How and Why Social Media Should be Regulated

by | December 14, 2020

Facebook is back in the sights of Washington’s regulators. Last week, the FTC announced a major lawsuit against the social network for ‘years-long course of anticompetitive conduct,’ seeking to force a divestiture of WhatsApp and Instagram.

With the US election over, we might have expected the dust to settle on the impact of social networks on our politics. But the arrival of a new administration and new Congress presents an opportunity to address the regulation of companies such as Twitter, Facebook or Google.  Not only has President Trump fanned the flames by proposing to “eliminate the immunity of internet platforms” created by section 230 of the Communications Decency Act of 1996, but Democrats, who focus on the distribution of misinformation, and Republicans, who assert “left-wing” bias, are as vocal as ever.  And with books such as “Zucked” by Roger McNamee and the Netflix documentary “The Social Dilemma”, the general public has become more aware of the issues and debate surrounding the politics of social media. 

While it is tempting to bring out the legal sledgehammer to try to beat down the power of these social media platform providers, to do so would ignore the wide-ranging benefits they provide to a global community. Heavy-handed approaches could also curb freedom of expression and even precipitate a losing battle against modern communications technology that is loved by users for its sharing, socializing and entertainment features.

It is time to recognize that the issues involved in managing these platforms are nuanced.  To use one tool to “fix” all the problems or abuses of social media, such as eliminating Section 230, would satisfy no one and would surely cause unintended consequences that produce even worse outcomes than the status quo.

There are three issues that must be considered to properly address the challenges posed by social media platforms: (i) content and its curation; (ii) a business model which amplifies distribution, risking privacy and addictive engagement; and (iii) the market power of the giants, such as Facebook, Twitter and Google, and its potential for abuse. 

In the US, published content is protected by the 1st Amendment, which makes it difficult to regulate.  Moreover, because social media platforms claim that they are not publishers themselves, but merely facilitators, they are protected by Section 230 from being responsible for the content on their services.  Congress may still regulate activity, but the appropriate target must be the publisher, not the platform.  Still, intentionally promulgating misinformation should be as illegal as slander or liable – and existing slander and liable laws can be enhanced to encompass misinformation, a phenomenon that has exploded onto the scene and has been facilitated by social media.

Put succinctly, while the 1st Amendment protects discourse and opinion, it does not protect those who would “shout fire in a crowded theater”.  Congress should provide guidelines to the platforms for immediate take-down and/or labeling of potentially illegal misinformation content. Moreover, recognizing the ferocious speed with which information travels over the internet, an expedited method of adjudication (perhaps via an Administrative Court), with an objector stating the case and a publisher having the burden to prove its legitimacy, could expedite the removal of unlawful and harmful information.  Such content, if not removed, would expose the publisher to potential legal liability or punishment. 

The business model of the platforms is itself a recipe for abuse. It is based on advertising, which together with artificial intelligence and tracking technology, targets and follows users to provide enhanced visibility – and hence a steroidal boost to advertising revenues. It has become, as Shoshana Zuboff termed it, surveillance capitalism. 

Original content can be amplified significantly by ‘likes’ or ‘re-tweets’. The commercial aim is to increase advertising revenues to the platform provider, but it comes with potential costs including invasion of privacy and distribution beyond the knowledge or intent of the publisher.  In such cases, “republishing” should subject the platform to the same regulation as that of a publisher (without Section 230 protection) given that the social media company has broadened the audience beyond what was originally intended.  If social media companies wish to avoid such regulatory oversight, they should not amplify. 

Lastly, are these companies too big? Do they need to be broken up? 

It is vital to note that the scale of these companies creates consumer benefits.  Facebook, with billions of users, allows someone to easily and inexpensively publish across cross borders, generations, social strata, etc.  Scale is at the essence of their value to users and advertisers.  Breaking up these companies is not the answer, even if it were feasible. 

Rather, social media giants must ensure that they comply with antitrust law, which prevents their abuse of scale. Compliance monitoring and oversight is an FTC, or Justice Department job (or states attorneys), not a Congressional one.  All companies, including social media platforms, should be prevented from restraining competition or using monopoly or monopsony power to control advertising pricing.  For example, in the EU, Google cannot favor its products versus a competitor’s offering in online search. 

Proper regulation of social networks requires coordinated approaches.  Regulators, elected officials, and the general public must understand social network business models in order to judge the benefits and costs that they generate.  Platforms have become successful because they provide services that the public wants. That should not be forgotten in a hasty and misguided attempt to eliminate the abuses that also exist.

