The foolish demonization of big tech

It seems that Mark Zuckerberg's fantasy presidential campaign has suffered a major setback. So has Big Tech's (more serious) efforts to prevent new and possibly sweeping regulation from Washington.

Of course, Facebook has no one to blame but itself. Yes, Trump campaign contractor Cambridge Analytica was a dodgy actor who violated Facebook's terms of service and misused potentially tens of millions of Americans' data. But calling what happened a "data breach" isn't quite right. Facebook isn't Equifax. Its servers weren't hacked. And Facebook CEO Mark Zuckerberg made numerous mistakes to bring the company to what is perhaps an existential crisis. He knows it, too. "We have a responsibility to protect your data, and if we can't then we don't deserve to serve you," he wrote in a statement, adding that "I started Facebook, and at the end of the day I'm responsible for what happens on our platform. I'm serious about doing what it takes to protect our community."

Part of the problem, and Zuck admits as much, is that app developers for too long had too much access to private user info. Back in 2015, the company should have demanded a forensic audit of all Cambridge Analytica machines. And Facebook's public response to this data privacy scandal has been wholly inadequate. The result is not just a big drop in Facebook's stock price, but real questions as to whether the brand can ever recover its previous shine.

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Yet while the immediate controversy is about Facebook and privacy, it is happening amid a broader "techlash" against the megaplatforms: Apple, Amazon, Facebook, Google, and Microsoft. Even though these companies remain immensely popular among consumer and business users, activists on both the left ("You're monopolists who idiotically swung the election to President Trump!") and right ("You're monopolists who nefariously picked the evil side in the culture wars!") are seeking to rein them in through antitrust actions, regulation, or plain old demonization.

When Zuckerberg eventually testifies before Congress, he won't just be arguing Facebook's case, but also the brief for why Big Tech can mostly fix itself without massive interference from Washington. And make no mistake: Risks are rising that Washington will act and perhaps overreact to tech's troubles.

Consider what's at stake: When politicians talk about how the U.S. needs faster GDP growth, and workers need higher wages, what they are really saying is that the American economy needs to be more like Silicon Valley and the digital economy. Indeed, a new Commerce Department study finds the $1.3 trillion digital economy — including hardware, software, ecommerce, and digital media — grew at an average annual rate of 5.6 percent over the past decade compared to 1.5 percent growth in the overall economy. And the jobs being generated by all that growth tend to be good ones with average annual compensation of $114,000, nearly twice the U.S. average.

Big Tech, with a combined market capitalization of nearly $3 trillion, has been at the sector's leading edge, generating growth and innovation in the internet economy. There's a reason why Europe laments its lack of tech titans, and China wants even more of their own.

So, hey, let's not mess all that up with rash actions where unintended consequences haven't been carefully thought through. Some tech critics are, for instance, envious of Europe's big new rules scheme, the General Data Protection Regulation. The GDPR, which takes effect in May, sharply limits what companies can do with user data — such as advertising — without explicit consent through all manner of permission screens.

Yet regulations can often turn into a blessing of sorts for big companies. What hurts short-term profits can sometimes turn into a long-term moat against potential future competitors. As tech analyst Ben Thompson explains, "GDPR will be a pain for Google and Facebook, but it will be lethal for many of their competitors, which means digital ad revenue post-GDPR … will go to Facebook and Google."

Other Silicon Valley foes would make tech firms more liable for the content on their sites. They would scale back or even repeal Section 230 of the Communications Decency Act, which for more than 20 years has provided websites with immunity from liability for what their users post. This rule has been a key enabler of the rise of the internet economy. Weakening the provision would almost surely result in more litigation and censorship. And, again, less industry competition. "Even if today's internet giants can survive the loss of Section 230 and absorb the costs of censorship compliance, new market entrants likely can't," argues internet policy expert Mike Godwin.

America's tech giants remain a tremendously valuable resource. And if they are to escape a potentially harmful regulatory reaction, they need to preemptively prepare for it. More transparency about data privacy probably isn't sufficient. One option is to back the idea that Congress establish special courts to deal with the needed economic and engineering expertise to adjudicate complaints against the platform companies. Maybe it could be a key platform of the Zuck for America 2020 campaign. Then again, better make that 2024. Or maybe 2028 ...