Stronger Privacy Regulations Do Not Spur Increased Internet Use, New ITIF Report Finds

July 11, 2018

WASHINGTON—Contrary to conventional wisdom, a new report released today by the Information Technology and Innovation Foundation (ITIF), the world’s leading think tank for science and technology policy, finds that strengthening data protection regulations beyond a reasonable baseline level does not increase consumer trust or lead to greater technology adoption and use. Instead, greater regulation comes at the expense of innovation and consumer welfare.

“The relationship between regulation and the adoption and use of digital services is misunderstood by too many policymakers,” said ITIF Senior Policy Analyst Alan McQuinn, the report’s lead author. “Many policymakers have called for additional regulation, arguing that it will boost the digital economy by increasing consumer trust. But the evidence shows that additional regulation does not increase consumers’ trust or adoption of online services. On the contrary, additional regulation often leads to less innovation and slower overall growth in use of digital services because it has no impact on the demand side and negative impact on the supply side. The conventional wisdom is nothing more than wishful thinking.”

By comparing the behavior of consumers in different countries, the report finds that strong data protection regulations have little to no positive effect on trust. In fact, countries with limited digital regulations showed higher levels of trust than their more heavily regulated counterparts.

The report highlights five factors affecting data protection regulations that can adversely impact the supply-side of the digital economy: high compliance costs, threat of high legal fees, reduced viability of free business models, increased uncertainty, and reduced access to data for innovation.

“Too many policymakers think regulation is a fast-track to innovation in the digital economy,” said ITIF Vice President Daniel Castro, co-author of the report. “But digital regulations are not free—they come at a steep cost to innovation and better technology, leaving consumers and businesses worse off.”

The report acknowledges that baseline regulation may be helpful for certain new technologies, and it offers policymakers a test for determining whether regulation is helpful: When considering regulations designed to promote trust, policymakers should target specific, substantial harms while weighing the costs of regulation against its countervailing benefits.

Read the report.