How to stop thinking like a Regulosolutionist

Given my view that regulation of Big Tech is always too late, too local, and too hard to enforce so we need to supplement it with a different approach of consumer (or 'digital citizen') education and organisation parallel to the workers movements of the late 19th and early 20th centuries, I felt obliged to read up on the opposing view, epitomised by Jamie Susskind's The Digital Republic.

I found myself surprisingly tolerant of his attempts to engage with political philosophy - we can't all be experts on everything and I am certainly no lawyer - but did occasionally get stopped in my tracks by some of his attitudes.

For example, chapter 28 starts:

Scrutiny is the soul of governance. Chefs keep their kitchens clean when they know there might be a surprise inspection. Bankers take more care with their client money when they know the financial regulator is monitoring their trades.

Let us think about this sentence by sentence.

Scrutiny is the soul of good governance.

Obviously intended to be a quotable aphorism, but what does it really say? Good governance has to be effective and it is ineffective if governors create policies or regulations that are not followed. That is true. But where does scrutiny get into this? Was the DDR a better government for all the scrutiny it applied to its citizens? That level of scrutiny certainly creates obedience, but usually blind obedience and blind obedience has many problems. Apart from dehumanising the governed, we need good citizens to be prepared to break the rules when the rules will have bad consequences: when Stanislav Petrov disobeyed orders on 26 September 1983 he probably saved the human race from mass extinction. And some degree of civil disobedience is essential for almost all positive social change.

Let's fix that first sentence for Jamie:

Mutual respect and trust between governed and governors is the soul of good governance.

So what about the second sentence:

Chefs keep their kitchens clean when they know there might be a surprise inspection.

Well that is true, but the implication is that they wouldn't keep their kitchens clean otherwise. There is no scrutiny of private kitchens and those are mostly kept spotlessly clean, and where they are not, it is usually due to a combination of health and social problems. No one wants to cook in a dirty kitchen. The same applies to chefs. If they do not keep their kitchens clean, it is usually because of understaffing, lack of cleaning supplies, or mismanagement of the business. No chef wants to cook on a dirty kitchen, but they may be in such terrible working conditions they cannot do anything about it. The threat of surprise inspection - and the consequent fines - are about ensuring hospitality and catering businesses let their chefs do their job properly. Another way to address the problem of unhealthy commercial kitchens would be an economic model which returned the balance of power to labour (the chefs) from capital (the owners). That would allow chefs who want to work in clean kitchens to insist that the business is funded in ways that allow the kitchens to be properly cleaned even if that hits profits.

So let's fix this one for Jamie too:

Chefs are empowered to keep their kitchens clean when the profits of the business owner are threatened by fines or industrial action

And on to sentence number three:

Bankers take more care with their client [sic] money when they know the financial regulator is monitoring their trades.

Notice the subtle insertion of 'more' in this sentence. With chefs it was merely a conversational implicature that most chefs are lazy and dirty and need to be surveilled to make them behave like decent human beings. With bankers Jamie comes right out and says it: without the financial regulator monitoring them, bankers would be reckless with their clients' money. That might be true, and there are certainly clear cases of criminal behaviour by 'bankers', but it is a pretty superficial way of thinking about the matter. Bankers are lent money by their clients in the expectation that they will make profitable investments and return a sizeable proportion of those profits back to the client (keeping the rest themselves). If they lose their clients' money, they will be out of a job.¹ So if the market functions correctly, and punishes those who are reckless and lose money, the financial regulator ought to be superfluous.

The problem is that the market in banking services has failed. And it failed very badly because of bad governance. Those whose reckless behaviour brought about the 2008 crash did not lose their jobs or face legal sanctions.² Their banks were propped up by massive loans from the governments who 'regulated' them and they continued to trade on a crashing economy, making more money for themselves and their clients. Their recklessness had no consequences because they were more powerful than the governments who could hold them to account.

Bankers are reckless with their clients' money when they know that the state will bail them out. The role of the financial regulator is to limit the liability of the state, not protect clients. We see the same effects in regulated industries where the investors have confidence that the state will bail out any losses. See Thames Water passim.

So we come to our final fix for Jamie, which we can roll into a new opening for chapter 28:

Mutual respect and trust between governed and governors is the soul of good governance. Chefs are empowered to keep their kitchens clean when the profits of the business owner are threatened by fines or industrial action. Bankers make are more risk-averse when they know that their losses - however large - will not be underwritten by the state.

I would absolutely not want to claim that scrutiny by regulators has no important role in a healthy society, but it is not inherently a good thing and it doesn't address the underlying causes of the malfeasance it tries to catch. It must always go alongside a serious attempt to addresses those causes.