The FTC’s Internet Kill Switch

Bureaucrats at the Federal Trade Commission (FTC) are pursuing a heavy-handed regulatory approach to address vague concerns about consumers’ online privacy. They claim that privacy is threatened by a shadowy group of advertisers who are harvesting your data from behind the screen to sell you more stuff. While I don’t discount the agency’s good intentions to protect consumers, FTC activists have supported regulations that would threaten the lifeblood of the Internet: data.

I support safeguarding users’ personally identifiable information and sensitive data like health or financial records. I also believe the government has a responsibility to punish deceptive and unfair practices that defy reasonable expectations about consumers’ privacy. The real problem is that the FTC has grossly exaggerated the true harm to consumers, and they are stubbornly unwilling to accommodate any free-market solutions.

The FTC’s government firewall proposal would effectively require an “opt-in” approach before users could gain access to the digital economy. Congress and the American people should recognize that such strict prescriptions would have huge real world costs on the advertising model that supports the creative economy online. U.S. online ad revenue totaled $31 billion last year, representing 40% of global sales. In today’s thriving information age, ad spending not only sustains the quality and quantity of content consumers demand, it adds real social benefits in the form of access to relevant information, personalized applications, more competition, and lower costs. More importantly, online ad revenues sustain our free press online as the FTC’s own workshop on journalism in the Internet age amply demonstrated.

More subtly, the FTC’s privacy regulations would limit the innovator’s ability to analyze non-sensitive consumer information to add to its value. An absolutist privacy regime that trumps all other social values threatens not only this value-added prospect, but also the very online model that has so far been the greatest vehicle for individual freedom, economic growth, and democracy the world has ever known.

These restrictions would also erect anti-competitive barriers for smaller start-up firms attempting to enter the market. It’s a disincentive for job creation, new investment, and innovation. Naturally, “opt-in” mandates disproportionately benefit entrenched incumbents who have more political muscle. Strategically, it helps explain why the Googles of the world readily endorse clever government mandates: they get to box out their new competitors and appease their activist regulators.

We should heed former President Reagan’s advice that “Government is not the solution, government is the problem.” Ironically, one of the clearer threats to consumer privacy is the government’s largely unchecked ability to collect your sensitive information without due process.

A better approach is for the FTC to encourage and enforce the self-regulatory structures that already exist, and for the agency to devote its resources to punish obvious “unfair and deceptive” business practices. Innovators have embraced a reasonable middle ground: empowering consumers with accessible and easy-to-use tools that allow greater transparency, choice, and control to protect “the virtual you” – one’s online information. We should applaud the ongoing evolution of those privacy tools instead of insisting on a top-down government solution.

An overly expansive virtual “toll” for the Internet that blocks consumers’ and competitors’ access to the e-commerce superhighway is not the right answer. We need to think critically about how well-intended privacy regulation could become an unintended Internet kill switch. The FTC’s plans would cripple our creative economy, limit our ability to access useful information online, harm competition and innovation, and test the limits of the First Amendment. If we don’t address it, the free and open Internet we use to promote our ideas across the country today is going to be at risk tomorrow.