You are here

Limits of 'Soft Law' Approach to Tech Regulation

Can the regulation of new technology be voluntary and non-coercive? In a recent op-ed for The Hill, Mercatus Center law and technology analyst Jennifer Huddleston argues that manifestations of “soft law” can be superior to the hard requirements of statutes and binding federal regulations. So what sort of strategies fall into this category?

[Soft law] refers to the various policy mechanisms that agencies use to provide a more flexible and adaptable approach to emerging technologies than traditional legislation and regulation can.

These can include: multi-stakeholder groups where various stakeholders come together to address issues and ideal policies; informal norms that clarify expectations but may lack enforcement power; “sandboxing,” where innovators and regulators meet and collaborate to discuss concerns and develop solutions prior to launching a disruptive product; and non-binding guidance that can provide clarity regarding how an agency may be thinking about an issue.

The last one of those, of course, raises concerns for people like my colleague Wayne Crews, who has written extensively about theoretically non-binding guidance documents issued by federal agencies that end up being treated as de facto law. He calls these informal documents “regulatory dark matter,” and emphasizes that without the procedural safeguards of the Administrative Procedure Act—which governs traditional “notice and comment” regulation—there is little to restrain regulators from issuing a blizzard of documents that actually increase complexity and uncertainty and limit consumer choice.

Huddleston points out that new consumer technologies are being deployed and adopted more rapidly than in the past, making it difficult for regulators to keep up. For many people, however, a tech landscape that changes faster than the Code of Federal Regulations can react is a feature rather than a bug. Back in 2015, tech writer Kevin Maney made this point in a column titled “The Law Can't Keep up with Technology…and That’s a Very Good Thing.” Considering the then-recent rise of fantasy sports betting sites FanDuel and DraftKings, Maney observed:

If government had examined the fantasy [sports] sites a year ago, shutting them down or putting them in a legal corner would’ve been relatively easy. Because government was so inept, now it's the one in a corner. Speed to critical mass turns out to be a great strategy in the face of rickety laws and oblivious lawmakers. The faster companies move, the less government can get in their way.

Maney also cites Bitcoin, Airbnb, ride-sharing, and drone technology as instances in which a more active regulatory state might well have attempted to squash innovation (if its enforcers had been paying attention), but instead left the market open for new companies to operate.

In cases where the regulators have caught up to the new tech players, though, free-market advocates might very well want to see a “soft law” structure applied rather than traditional federal rules—but only because we believe that, in most cases, the least prescriptive (or proscriptive) approach will be the best one. For Americans who are more skeptical about a free economy, however, I suspect that soft law will simply sound like a way for self-interested corporations to throw off any requirements that constrain their potentially nefarious behavior. If you believe that sector-specific regulations (rather than, say, broadly applicable laws against fraud) are the main barrier to consumer harm, no structure arising from a consensus among market incumbents is going to satisfy your policy concerns.

Some of the manifestations of soft law that Huddleston mentions—like regulatory sandboxes for fintech—are perfectly reasonable policies, as my former colleague Dan Press has enthusiastically written. Should federal officials embrace the virtues of flexibility and collaboration? Sure—but there are prudential limits to how much flex is a good idea. We don’t give prosecutors and judges infinite flexibility over who can be charged with a crime or how long they can be sent to prison, because the powers they exercise are too potentially damaging and easy to abuse. They must be tightly constrained and subject to the due process of law if our rights are going to be protected. As long as people can be sent to prison for violating federal regulations, the discretion of the people enacting them needs to be defined and limited.

Ultimately, there’s no way to square the circle of state power. If a rule or restriction is truly necessary, the government’s agents should enforce it rigorously. If it is insufficiently important to be required, the government should leave it to voluntary actors to promulgate. We have lots of trade associations, professional societies and consumer complaint portals that issue guidance to members or reinforce evolving industry norms. It’s not clear that the federal government (or state governments for that matter) enjoy a competitive advantage in that regard. The virtue and the terror of every government is its monopoly on the use of force. That comes in handy while fighting a war or incarcerating violent criminals, but is less useful for “encouraging” supposedly ethical voluntary behavior.