“Former FTC Chairman William Kovacic on the Future of the FTC and Antitrust” (Two Think Minimum Podcast)

“Former FTC Chairman William Kovacic on the Future of the FTC and Antitrust” (Two Think Minimum Podcast)

Two Think Minimum Podcast Transcript
Episode 022: “Former FTC Chairman William Kovacic on the Future of the FTC and Antitrust
Recorded on: September 11, 2019

Scott Wallsten: Hi and welcome back to TPI’s podcast, Two Think Minimum. It’s Wednesday, September 11th, 2019. I’m Scott Wallsten, President and Senior Fellow at the Technology Policy Institute. Today we’re excited to talk with Bill Kovacic. Professor Kovacic is the Global Competition Professor of Law and Policy, Professor of Law, and Director of the Competition Law Center at George Washington University Law School. He has years of experience as an antitrust scholar and practitioner, serving at the Federal Trade Commission as Chairman, Commissioner, and General Counsel. Since August 2013, Professor Kovacic has served as non-executive director with the United Kingdom’s Competition and Markets Authority. He’s advised many countries and international organizations on antitrust, consumer protection, government contracts, and the design of regulatory institutions. He is co-editor of the Journal of Antitrust Enforcement and a coauthor of antitrust case books, antitrust law and perspective cases, concepts and problems with competition policy, and antitrust law and economics in a nutshell. We also have here Tom Lenard, a TPI Senior Fellow and President Emeritus who will lead the interrogation. Tom, why don’t you kick it off?

Tom Lenard: Thank you and welcome Bill, and thanks joining us today. 

Bill Kovacic: Thank you Tom and Scott for the chance to do this. Thank you.

Tom Lenard: So, antitrust enforcement and privacy and consumer protection issues are both in the domain FTC, which is the agency that you said you used to head. So that means that the FTC is really at the center of the debates about what to do about large tech platforms. So let me start out with a question about how antitrust is organized in this country. We now have two federal agencies, the FTC (Federal Trade Commission), and the Department of Justice Antitrust Division as well as 52 state attorneys general who are investigating the tech sector for possible antitrust violations. Is this a good way to do it?

Bill Kovacic: I think there’s a lot of political science literature that says that you want some redundancy in a law enforcement mechanism, some overlap, some capability. Those can be private rights of action. Maybe it’s a second public agency that has related functions or makes the function contestable in some way. But that literature also says that you ought to have a number short of infinity. And I think in our system, we’re closer to infinity in practical terms than we are to simply one. The multiplicity is more acceptable if you have an effective mechanism for joining up these institutions and creating some sense of common cause, some sense of common standards, objectives, programs. But if you have siloed initiative by all of these institutions, states in one silo, Department of Justice in another, Federal Trade Commission in the third, and then perhaps sectoral regulators, like the FCC with a significant competition mandate, a consumer mandate, a privacy mandate, and they’re not talking to each other. They’re not discussing where they ought to be going, how are they ought to do it. And as they launch specific measures, are not consulting with each other about what they’re doing and how they’re doing it. You have all of these actors going down relatively flat learning curves instead of combining experience and achieving arguably a better policy result. 

Scott Wallsten: Even the federal agencies are not talking to each other?

Bill Kovacic: They talk, the Federal Trade Commission and Department of Justice cooperate on an as-needed and highly reluctant basis. It is in theory supposed to be a collaborative partnership, a joint venture with complimentary skills being brought together- with rivalry between them as there has been since the FTC was created and open for business in 1915- and some competition in a sense to do a better job is quite healthy. But competition that takes place on the wrong margins is destructive. And I would say in key respects now it is destructive, and that that relationship is a sour relationship and it’s not adding value to the enforcement.

Tom Lenard: Specifically with respect to these tech investigations, I mean, I think a lot of people, including myself, are confused about exactly how this is being divided up. Forget about the state attorneys general, just talking about the FTC and the DOJ. What’s your understanding about how it’s being divided up?

Bill Kovacic: The disclosures today about what’s taking place are extremely murky. I have no private information about what they’re doing. Initially it seemed as though they would follow a traditional path of saying, we’ll look at some companies you look at others. There have been further suggestions that no, each of us will have free reign to look at all of the major players in the sector, maybe allocating some responsibility according to the specific practice or potential theory of liability. But there’s no indication that gives us a confident way of knowing what that is. And again, there’s no common working group that joins in them up, there’s no mechanism that anticipates that periodically they’re going to sit down- and by periodically I mean every week, based upon what you’re learning and saying, this is what we’ve learned, what are our next steps? It’s an extremely chilly relationship. There’ve been episodes recently that involve outright hostility. 

