NEGATIVE — COUNTERPLAN — FREE MARKET 83

NO PERMUTATION OR CO-OPTATION — GOVERNMENT MUST HAVE NO ROLE IN ORDER TO HAVE REAL SELF-REGULATION

THERE IS NO REASON FOR SUPERVISED SELF-REGULATION OF PRIVACY -- JUST LEAVE THEM ALONE

Indeed, in the privacy context, one might ask whether there is any reason for third-party supervised "self-regulation" to emerge at all. Why would there not be as many different privacy policies as there are e-commerce companies? A system of privacy "self-regulation" imposed on the market by regulators might well tend to collapse over time (rather as the Comics Code has) simply because there is no need for third-party ratings. Businesses' individual concern to gain a loyal consumer following might be more than enough; many businesses will choose not to participate. And no third-party rating system might be able to capture the extraordinary variety of patterns of customer preferences that will emerge.

WE MUST AVOID FAKE SELF-REGULATION WITH GOVERTNMENT INVOLVEMENT AND INSTEAD OPT FOR REAL SELF-REGULATION

We should, therefore, avoid faux "self-regulation" like the plague; it has many of the drawbacks of command and control regulation, without accountability. But on the privacy front, we seem to be moving inexorably beyond even faux "self-regulation" and towards the command and control model, on the theory that self-regulation is not enough or is not working.

But this is not because there is any real problem with true self-regulation! The problem is that regulatory expectations of what self-regulation is supposed to accomplish have become utterly divorced from reality. When something makes us unhappy, it's worth asking, were our expectations reasonable? When we describe imperfections in a market, what ideal process are we comparing it too? Forestalling disappointment with respect to privacy issues means, not moving towards command and control, but understanding how self-regulation is likely to work. I sketch this out below.

SELF-REGULATION WITH GOVERNMENT INVOLVEMENT IS NOT TRUE TO MARKET MODELS

The previous discussion shows that self-regulation with substantial government involvement is substantially different from a market process.

* True self-regulation tends to offer consumers a choice of competing third-party rating systems, as with kosher food labels.

* Faux "Self-regulation" foisted on the market by government imposes goals from the top-down; goals are assumed not to be evolving or diverse.

* Faux "self-regulation" is uncertain and lawless, and may impose substantial regulatory costs with little or no benefit.

TOP-DOWN SELF-REGULATION LEDS TO MANY OF THE DAMAGING EFFECTS OF NORMAL REGULATION

Another element missing from the equation when government pressure forces markets towards "self-regulation" is cost-benefit analysis. Even in formal rulemaking proceedings, agencies are notoriously oblivious to the need to perform such studies. The problem is exacerbated a thousand-fold when agencies pressure the market to regulate itself. In the privacy debate, for example, little or no attention has been paid to

* the impact of tighter controls on personal information on competition and small business;

* business models that might be driven out of the market by enforcement of top-down privacy goals;

* the costs of enforcement, and the overall costs to consumers;

* the impact on innovation.

TOP-DOWN SELF-REGULATION DOES NOT TAKE ADVANTAGE OF MARKET FORCES

When regulators insist that a system of "self-regulation" must conform to certain fixed, top-down goals, they are clearly not talking about self-regulation that arises from market forces. In a market, goals are evolving, varied, and diverse. In the world of business ethics and customer relations, preferences about privacy and trust are evolving, varied and diverse. In the world of free speech, preferences as to what kinds of content are suitable for children are evolving, varied, and diverse.

SELF-REGULATION WHICH ASSUMES CERTAIN FIXED GOALS IS NOT REALLY SELF-REGULATION AT ALL

If advocates of self-regulation expect the system to produce an outcome that guarantees certain fixed goals, they are doomed to disappointment--and thence to top-down regulation. True self-regulation means choice, variety, and experimentation. Or else it has all the same defects as the Communications Decency Act and the Comics Code--a top-down imposition of the values of some upon all.

GOVERNMENT INVOLVEMENT IN SELF-REGULATION IS A RECIPE FOR FAILURE

Self-regulation may seem to participants in the marketplace like a fairly good alternative to command and control regulation. Note, however, that self-regulation with a heavy element of government involvement in goal-setting and enforcement may have many of the same drawbacks as command-and-control--without the checks on bureaucratic power that are provided by the Administrative Procedures Act, formal rulemaking processes, or public accountability more generally. That is, self-regulation in the privacy context threatens to evolve into a system where government makes vague rhetorical demands with no clear content or deadlines. Official involvement looms at every stage, and may be wildly unpredictable. We lose the benefits of a bottom-up learning process that occurs through the market, but also lose the benefits of certainty and accountability that come with formal rulemaking procedures.

SELF-REGULATION OR ELSE PROPOSALS ARE NOT RALLY SELF-REGULATION AT ALL

Other proposals to establish mandatory opt-in would not directly involve congressional action but would instead rely on a variety of types of industry "self-regulation."(31) Former FTC commissioner Christine Varney favored "voluntary systems of standards or ratings, whether for privacy or content . . . backed up with strong government enforcement against misstatement as either deception or fraud."(32)

Note, however, that if regulators threaten to punish those who do not "self-regulate" as expected, "self-regulation" becomes government regulation by another name.(33) National Telecommunications Information Administration chief counsel Barbara Wellberry says, "We favor self-regulation, but self-regulation with teeth. But people say self-regulation, and that's the end of the conversation. We're looking at self-regulation more analytically: to see where it works, where it may not work."(34) This level of scrutiny of the industry hardly qualifies as deregulatory, whether one calls it "self-regulation" or not.

TRUE SELF-REGULATION CAN NEVER BE ENFORCD FROM THE TOP DOWN

True systems of self-regulation are not enforced in a top-down manner. To state the blindingly obvious, these systems are voluntary. Companies opt to abide by the standards--or they do not. Some food companies might choose to qualify for a kosher food stamp shaped like the state of Texas, others will not. Generally, those who expect self-regulation to produce uniform enforcement across the electronic marketplace are not talking about self-regulation at all--they are talking about thinly masked government action.

TOP-DOWN SELF-REGULATION WILL HAVE THE SAME FLAWS AS COMMAND AND CONTROL REGULATION

The answer is that self-regulation, like traditional command and control regulation, can have some substantial and familiar regulatory costs, include the perennial risk of lagging behind technology. Under these circumstances, self-regulation will have many of the same harmful effects as regulation for consumers and business alike:

* The goals that the self-regulation is supposed to achieve are set from above, rather than evolving from the bottom up.

* Businesses are not free to opt out of the system of self-regulation to experiment with new business models or technologies--or simply because they don't see a need for it in their market niche.