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IEA releases report on how to supervise tech companies

The rise of tech giants and new media channels should not be an excuse for politicians to usher in overreaching regulation or unfair taxation.

Companies such as Facebook and Google have been accused of enabling the spread of fake news, prompting calls for more restrictive regulation on their activity. But this ignores the evidence that self-regulation can be very effective, as proven by more traditional media outlets.

The market has also devised its own checks and balances, such as advertiser boycotts of outlets that fail to prevent the inappropriate placement of adverts. This is because it is in the economic interests of tech companies to protect their brand – and they should remain accountable to their consumers and not the government.

A new report from the Institute of Economic Affairs makes the case that the regulation of tech giants should be left to the market. The report also responds to calls for these companies to pay more tax, making the case that they may often have legitimate reasons for paying less tax. For example, an online retailer can sell books from a warehouse where business rates are lower than that of a high street shop.

There is little evidence to suggest that the current taxation of tech giants fails in any systematic ways. Therefore, penalising tech companies with an additional tax would fly in the face of the general principles of fair and efficient taxation.

Self-regulation most effective

• In the UK newspaper industry, self-regulation has been effective because it is a competitive market where reputation and peer pressure are important
• Consumers can ‘vote with their feet’ if they don’t feel one provider is up to standard
• An example would be tech companies boycotting advertiser outlets that fail to prevent inappropriate placement of adverts
• The problem of ‘fake news’ is overstated, but the market is already providing solutions for this with the emergence of independent fact-checking organisations such as Full Fact
• Allowing the state to decide what is or isn’t ‘fake news’ could be a far more dangerous threat to democracy

Additional taxation of tech companies would be harmful

• The complaint that these companies do not pay enough tax is poorly founded. Often the factors that allow technology-based companies to pay lower taxes than their competitors simply reflect the underlying economics of their business models
• An additional tax on say, digital advertising spending, would be discriminatory, penalising all tech companies and particularly hurting small, start-up companies
• More taxation would also favour older technologies over new as it would deter investment and innovation
• Any increase in taxation would most likely be passed on to customers in the form of higher prices
• The best solution would be for a more transparent and rigorous scrutiny of accounts to expose any dubious practices

Commenting on the report, Julian Jessop, author and Chief Economist at the Institute of Economic Affairs said: 

“Fake news is nothing new and its influence is often overstated. Policy makers should be careful not to get swept up in calls for state regulation of tech companies – the market itself is already responding to the demand for more reliable information, for example through the emergence of fact checking sites. 

We should be learning the lessons from the regulation of more traditional forms of media where self-regulation has been most effective. Handing over control to government would put our democracy at far more risk than the Twitterati could ever do. Instead, tech giants should be left to be held accountable by the market and the wider public.”

Notes to editors: 

For media enquiries please contact Nerissa Chesterfield, Communications Officer: nchesterfield@iea.org.uk or 020 7799 8920 or 07791 390268

To download a copy of ‘Supervising Tech Giants’ please click here.

The mission of the Institute of Economic Affairs is to improve understanding of the fundamental institutions of a free society by analysing and expounding the role of markets in solving economic and social problems and seeks to provide analysis in order to improve the public understanding of economics.

The IEA is a registered educational charity and independent of all political parties.