The Hodgepodge Principle in US Privacy Policy

By John A. Deighton*

Data, says Professor Lawrence Summers, is the new oil, “a hugely valuable asset essential to economic life.” Personal data, the kind of data that invites thoughts of privacy, is a big part of that “hugely valuable asset.” My colleague Peter Johnson and I recently estimated that marketers paid about $200 billion in 2014 for services that relied on personal data. That’s probably between 10% and 20% of all the money spent on marketing in the US, and it is growing at double digit rates. The number increases substantially if we add the personal data processing that goes on inside these marketing companies which, to the extent that it involves no buying and selling of data, is not as easy to price.

The European Union saw this economic fuel source coming long ago, and perhaps because its history taught it to be wary, has responded over the last two decades with increasingly comprehensive privacy rules, most recently the General Data Protection Regulation. The US, in contrast, has not. The US has what a recent review by Solove and Hartzog called, “a hodgepodge of various constitutional protections, federal and state statutes, torts, regulatory rules, and treaties.” Do we have a problem?

Before expressing an opinion, I’d like to give a little more texture to the question of who would be regulated by a comprehensive privacy policy. Three kinds of firm can be distinguished.

First, there is Apple, which makes its money selling hardware, not advertising, and asserts that it has no part in the personal data economy. It has declared unilateral disarmament from the race to use data for economic gain. It says buy our hardware and not even we will know what you do with it.

Second, there is a group of firms, among them Google and Facebook, who participate vigorously in the personal data economy, but don’t buy and sell data (or not much, anyway.) They rely on a first party relationship with their customers to use their personal data to target advertising to them.

Third, there are many hundreds of firms who collectively accounted for about $100 billion of the $200 billion personal data valuation in in 2014, who do the buying and selling of personal data. Are they the problem? They are certainly entrepreneurial. They include whole sectors that did not exist a decade ago, and some, like third party data platforms, that don’t exist in the EU or exist in much-reduced form. They apply data science to address problems of market-matching. To the extent that publishers like the New York Times earn advertising revenue in the digital domain, it is to these data brokers that they are beholden.

Hodgepodges have their merits. They allow the natural and randomized experiments of market actors to teach us where the harms are, and where the benefits are. Part of what has emerged from the hodgepodge is that the actions of the market have convinced our democracy that we need aggressive regulation of sectors like children’s privacy, health privacy, and privacy of financial data, so that the most vulnerable populations have been protected while the experiments unfold. Another pattern in the hodgepodge, viewed over the long sweep of experience in trafficking of personal data that began with list brokers and the catalog industry in the 1870s, is that the taste for anonymity is fluid. We want it in the face of the intrusions of telemarketers, we surrender it for frequent flyer miles, supermarket discounts, and Facebook fame.

So, while it’s likely poor politics to attach the label Hodgepodge to a recommended course of action, it has been in effect the policy of the United States for several decades and has, in my view, much to commend it for future decades. It allows for the vigorous exploitation of Summers’ “hugely valuable asset” of personal data that has created Facebook, LinkedIn, and other ventures that have no counterpart in Europe. It responds, though sluggishly it must be granted, to actual problems, and not to the anticipation of problems that may never come. It creates new advertising markets which in turn fund the creation of new media such as podcasts and music streaming services, while offering hope to old media. And, if consumer tastes for anonymity change again, it is a policy that can flex.

 

* John A. Deighton is the Baker Foundation Professor of Business Administration at Harvard Business School, where he focuses on consumer behavior and marketing.

 

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