Once it became clear that his congressional interrogation would have all the intensity of a flogging with wet lettuce, Facebook founder Mark Zuckerberg cleverly shifted the tenor of his remarks. He patiently tutored D.C.’s elected internet virgins in the role he was expecting them to play in the battle to come: making sure regulation of Facebook, when it arrives, is as weak as possible. “My position is not that there should be no regulation,” he said early in his testimony last Tuesday. “The real question is what is the right regulation?” He returned to this theme often over the ten hours that followed, in between the ritual dead-eyed apologies and earnest pledges to “follow up” with lawmakers whose questions made no sense, or made him uncomfortable, or both. “I’m not the type of person who thinks all regulation is bad,” Zuckerberg announced in what passes for brave self-awareness in Silicon Valley. “We need to get better at this,” he conceded at another point. And still again, he said something that’s truly shocking to your average GOP Capitol Hill apparatchik: “I think the Europeans get some things right.”
None of this actually sounds much like regulation at all, if by regulation you mean external government oversight of a private company’s operations. The type of regulation Zuckerberg wants is self-regulation, which is to say no regulation. The Facebook CEO now joins the long list of corporate chieftains whose “tailored,” “targeted,” “appropriate” solution to clear market failures is not less market, but more of it: more market, all market, only market, all the time.
This should surprise no one. In the run-up to this week’s hearings Facebook has been working hard to gut privacy law initiatives in Illinois and California—giving the lie to Zuckerberg’s self-prostration before lawmakers. Apple CEO Tim Cook had already softened things up for Zuckerberg before this week’s hearings. At a technology conference in Beijing last month, Cook said of the Facebook controversy, “I’m personally not a big fan of regulation because sometimes regulation can have unexpected consequences to it, however I think this certain situation is so dire, and has become so large, that probably some well-crafted regulation is necessary.” “Unexpected consequences,” “well-crafted:” These are the code words that signal not the advent of a new era of robust government oversight, but the start of the anti-regulatory resistance.
Once it became clear that his congressional interrogation would have all the intensity of a flogging with wet lettuce, Zuckerberg shifted the tenor of his remarks.
Zuckerberg arrived in D.C. ready for a fight. One talking point, in the end never deployed, printed on the notes he left behind offered a rebuttal to suggestions that Facebook should be broken up: “U.S. tech companies key asset for America; break up strengthens Chinese companies.” Forget, for one moment, that this is a winning argument only as long as you accept that unruly social media networks with the power to throw domestic elections off course and vandalize the public square represent the wellspring of American hegemony. The real point was to cement the equation between Facebook and Silicon Valley as a whole: You hurt one of us, you hurt us all. The idea here was to establish that the battle ahead, however much we all know it’s about the failings of one company and one company only, is in functional terms a cultural proxy war: Silicon Valley, the pride of America, against Washington, D.C., its biggest headache.
As things turned out, Zuckerberg didn’t have to spin that hard to co-opt Congress to the resistance, which is why his talking point wound up on the cutting-room floor. Indeed, many of his inquisitors did much of Zuckerberg’s work for him, arguing, as Republican climate change denier Roger Wicker did, that “we don’t want to overregulate to the point where we’re stifling innovation and investment.” Even Lindsey Graham, hailed in the media for his “sharp” line of questioning (“Are you a monopoly?”), quit the tough guy act by the fourth of his five allotted minutes and rolled over to request the congressional hearing equivalent of a belly scratch: “Would you work with us to design regulation? Would you submit to us and propose regulations?” To which Zuckerberg, unsurprisingly, offered one of the biggest, brightest “Yes, Senators” that a human voice can muster.
But even though congressional cowardice meant Zuckerberg left most of his talking points on the table, we understand enough already to know the general shape of the resistance to come. We don’t, of course, know what the regulation itself will look like. It could involve stringent privacy protections, or moves to regulate the core information distribution network of Facebook like a utility, or full-blown antitrust action to force the divestiture of Instagram, WhatsApp, Oculus, and other Facebook subsidiaries. Or it could be some combination of all three approaches. But what’s certain is that Facebook will meet any step in anything vaguely resembling substantive outside oversight with a set of attacks not only against the content of laws proposed but against the very concept of regulation. Regulation, it will argue, hurts competitiveness and crimps innovation; it will paint regulation as geopolitically self-harming and anti-modern, an offense to capital-P Progress. And most of all, it will argue that regulation has unintended consequences.
This is all easy to forecast, for the simple reason that every dominant corporate interest has fended off attempts at tighter regulation over the past two decades using similar arguments. Thanks especially to the campaign Wall Street has waged over the past decade to roll back and stamp out any residual feint in the direction of financial reform, the manual for this line of attack is well thumbed.
But it’s just as evident that the manual is perilously flimsy. There’s a very obvious mismatch of incentives when a private corporation dependent on ads to generate revenue finds itself in control of one of the major distribution channels of public debate. Between Facebook’s profit imperative and Zuckerberg’s vague desire, however sincerely held, to maintain a healthy public sphere, there’s only ever going to be one winner. Figuring out a path through that tangle is going to be the lawmakers’ biggest challenge. But the cultural war over whether regulators—the poor little darlings, with their crappy salaries and their non-subsidized desk lunches, consumed by private-sector longing and hate—are up to the task of policing the nerd-stacked Silicon Valley monster truck that is Facebook will arguably be just as important.
