Print Edition - 2018-09-14 | Oped
Silicon Valley needs regulation
- Most oppose government oversight. Good rules create healthy markets
Sep 14, 2018-
These are polarized times. Yet for business leaders across the political spectrum, there is one area of troubling consensus: a contempt for government’s ability to regulate effectively.
This includes my own cohort of Silicon Valley professionals. A recent Stanford study involving nearly 700 “elite technology entrepreneurs” found that the large majority favor Democratic positions on higher taxes, social services, trade and immigration over President Trump’s culture war provocations and nativist foreign policy. Yet the same study found that these tech elites are on board with a central objective of the Trump administration: an aggressive rollback of regulation across virtually every domain of federal oversight, including the environment, public health, consumer protection and net neutrality.
As both a chief executive and a citizen, I believe the ideology behind this agenda gambles with the foundation of our prosperity.
The Silicon Valley flavor of this ideology holds that success in business flows from intelligence and hard work. It seems preposterous that fumbling bureaucrats could understand what we do, let alone presume to limit our freedom of action.
Silicon Valley adheres to this point of view even for problems that it has failed to solve, like filtering out offensive content while enabling free speech. In their testimony before the Senate last week, Jack Dorsey of Twitter and Sheryl Sandberg of Facebook admitted to some faults and promised to try harder. But when presented with rules to safeguard privacy and prevent abuse of customers’ data, the tech industry’s position on regulation is similar to that of Republican leaders like Paul Ryan and Mitch McConnell: it is poorly designed, it will kill jobs, and the private sector can solve the problem best on its own.
Like most chief executives, I sometimes chafe under the rules that govern a public company. But I have also come to recognize the limits of corporate self-governance and to appreciate the regulatory environment we have.
My company serves companies that provide auto, home, business and workers’ compensation insurance. Because insurers collect premiums up front in exchange for a promise to pay for future losses —a promise documented in a dense legal contract—regulation is necessary to protect people from misunderstanding what they are buying and to limit the risk that insurers will go bankrupt when their policyholders need them most. Most insurance executives I’ve met value this regulation because it prevents market-destroying behavior by insurers charging prices far below true rates of loss.
Like anything designed by mortals, insurance regulation is imperfect: it is more complex than necessary, and politics can distort markets. In some high-cost insurance markets, such as Florida, Democratic and Republican lawmakers impose regulations reflecting what they would like insurance rates to be, rather than what data show they need to be for insurers to remain viable. Despite these flaws, the regulated property and casualty market has remained fiercely competitive and stable. This has been a boon for society. Ordinary people and businesses are protected from devastating losses at relatively low cost.
One way to know that this is a healthy, stable market is that insurance companies show a lower return on equity than other financial services companies. That fact is not beloved by investors, but it is good for consumers. Other than A.I.G., which was taken down by its rogue and largely unregulated financial products division, there have been no insurance bankruptcies requiring a public bailout in recent memory.
And yet many of us have become so accustomed to despising the people we elect that we have forgotten that rational and apolitical regulation is essential for our capitalist engine to function.
Regulations correct for “externalities,” where market forces alone would lead to the destruction of unpriced shared goods, such as clean water and air. Anti-predatory lending laws and disclosure rules for mortgages protect consumers from exploitation. Regulations can curtail the ability of one person’s risk-taking to cause collective losses. This kind of “asymmetric risk-taking” was the root cause of the 2008 financial crisis. And regulations should guard against monopolies that undermine competition. These rules often arise as correctives to a disaster: the Great Depression, Three Mile Island, thalidomide, the global financial crisis. We should heed those lessons, not burn them down in a fit of Jacobin rage or wave them off with wishful thinking about self-regulation.
As consumers and citizens, we need companies to succeed because they provide the best products and services—not because they dump the most pollution in our water, most skillfully exploit our personal information, or are the best at avoiding pension obligations. When a democracy fails to protect people from these depredations, authoritarianism grows in appeal. And the capitalists among us should realize we have the most to lose in the long run: an economic system in which we are rewarded for maximizing our growth and profits.
—©2018 The New York Times
Published: 14-09-2018 07:28