The recent calls for the government to regulate social media got support from Mark Zuckerberg, which seems to have surprised some in the media. It’s not at all uncommon for established firms to not only welcome government oversight but to actively support it — because it’s a highly effective strategy to strangle smaller competitors and keep new competitors from entering the field:
On Saturday, Mark Zuckerberg appealed to the government for increased regulation of the internet including his company Facebook. According to Zuckerberg, increased government action is needed to protect society from harmful content, ensure election integrity, protect people’s privacy, and to guarantee data portability. If enacted, the government would possess a wide range of control over internet businesses. For Zuckerberg, this is for the public’s best interest.
But make no mistake about it, Zuckerberg’s cries for regulation is not an appeal to his humanitarianism. On the other hand, it solves glaring issues that Facebook has faced since the 2016 election.
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With increased government oversight, Facebook’s leadership will finally be able to pass the buck to someone else. The government will provide them with a clear set of rules that they will be accountable for. Any negative press coverage that occurs outside of those guidelines, will not be attributable to their company but to the rule-making body of the government. This will allow Facebook’s leadership to regain credibility within a clearly definable framework that they are not responsible for creating.
But perhaps Zuckerberg’s appeal for regulation is even more cunning. Government regulation will undoubtedly be met with higher costs. Internet companies will have to spend more on staffing to be in compliance with the increased burdens implemented by the rule-making body. We saw this play out in the banking industry after the Great Recession. A study conducted last year found that since 2009, banks have been fined a total of $345 billion dollars in penalties and noncompliance costs. Further, another study found that in 2016 banks spent $100 billion dollars on regulatory compliance alone.
Large internet companies like Facebook and Google will easily absorb the strain of increased regulatory costs. It is the smaller businesses that will feel the financial squeeze. With increased regulatory compliance spending, smaller startups will face an even bigger hill to climb to compete with the likes of Facebook.
Another “feature” of government regulation is what is known as “regulatory capture”, as the regulating body and the regulated organizations, after an initial period of ostentatious “conflict”, settle down into a cosy symbiotic relationship … in only a few years, many of the regulatory staff will find themselves working for one of the regulated organizations, and vice-versa. The regulatory body will — like all bureaucracies — start to care more about keeping itself alive and growing than about the original reason it was set up. Small organizations will stall or go extinct, and only the existing dinosaurs will carry on, protected from competition by their regulator’s powers.
