What You Should Be Reading: August 2024

Welcome back to “What You Should Be Reading,” a monthly blog series in which the Taxpayers Protection Alliance (TPA) ignores the fact that November’s election is barreling ever closer. Instead, TPA has buried its head in important works of public policy that, if taken seriously, could tangibly better the lives of everyday Americans.

August’s edition will stray a bit from tradition – it’s the Dog Days of Summer, after all; just ask the Washington Nationals. It will include some indispensable work on innovation and artificial intelligence (AI) from earlier this year that (mea culpa) TPA should have read earlier. In addition, an amicus brief outlining the legal cracks in the Federal Communications Commission’s (FCC) Title II order to hyper-regulate the internet’s infrastructure.

So, without further ado…

International Center for Law & Economics (ICLE): From Data Myths to Data Reality

Nearly every corner of the AI industry is rife with competition. Nonetheless, the usual suspects in competition policy – both in Europe and stateside – have begun fretting that control of the technology will become concentrated in a few purported monopolists, especially legacy Big Tech firms. The fears attached to Big Tech and its investments in AI stem largely from their unmatched troves of data. Companies such as Google have unparallel access to consumer data, the argument goes, and, therefore, will naturally find uncontestable success in the new arena of AI.

But these fears mistake fundamental facts about AI’s use of data, ICLE’s Geoffrey A. Manne and Dirk Auer wrote in February’s issue of CPI Antitrust Chronicle. “[B]eing the firm with the most data appears to be far less important than having enough data, and this lower bar may be accessible to far more firms than one might initially think possible,” Manne and Auer write. A model’s quality matters more than the quantity of the data from which it learns. “Furthermore,” the ICLE duo argues, “it is worth noting that the data most relevant to startups operating in a given market may not be those data held by large incumbent platforms in other markets, but rather data specific to the market in which the startup is active or, even better, to the given problem it is attempting to solve.”

In this framing, the question for those pondering competition policy shifts from who has the most data to whether startups can access “enough” data. It is clear that they can, as the fact that new AI firms such as OpenAI and Midjourney have kept pace – or better – with Big Tech giants evidences.

However, by threatening free capital flows, or by imposing red tape that restrains all but the biggest players, regulators could accomplish precisely the opposite of their intention. They risk calcifying the AI ecosystem and fortifying large actors against innovative insurgents.

Read the full piece here.

Abundance Institute: Comments to the Department of Justice (DOJ): “Promoting Competition in Artificial Intelligence”

“The function of entrepreneurs is to reform or revolutionize the pattern of production by exploiting an invention or, more generally, an untried technological possibility for producing a new commodity or producing an old one in a new way,” economist Joseph Schumpeter argued in his classic work, Capitalism, Socialism and Democracy.

Much modern antitrust analysis views competition less as the dynamic march of innovation and creative destruction than as the creep of piecemeal cost savings and increased efficiencies within existing product-types and business models. Responding to a May workshop hosted by the DOJ and Stanford University, Neil Chilson, head of AI policy at the Abundance Institute, argued that this lens narrows and distorts the view of the AI ecosystem, where innovation runs amok.

“[Standard antitrust analysis today] uses static competition models which evaluate efficiency within existing markets rather than anticipating innovation and future markets,” Chilson wrote. As an alternative, he outlined the Dynamic Competition Framework (DFC), whose principles deserve a full reproduction (wording Chilson’s):

1. Innovation-Driven Competition: The framework prioritizes innovation as the primary driver of competition, rather than static efficiency. It posits that innovation drives competition at least as much as competition drives innovation.
2. Capabilities-Based Analysis: The framework emphasizes the importance of firm-level capabilities, including ordinary, super-ordinary, and dynamic capabilities. These capabilities are crucial in understanding a firm’s competitive position and potential.
3. Forward-Looking Perspective: Unlike static models, this framework adopts a prospective view, considering potential future market developments and competitive threats.
4. Ecosystem Approach: Instead of narrowly defined relevant markets, the framework considers broader competitive ecosystems, including complementary products and services.
5. Long-Term Consumer Welfare: The framework advocates for a long-run consumer welfare standard that encompasses innovation, product availability, and quality improvements, not just price effects.
6. Supply-Side Focus: DCF calls for a deeper analysis of supply-side factors, including technological and organizational capabilities, both present and future.
7. Potential and Nascent Competition: The framework places greater emphasis on potential and nascent competition, arguing for a more nuanced approach to assessing competitive threats.
8. Mergers and Acquisitions: DCF provides a new lens for evaluating M&A activity, considering how transactions might enhance innovation and capabilities rather than just market concentration.
9. Disruption and Renewal: The framework recognizes both disruptive innovation and organizational renewal as key aspects of dynamic competition.
10. Multidisciplinary Approach: DCF draws on insights from strategic management, organizational behavior, and innovation studies, advocating for a broader analytical toolkit in competition policy.

Digital technologies have molded markets into unfamiliar shapes, but too many competition officials cannot escape assumptions predicated on the aesthetics of old markets. Novel markets’ novel appearances baffle those trapped by outdated thinking.

“As a matter of fact, capitalist economy is not and cannot be stationary,” Schumpeter wrote. “Nor is it merely expanding in a steady manner. It is incessantly being revolutionized from within by new enterprise.”

Regulators must understand these economic facts – particularly in the digital age.

Read the full comments here.

Amici in Brief: Is Broadband a Title I or Title II Service?

“The revival of the Title II debate at the FCC is policymaking as backward-looking political grudge match, bureaucratic make-work and agency self-aggrandizement, and state control as an end in itself,” writes TechFreedom in an amicus brief to the United States Court of Appeals for the 6th Circuit, where the agency’s net neutrality order is fighting to escape a judicially inflicted end. “It’s broken government in action.”

Moreover, and more directly relevant to the appeals court, the FCC lacks clear statutory authority to impose Title II regulations on broadband services, TechFreedom argues. The FCC’s order implicates the major questions doctrine clearly. Net neutrality, if courts allow it to stand, will remake the regulatory terrain in which broadband providers must maneuver, likely depress investment in the sector by billions annually, and – by bureaucratic fiat – end a protracted and all-too-heated political debate.

To satisfy the major questions doctrine, an agency must show that Congress vested it clearly with the authority to decide the matter at hand. TechFreedom argues that the FCC lacks such clear statutory authorization to cast broadband providers into the morass of Title II. In fact, both the internet’s technical features and the text and history of the Telecommunications Act of 1996 suggest that, if anything, broadband fits far more naturally as a Title I service under that law, to be regulated by a light-touch, pro-competitive regulatory regime. Moreover, TechFreedom argues, “[i]f broadband were clearly a Title II service, the FCC would not need (as it does) to abuse its forbearance power, ignoring so many core Title II requirements to practically write a new statute.”

And, of course, should the FCC’s dubious interpretation prevail, the non-delegation doctrine looms.

Read the full brief here.

Note: TPA highlights research projects that contribute meaningfully to important public-policy discussions. TPA does not necessarily endorse the policy recommendations the featured authors make.