Facebook is caught in a trap of its own making. Despite calls to slow the spread of disinformation and protect user privacy on its platform, the company cannot seem to deliver on Mark Zuckerberg’s promise to “do better.” As a purely technical matter, Facebook likely has the resources to fix its flawed platform. The trouble is that those “flaws” actually drive the company’s profits. Facebook’s harmful side effects are borne by its users—and the world’s beleaguered democracies—without hurting the company’s bottom line (an example of what economists call negative externality). Two years of bad press may have damaged Facebook’s reputation, but it has done nothing to change its market incentives. Instead of “doing better,” Facebook has mounted a bruising backroom lobbying campaign to stymie one thing that might actually help ease its predicament: federal regulation.
Facebook is hardly the first company to fall into an “externality trap.” Historically, almost every major American industry has experienced similar cycles of growth, crisis and regulation. Air and water pollution are now regulated externalities. So are flammable mattresses and asbestos. When it comes to American business history, we’ve been here before. In each case, government regulation has done what none of the industries themselves could do: create sound business reasons for operating more responsibly.
The automobile industry offers one example. In 1965, a young lawyer named Ralph Nader published a book-length expose on the American auto industry, Unsafe at Any Speed. Based on his own research and insights from industry insiders, Nader claimed that American auto manufacturers were capable of making safer cars, but that they prioritized design and cost-control considerations over customer safety. Although he famously singled out the sporty Chevrolet Corvair—whose suspension was liable to essentially collapse during heavy cornering—poor safety design plagued every car on American roads. American carmakers knew that shoulder seatbelts, collapsing steering columns, padded dashboards and toned-down bodywork could save lives. Yet they made money selling those features as extra-cost options, and were deeply wary of accepting liability for their products. Unsafe cars were profitable, and car manufacturers would not change their products until the federal government forced them to.
Unsafe At Any Speed became a bestseller, and Nader immediately launched a campaign for federal highway safety legislation. The carmakers claimed that he didn’t understand the engineering complexities of auto manufacturing, derided his book as sensationalist, and warned that regulation would destroy the auto industry. General Motors even hired a private investigator to find dirt on Nader, for which it was later forced to apologize.
President Johnson signed laws requiring seatbelts in all new cars and establishing the National Traffic Safety Agency in late 1966. The resulting regulatory framework laid the foundation for safer cars, improved roads, and more stringent driver education. It saved lives, and proved that Detroit was capable of making better automobiles.
Facebook’s product is data, and parallels with 60s-era car manufacturers are necessarily imperfect. But they are there. Like the old Chevy Corvair, Facebook’s platform is a profitable but flawed product, imposing severe externalized costs on our privacy and politics. Like GM, Facebook’s unregulated market inhibits it from fixing those flaws. Perhaps federal regulation can also afford Facebook the opportunity to improve its product, and become a more responsible corporate citizen.
This is not to excuse Facebook, which continues to equivocate about the problems with its platform and business model. But those politicians asking the company to simply “fix itself” are also shirking their responsibilities. If Facebook is capable of making a product that is safe for democracy, then publicly elected officials will have to make them do it.