American tech executives are increasingly fearful that stricter government regulation, from tightening residency requirements for startup founders to holding websites liable for content, will hamstring Silicon Valley’s innovation.
Almost a third of startup operators and Fortune 500 managers surveyed in KPMG’s 2018 global technology innovation report cited growing government scrutiny as the primary obstacle to development of new products and services in the U.S. The study, which gathered responses from 750 participants worldwide, found the global average was slightly lower, at 24 percent.
The results reflect growing scrutiny of tech-sector darlings like Facebook, whose privacy practices have been examined in Congressional hearings this year. Free-market advocates have argued that the social media company, along with Google and Amazon, are exhibiting monopolistic tendencies, and lawmakers have expressed particular concern about content operations, with Republicans wary that conservative-leaning voices may be censored by liberal Silicon Valley workers.
Writing rules to address those concerns, however, brings about additional risks. The fact that some of the past decade’s most successful tech companies started in the U.S. isn’t an accident, said Michael Petricone, senior vice president of government affairs at the Consumer Technology Association. America’s rich tech sector reflects policy choices aimed at fostering and protecting innovation.
“For decades, our secret sauce has been to have a legal and regulatory structure that allowed that kind of innovation to go forward,” he said. “Now we’re stepping back from that, and that’s concerning.”
One way internet and technology businesses have been nurtured is through “Safe Harbor” laws, which provide online platforms with a series of liability and copyright protections that many regard as the legal underpinnings of the modern Internet. Among the most important was Section 230 — a provision added in 1996 to the Communications Decency Act, the first bill to actively attempt to regulate pornography on the Web.
It held that Internet service providers, or ISPs, and publishers of third-party content would not be legally responsible for the material shared, an allowance that subsequently enabled companies like YouTube, Reddit, Yelp and Facebook to create massive communities of user-generated content without worrying about liabilities.
But lawmakers have begun rethinking the law amid growing concerns about sex trafficking, opioid sales and misleading political ads. In April, the Senate’s “Allow States and Victims to Fight Online Sex Trafficking Act,” which included the House-passed “Stop Enabling Sex Traffickers Act” was signed by President Trump, creating an exception that would subject website publishers to civil or criminal penalties in prostitution cases.
While the bill’s intentions were good, Petricone said its broad language requires platforms to filter content extensively. That means greater pressure on online platforms to moderate posts, a task that can be costly and difficult even for large companies like Twitter and Facebook with far more resources.
“With any new, extensive and costly regulatory regime or change in law, the real harm comes to the startups and small businesses that can’t handle the compliance costs,” he said. “That’s the kind of innovation you have to be careful not to quash.”
At the same time, privacy concerns — driven by the revelation that a consultant on President Trump’s campaign improperly gained information on 87 million Facebook users and the exposure of identification data for nearly half the country in a hack of credit bureau Equifax — may prompt even more restrictive legislation.
While the European Union has taken the lead in that area to date, with May’s passage of the General Data Protection Regulation that gives residents the right to request companies release or delete any of their personal data, some lawmakers in the U.S. are advocating for closer oversight here.
In California, for example, a proposed Consumer Privacy Act would let consumers inquire about what types of data companies collect about them and demand that sales of the information be stopped.
The bill startled an array of firms — from tech giants like Google and Facebook to telecommunications firms such as Comcast and Verizon — and prompted vigorous opposition. Facebook, Google, Uber, Microsoft and Amazon have poured a combined $840,000 into The Committee to Protect California Jobs, a campaign opposing the bill. Comcast, AT&T and Verizon donated $200,000 each.
In at least one instance, the prospect of unwelcome regulation came from an unexpected source: the Trump administration. While the White House has won favor with business by loosening regulations that the president said were costing jobs, that position ran afoul of a competing priority — border security.
The Department of Homeland Security announced in late May that it would move forward with revoking the International Entrepreneur Rule, designed to allow immigrant startup founders to work in the U.S. for up to five years.
“Another element of our secret sauce has been being very attractive to the world’s best and brightest and making them want to come to America,” Petricone said. “Now, we’re making that much harder.”
