Keep Governments Out of Data Debates

by | Jan 19, 2023

There is a role for the law in consumer data privacy, but for the most part, rather than looking for ways to regulate and punish, states should stay focused on actual violations of individual rights, such as when personally identifiable data is used to commit identity and financial theft.

With the increasing digitization of everything from social interaction to shopping to maps and our real-time locations, there are growing calls to regulate technology companies and pass privacy laws mandating how data can be collected. But private data collection during our use of products and everyday services can be done in a way that doesn’t violate consumers’ rights. A willing exchange of goods and services is one of the core forces driving free markets, including today’s technology and demand for personal data.

Before the internet and cell phones existed, consumers willingly exchanged access to their information for services and financial benefits. Shoppers have voluntarily signed up for retail outlet loyalty programs and grocery discount clubs that track purchasing decisions. Consumers don’t have to give up that information but choose to in exchange for lower prices and other benefits. Retailers used the data to learn how to serve and keep customers.

This longstanding practice carried into the digital world with great success. America has become the undisputed home of technological innovation, with firms like Amazon, Apple, Google, Facebook and Netflix all using consumer data to offer better products at lower prices. Apple uses data to improve its devices and services. Netflix uses data on what you watch to improve its recommendations. In countless ways, data has helped technology deliver instant access to millions of websites, products and services via our phones — now powerful pocket computers.

In contrast to today’s loud, bipartisan calls for the government to regulate big tech and pass restrictive privacy laws, one reason so much technological advancement has been possible is the minimal government involvement and burdensome regulations.

Research of data privacy laws — like the Fair Credit Reporting Act, which regulates credit bureaus — finds regulations have led to stagnated industries where only the largest and most politically connected credit bureaus and firms can navigate the costly, complicated regulatory landscape. Rather than helping people, the laws end up hurting consumers by limiting their choices while protecting companies and industries that might otherwise have to produce innovation and better serve customers in the face of competition.

Similarly, creating consumer privacy laws like those found in Europe’s General Data Protection Regulation (GDPR) have reduced the quality of the internet, protected big companies and hurt smaller ones. “In GDPR’s immediate aftermath, more than 1,000 news sites were suddenly unavailable trying to visit from the EU, with the bulk being smaller, local outlets,” Gizmodo reported. “That’s not a coincidence; while the New York Timeses and Washington Posts could afford a legal team and tech setup to stay put without being threatened with GDPR’s massive fines, local outlets were already struggling.”

There is a role for the law in consumer data privacy, but for the most part, rather than looking for ways to regulate and punish, states should stay focused on actual consumers’ harms, such as when personally identifiable data is used to commit identity and financial theft. States can also help develop industry standards with groups such as the World World Web Consortium that developed best practices for data and created safe harbors for data companies to assist in keeping data appropriately stored and protected.

Any privacy law should distinguish between personally identifiable data, which would understandably want to be protected in many cases. Consumers should be able to correct or delete sensitive personal information, such as Social Security numbers or other identifying numbers and bank account information. Meanwhile, completely de-identified and anonymized data should not require regulations.

Some calls for privacy laws may be well-intentioned, but creating state or federal laws that impose burdensome data requirements will generate friction between consumers and providers, reducing the quality of services and increasing the price.

Technology has been a massive success story in recent decades, largely because it has been freer from extensive intrusive regulations and overly bureaucratic rulemaking than many other industries. Consumers don’t need politicians to help them decide what products and services they want to buy and what data they’re willing to share with private companies.

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Spence Purnell is director of technology policy at Reason Foundation, a free market think tank.

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