If regulation is done piecemeal and does not address content, distribution and abuse of power, respectively, it will fail. Even worse, it could spawn unintended consequences worse than the challenges we now confront.

About the Author

Larry Hatheway

Larry Hatheway has over 25 years experience as an economist and multi-asset investment professional. He is co-founder, with Alexander Friedman, of Jackson Hole Economics, LLC, which offers commentary and analysis on the global economy, policy & politics, and their broad implications for capital markets. Prior to co-founding Jackson Hole Economics, LLC Larry worked at GAM Investments from 2015-2019 as Group Chief Economist and Global Head of Investment Solutions, where he was responsible for a team of 50 investment professionals managing over $10bn in assets. While at GAM, Larry authored numerous articles on the world economy, policy-making and multi-asset investment strategy. Larry was also the lead investment manager for various mandates, funds and an actively managed multi-asset index. Larry also served on the GAM Group Management Board, was Chairman of the GAM London Limited Board and served as member of the GAM Investment Management Limited Board. Larry was also Chairman of the GAM Diversity & Inclusion Committee. During his tenure at GAM, Larry was based in London, UK and Zurich, Switzerland. From 1992 until 2015 Larry worked at UBS Investment Bank as UBS Chief Economist (2005-2015), Head of Global Asset Allocation (2001-2012), Global Head of Fixed Income and Currency Strategy (1998-2001), Chief Economist, Asia (1995-1998) and Senior International Economist (1992-1995). During his tenure at UBS, Larry was also a standing member of the UBS Wealth Management Investment Committee. While at UBS, Larry worked in Zurich, Switzerland, London, UK (various occasions), Singapore and Stamford, CT. At both GAM Investments and UBS Investment Bank Larry was widely recognised for his appearances on Bloomberg TV, CNBC, the BBC, CNN and other media outlets. He frequently published articles and opinion pieces for Bloomberg, CNBC, Project Syndicate, and The Financial Times, among others. Before joining UBS in 1992, Larry held roles at the Federal Reserve (Board of Governors), Citibank and Manufacturers Hanover Trust. Larry Hatheway holds a PhD in Economics from the University of Texas, an MA in International Studies from the Johns Hopkins University, and a BA in History and German from Whitman College. Larry is married with four grown children and a loving Cairn Terrier, and resides in Wilson, WY.

Alex Friedman

Alex Friedman is the co-founder of Jackson Hole Economics, LLC, a private research organization which provides commentary and analysis on economics, politics, the environment and finance, and develops actionable ideas for how sustainable growth can be achieved. Friedman is a senior business leader with two decades of experience growing and transforming businesses in the financial and non-profit industry. He was the CEO of GAM Investments in London and chairman of the firm’s executive board. Previously, he was the Global Chief Investment Officer of UBS Wealth Management in Zurich, chairman of the UBS global investment committee, and a member of the executive board of the private bank. Before moving to UBS, Alex Friedman served as the Chief Financial Officer of the Bill & Melinda Gates Foundation. He was a member of the foundation’s management committee, oversaw strategic planning, and managed a range of the day-to-day operating functions of the world’s largest philanthropic organization. Friedman also created the foundation’s program-related investments group, the largest impact investing philanthropic fund in the world. He started his career in corporate finance at Lazard. Friedman served as a White House Fellow in the Clinton administration and as an assistant to the Secretary of Defense. He is a member of the Council on Foreign Relations and the Chairman of the Advisory Board of Project Syndicate, the non-profit opinion page that provides world-class commentary to over 500 newspapers globally. In addition, he is a board member of the American Alpine Club and the Jackson Hole Community Housing Trust, and has served on the boards of the Gates-Cambridge Trust, the Seattle Art Museum, and a number of other non-profits. Friedman is a regular contributor to several newspapers and thought leadership groups and has published numerous opinion editorials on topics including economics, finance, philanthropy, and politics in Project Syndicate, Bloomberg, The Wall Street Journal, The Financial Times, The Guardian, CNBC, The South China Morning Post, The Chronicle of Philanthropy, and other news outlets. He is also the author of Babu’s Bindi, and The Big Thing, both children’s book. An avid mountaineer and rock climber for 30 years, Friedman has climbed some of the world’s highest mountains and led the first major climb to raise money for charity through an ascent of Mt. McKinley. He holds a JD from Columbia Law School, where he was a Harlan Fiske Stone Scholar, an MBA from Columbia Business School, and a BA from Princeton University.

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