Scott Wallsten: So what’s different now than in 1915 and what’s changed recently to make this so difficult within the federal government, across states, and the states and federal government?

Tom Lenard: What’s different now from when you were at the FTC?

Bill Kovacic: I’d say that the relationship has been hostile from the word Go because the Department of Justice in the teens and the beginning of the 20th century vehemently opposed the creation of the Federal Trade Commission. They said, why would you create another institution admittedly with different characteristics and powers to work in the same policy domain? That hostility has persisted for the past century plus. In some periods, the relationship between top leadership of the two institutions has ameliorated these tensions to some extent, but there’s always been an underlying antagonism based on the concern of each institution that their ultimate goal is national and global domination to rub the other one out. When I was, when I was a junior case handler in the late 70s, when I was simply a member of the board, when I was General Counsel, there were moments in which you had a good integration of policymaking and our realization of theoretical synergies. But day in and day out, if you take the level of cooperation and you draw production possibilities frontier, the cooperation and collaboration was always well inside that frontier so that we leave, I think in many respects, a lot of productivity on the table that we’re never going to try to pick up.

Scott Wallsten: I think you’re saying also though, that either the frontier has moved in or we’re moving even further away from it, especially now that you’ve got all the state attorneys general going their own way, maybe going their own way together, but different from the federal government. Why now? What’s happening?

Bill Kovacic: In many ways, the relationship between the states and the federal agencies, again, it has a natural tension built in. For the better part of the 20th century, the states were not significant players. They of course in many ways originated the US antitrust system. There were state antecedents before 1890. In 2020, we hit the 130th anniversary of the creation of the US regime. We had state systems going in the late 1880s, significant programs. But after the federal system really gets on tract in the first part of the 20th century, the states subside. They come back to life because they’re getting federal funding as a result of a statute passed in the 70s. But as the federal agencies retreat somewhat in the 1980s, the states jump in and they’ve been major players. They’ve been aided by Supreme Court decisions that you can block mergers of the federal agencies allow, you can demand stronger relief, and they’ve been aided by state statutes that simply in fact overrule principals of Supreme Court jurisprudence. Now we have three institutions in the same policy area, public institutions, Federal Trade Commission, Department of Justice and the states. The relationship with the states, between the states and the federal agencies, it’s dependent a lot on the leadership of those agencies. Leaders of the agencies who’ve been willing to contemplate a more extensive discussion have said there are good things they can do for us, and even if they’re doing some things we don’t like, we cannot stop that. Shouting at them is not an effective way to basically to bring them within the orbit of a larger understanding of federal policy, so we’ll cooperate more. The Federal Trade Commission has had better relationships over time. Right now the relationship between the states and the Department of Justice is a very sour one. You have, you have peaceful coexistence with the FTC. You have a bad relationship with the Department of Justice.

Tom Lenard: This is all either part of, or coincident with, a general ramping up of antitrust enforcement or an apparent ramping up of anti trust. We don’t really know what’s going to happen.

Bill Kovacic: But I think you’re right, Tom. There will be cases, all of the declarations, the announcements have created an inevitable momentum in the direction of bringing cases. They will happen.

Tom Lenard: You don’t think the companies will settle?

Bill Kovacic: They could settle. There will be prosecutorial decisions made to act, which will either elicit settlements negotiated or litigation. But I think that both the FTC and DOJ know in particular that it is not going to be acceptable in some time in the future to stand in front of a press conference and do what the FTC did in Google in 2013 after a lot of a buildup for the program and say, nevermind, we’re not doing it.

Scott Wallsten: It seems like there are three things going on. One is that since the 70s, the states have been getting more authority in antitrust realm and more resources (and more capacity, more skills). The second is that many of the states that have- there’s general hostility with the Justice Department. And then the third is concerns about the tech companies themselves, and that those three things are converging now to sort of a situation that we have today. Is that accurate?

