ex ante regulation or anti-trust enforcement do not appear to be well thought-out. Such measures either fail to serve their intended purpose, or give rise to other issues. Result: lose-lose.After Germany implemented it, India also made provisions for social media censorship under the Information Technology (Intermediary Guidelines and Digital Media Ethics Code) Rules, 2021. A major point of controversy is over the identification of the origin of ‘mischievous’ content. This would require social media companies to break end-to-end encryption, compromising the privacy of users. This would make the cure worse than the disease.Some policies also arise from a protectionist mindset, not just in India but around the world. For instance, in India, domestic brick-and-mortar retailers feel threatened by Amazon and Walmart-backed Flipkart. To safeguard the interest of domestic players, GoI has been frequently revising India’s FDI policy. This signals policy uncertainty and unpredictability, and discourages foreign investment.In another instance, the Australian government introduced the News Media and Digital Platforms Mandatory Bargaining Code, forcing tech giants to pay news publishers whose content appears on their platforms, as most user attention — and, thus, advertising — is being driven to them. Some big economies like the US, Britain and Canada, as well as India, are likely to follow suit. Such policy measures may give rise to inefficiencies.Joseph Schumpeter’s theory of creative destruction suggests that ‘over time, newer and better innovations will continue to drive out worse ones’ — the horse-drawn buggy replaced by Henry Ford’s Model T automobile, etc. In this way, consumers benefit. Similarly, today’s technological advancement is grabbing consumer attention, replacing traditional business ecosystems.Having a progressive industry bail out an obsolete one is to foster inefficiency. Instead, the latter should modify its business model to cater to changed consumer preferences to sustain or adopt new technologies. This reluctance to evolve can stunt economic growth. Apart from ex ante regulations, Big Tech has also been facing antitrust enforcement actions in several countries, with huge penalties and imposition of remedies to restore competition.The possibility of Big Tech indulging in unfair trade practices cannot be denied. But the complexity of digital markets and inappropriate antitrust tools may lead to committing more antitrust Type 1 errors — court condemning a conduct that was not anti-competitive — thereby reducing consumer welfare. Some of these actions may also be guided by the ‘Big is bad’ philosophy, making ‘breaking up tech giants’ a potential solution to reducing their capacity to capture economy-wide power.Governments and regulators should be cautious of the implications of their decisions. Knee-jerk policymaking can only exacerbate the problems, stifle the industry and hamper growth. Certain issues are important to address, requiring regulatory oversight. But over-regulation would only waste the resources in unnecessary compliance, diverting them from R&D and improved services, and dampen the spirit of not just Big Tech but also of innovation itself nurtured by startups.For a developing country like India, it is all the more important to create a conducive business environment for domestic as well as foreign players. Thus, regulations and their implications must be well thought-out and made in consultation with all stakeholders.What’s needed is a fresh approach to Big Tech regulation with an unbiased mindset. GoI could start with a review of each of the policies governing digital markets, followed by creation of a framework for continuing constructive dialogue with market players.(Mayaram is former Union finance secretary, and Sodhi is Senior Fellow, CUTS Institute for Regulation & Competition. Bhaavi Agrawal contributed to the article)
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