A new paper by the Adam Smith Institute claims proposed online regulation is a serious threat to freedom of speech and entrepreneurship and argues for a sea change in the Government’s approach to technology post-Brexit:

UK politicians are becoming increasingly hostile to technology, undermining the free speech and innovation that is essential to economic progress

• The Government’s Online Harms White Paper, which creates a new online speech regulator, is a serious threat to a free internet

• Platforms—like Google, Facebook, and Mumsnet—must not be made liable for the speech of their users, as otherwise they will be forced to censor swaths of online speech

• Despite fears about ‘big tech monopolies,’ closer analysis reveals that there is intense competition in the sector, including substantial R&D investment

• New regulations would create barriers to entry that would hurt start-ups and entrench incumbents

• A global top 500 company is 10x as likely to set up in the go-getting USA, than over-regulated EU, the ASI has calculated

• The Government should embrace ‘permissionless innovation’ to encourage entrepreneurship

Technology is improving our lives, connecting people, creating communities, and contributing to Britain’s economy to the tune of £170bn a year. Internet companies alone are estimated to be responsible for 400,000 jobs and 80,000 businesses, and growing twice as fast as the rest of the economy in recent years. A new report, Safeguarding Progress: The risks of internet regulation, by the Adam Smith Institute makes the case for permissionless innovation to be put at the heart of the government’s approach to dealing with the digital economy.

Despite its positive contribution, the internet has been under attack from politicians of all stripes in recent months — from calls for companies to be broken up to the Online Harms White Paper which would create a new online censorship regulator, as well as privacy risks from demands to give security services access to encrypted private communications. The increasingly pessimistic rhetoric about new technologies risks undermining the sector.

The ASI has calculated that a large company is ten times more likely to develop in the United States than in highly-regulated Europe, after accounting for population differentials. The report argues Brexit provides the opportunity for the UK to diverge from the excessively precautionary approach of the European Union, therefore attracting substantial tech investment and creating jobs.

The report calls for a ‘permissionless innovation’ approach, meaning allowing entrepreneurs to experiment with new business models and technologies, and only intervening when there are clear, demonstrable harms to the public.

The ASI argues that the Government should adopt Five Principles for Permissionless Innovation in technology if it wants to achieve an keep an open internet, and our tech industry competitive:

1. Identify and remove barriers to entry and innovation;

2. Protect freedom of speech and entrepreneurship by retaining immunities for intermediaries from liability;

3. Rely on existing legal solutions, the common law, and competitive pressures to solve problems;

4. Push for industry self-regulation and best practices;

5. Adopt targeted, limited legal measures for truly hard problems based on evidence.

These principles are adapted from the work of Adam Thierer of the Mercatus Centre at George Mason University.

The report discusses two major regulatory issues facing the sector: liability exemptions for platform intermediates and competition issues.

The report argues that we should continue to see online platforms more as libraries than as publishers, with companies not liable for illegal activity of their users (although should continue best practice working with police and security forces) much like a library is not responsible for the content of the book on its shelves. The platform liability in the EU e-Commerce Directive and Section 230 in the US were fundamental to the development of the internet,

Laws forcing platforms to be liable for user content to restrict hate speech have prompted social media companies to engage in excessively risk-averse moderation, undermining freedom of expression. Threats of fines, jail time and website blocks have perverse, illiberal consequences. Liability would also, according to 72 per cent of tech investors, entrench the global tech giants who have the resources to comply by hiring moderators and developing AI.

Further, the report argues that claims that there is a lack of competition and innovation in the sector are a myth. Online firms compete (e.g. Facebook, Snapchat, Twitter, Tumblr, Netflix Fortnite, Amazon, TripAdvisor) for user attention and in specific product markets. They also heavily invest in R&D, which shows they are not lazy or stagnant as tends to happen in monopoly markets. History shows that concern about monopolies has been greatly exaggerated, as seen with the rise and fall of Myspace.

It is also argued that regulators should not intervene if there is harm to consumers demonstrated by excessive profiteering - that is not the case for tech firms that provide free services for consumers.

Nevertheless, new regulations, such as excessive data regulations, create barriers to entry and excessive costs. This is particularly harmful to startups and small-to-medium sized enterprises (SMEs) that have fewer resources for compliance. Eighty-one per cent of tech investors agreed that ‘policy and/or legislation in order to target specific companies (i.e. global giants) could lead to poor outcomes that inadvertently hurt or hinder tech startups’

Matthew Lesh, report co-author and the ASI’s Head of Research said:

“The UK Government is on the verge of making our internet the most censored and highly regulated of any Western democracy. This is a fundamental threat to our status as a free society and our global reputation as a liberal democracy. The creation of new online speech regulator, as proposed in the Online Harms White Paper, will not only make it harder for start-ups to establish and grow, it will undermine our core right to freedom of expression. Regulating the internet means crushing the internet and dismantling Britain's liberal freedoms.”

Philip Salter, report co-author and Founder of The Entrepreneurs Network:

"The growing burden of tech regulation risks strengthening the market position of tech giants by raising the barriers to entry. Treating platforms as publishers would hit startups hard. Facebook and Google can afford to hire an army of moderators, but their would-be competitors will struggle. While the Copyright Directive risks stymieing creativity, funding and innovation for disruptive tech entrepreneurs. Britain's tech sector is the envy of Europe. If we are to remain a world challenger, we need to up our game and factor in the significant cost of poorly targeted regulation."

Daniel Dyball, UK Executive Director at Internet Association, who represent leading global internet companies, said on the release of the ASI’s new report:

“This report highlights a number of important areas as we look towards the future of the internet and internet policy in the UK. Intermediary liability protections, for example, are fundamental to the success of the internet as we know it. Internet Association is committed to working with the government to find a regulatory framework that deals with genuine concerns about keeping people safe online, while retaining the significant economic and social benefits that internet companies provide to the UK.”

Jim Killock, Executive Director of digital rights organisation Open Rights Group said:

“This report is a timely reminder that regulation can have adverse consequences, especially for free expression. Regulation impacting free speech can have unintended consequences and needs to be cautious. The strong link between free expression and economic innovation is also well described. Policymakers should consider why the UK has lost sight of these important considerations in recent years."

Notes to editors:

For further comments or to arrange an interview, contact Matt Kilcoyne, Head of Communications, matt@adamsmith.org | 07904 099599.