The financial industry lobbied tirelessly against Dodd-Frank prior to its passage in mid-2010, arguing that the vast regulatory apparatus it summoned into existence would cause financial markets to freeze up, credit to wither, business to suffer and America to fall behind Europe and China. Wall Street continued to hammer on these themes in the years that followed, as regulatory agencies began the long and complex task of putting Dodd-Frank into practice. And bankers and their retainers are still reciting the same hoary talking points today; indeed, the two-hundred-page report that Steve Mnuchin’s Treasury released last year with recommendations for overhauling financial reform is filled with them.
There’s one problem with this line of attack: It’s bullshit. We’re now eight years on from Dodd-Frank, and precisely none of the dire predictions Wall Street issued at the time the laws were being written has come to pass. The sky has not fallen. Investors have not decamped en masse to Shenzhen. The market has adapted. Money is still managed. Credit continues to expand. And regulation has been far more of an opportunity for innovation than an inhibitor of it: new players and Silicon Valley opportunists—including those at the forefront of a whole thing known by the horrendous portmanteau of “RegTech”—are emerging to cater to the altered conditions of paper-economy commerce. It’s premature to say Dodd-Frank has “worked,” but it plainly has not kneecapped corporate America in the way its detractors said it would eight years ago.
Even Trump’s anti-regulatory stormtroopers in the Treasury Department have had to concede defeat, to a degree at least. Read their report (though you really shouldn’t, because it’s not very interesting, and less enlightening) and you’ll find little more than decade-old debating points as “evidence” for the case for repealing financial reform. That’s because the case has, in fact, no evidence to support it. On many points—even ones that were maximally divisive at the time of Dodd-Frank’s passage—they simply accept that the argument has been lost. They find, for instance, “widespread support” among the financial industry for measures to bring transparency to the trading of derivatives, the chunky financial products used to buttress and manage the biggest trades on Wall Street. This is the type of sentence that might have caused a financial industry lobbyist’s head to explode had it been written in 2010: Measures to curb derivatives trading were at that time more likely to be cast as the imminent cause of the apocalypse than as a magnet for widespread industry support. And yet here we are. All those millions spent on lobbying and even financial regulation’s most blinkered small-government critics have had to admit that, you know what, it maybe wasn’t so bad after all.
The one thing we can say about fixing the financial system after Bernie Madoff is that it did not involve more Madoff.
But this state of affairs, needless to say, hasn’t stopped Republican-sponsored legislation to repeal Dodd-Frank from continuing its passage through Congress. Still, it’s important to recognize that such laws are proposed despite the evidence, not because of it. The truth is elsewhere.
Every new regulatory scheme of significance will have unintended consequences: Regulators can’t predict the future with any greater assurance than anyone else, and it’s idiotic to expect otherwise. But often the “unintended consequences” complained of after regulations come into effect are acceptable costs incurred to achieve a greater benefit. Dodd-Frank’s only “unintended consequence” of even marginal substance—a consolidation of the financial power of big banks to the detriment of community banks—is the type of consequence that was, if not quite intended, at the very least expected at the time Dodd-Frank was written: we know from the Gilded Age history of the railroads and telephone services that regulation of large public-interest industries tends to raise barriers to entry, entrench incumbents and consolidate monopolies.
But what was the alternative: to do nothing and leave big banks unregulated, free from the onerous capital and compliance requirements that have hastened this market consolidation? Obviously not. Talk of regulation’s “unintended consequences” always ignores that regulation’s opposite has historically wrought far greater unplanned harm. Since the 1980s, deregulation in the financial sector alone has given us the Depository Institutions Deregulation and Monetary Control Act, the Financial Services Modernization Act, the savings and loan crisis, and the biggest global recession since the 1930s. Regulation of finance, on the other hand, has given us Dodd-Frank and complaints from a handful of already-rich bankers about thinned-out bonus pools and higher compliance costs. Blessed be the enemies of innovation.
The law, the old saying goes, is an ass. The chieftains of corporate America return to this theme whenever the specter of regulation reappears: The law is too cumbersome, bureaucracy too slow, to meet the challenges of a complex world. Zuckerberg’s own variation mixes contrition and a disingenuous openness to regulation with regular reminders of the power of AI to solve many of the company’s present ills. While the bureaucrats dither, the robots will fix it! But they won’t—not fast enough, anyway, and not in a way that adequately accounts for human ingenuity in the formulation of hate speech and misinformation. And no number of new products, no matter how smart or well designed, will ever be able to solve a problem that is, at its core, structural; more products, more things to develop and sell, will only make Facebook’s misalignment of incentives between private and public interests more acute. The one thing we can say about fixing the financial system after Bernie Madoff is that it did not involve more Madoff.
The opposite is true of the law. It was Mr. Bumble in Oliver Twist, learning from the court that he was liable for his wife’s misdemeanors, who declared the law to be an ass. But the cure for the ass-like law in this originary example—the common law doctrine of coverture, which held that a wife’s legal rights and obligations were subsumed within those of her husband—was to be found not outside the law but within it: England passed a series of Married Women’s Property Acts in the 1870s and 1880s to free wives from subservience to their husbands and grant them full legal personhood. There was no AI to call on, no outsourcing of solutions, no rabbit for the private sector to pull out of its magic hat. Manifest injustice called for more regulation, not less of it. The same held true ten years ago, after the financial crisis. The same also holds true today. The only unintended consequences that matter are those of doing nothing.