Bill Kovacic: I think that’s right. And another layer I’d put on top of that is the political environment and Washington is far more sympathetic or tolerant of the possibility that there will be more antitrust scrutiny, if not cases. The demand, arguably from not simply the Democratic Party, but also the Republican Party, and to some extent from the President of the United States, who’s no fan of that sector. Owes them nothing, they didn’t give him money, they make fun of him. He’s hostile in many respects to individuals in those companies and to the institutions as a whole. So you have a political environment now that’s basically telling the agencies, “You want to go after them? We’ll back you up.”

Tom Lenard: Yeah. It’s essentially politically costless to go after the tech companies.

Bill Kovacic: I think it’s a free shot right now because the longstanding concern that if you lost their favor, you would suffer a loss of electoral resources and other bad developments, I think that that sense has been attenuated dramatically now. So that you have an environment in which leading officials in effect step ahead of each other to demand greater and greater forms of intervention.

Tom Lenard: Also going along with what we’ve been talking about, there are many academics, antitrust academics who are saying US has a competition problem. Antirust laws have not been sufficiently enforced in the past. So that’s obviously providing some kind of intellectual support for this whole thing. What’s your view of that?

Bill Kovacic: I think your unmistakably right. There has been a growing swelling, collection of academics who called for additional measures. I’d put them in three baskets. You have one, the mildest version is a group still there that says leave it alone. It’s working pretty well. A second group, the more intervention minded, says do more with what you have. Don’t change the law but step on the accelerator using vehicles that you already have at your disposal. A third group says do more and change the law by adding a new regulatory framework. That’s the Stigler Center’s report that says add a new digital platform regulator. Then you have the most ambitious, you have a group that essentially saying burn it down, burn it all down, build it up with a new set of goals, completely new leadership, new case handlers and managers who are not infected by any contact with the private sector. To the extent that Donald Trump said I’m going to drain the swamp, the burning down group says we really are going to drain the swamp. That is, nobody academic, private practice, has been deeply in viewed with the timid expectations of the traditionalists who are concerned about effects on consumer wellbeing. Prices may be innovation as well. That sterile view of the field is going to be swept aside and we’re going to get people who are committed to going to the barricades in a very big way and the burn it down group gets a lot of attention these days. 

Scott Wallsten: Sounds like the burn it down group includes de Blasio and Trump. 

Bill Kovacic: I’d say so, yes. Yes. I’m thinking of the Recode interview that President Trump did where the journalists were striving to get more specific identification of companies that they wanted him to go through and they started tossing companies out at him and said, well, what about Apple? And he said, “Yeah, them too.” How about Amazon? “Sure.” Google? Facebook? “Yeah.” It’s as though they’d gone through the whole list of the top 10 in the country, he would’ve said them too. These are not specific commitments to have at them through the Department of Justice or through the Federal Trade Commission. But again, compare that to the different tone of the White House during Barack Obama’s presidency where you did not have the president off the cuff or in a more formal and structured way saying this is a serious problem, we have a big concentration issue in this country and we’ve got to take dramatic steps right now to fix it.

Tom Lenard: In some of those in some of those buckets that you’ve mentioned you do have people who are basically pretty mainstream economists, but also talking about some radical departures from the way we do things now, and you mentioned the Stiegler report, the UK report-

Bill Kovacic: The Furman report from the United Kingdom, yes. The special advisors to Commissioner Vestager in the European Commission, three member panel, including some first-rate academics. Yes.

Tom Lenard: A couple of questions. I want to get to this thing about regulation because those reports do talk about regulation. But I guess the question before that is, are these tech markets fundamentally different? That’s the rationale for a lot of these recommendations. The heavy use of data, data is a barrier to entry, all those things, that’s kind of what they say. What your view of that type of argument?

Bill Kovacic: I think the modern discussion overstates the extent to which this is completely unseen in the modern experience of the US. Going back, if I defined modern back to the 19th century, you look at what happened between say 1890 in 1930 with the introduction of telephony, the automobile, the radio then called the wireless, the dramatic expansion of rail transport, the development of steam ships first with coal, then with fuel oil, the establishment of evermore deeply integrated networks, the motion picture, then the talking picture. These all happened in a period of about 30 years, including the introduction of alternating current as a replacement for direct current. So a revolution in energy, communications, and transport happening at the same time. That’s the environment in which we got our antitrust laws in the first place. A process of social and economic upheaval that, to people living at that time seemed no less remarkable than what we’re seeing now. What’s different now? Some of the same forces, but I’d say that the absolute and relative rate of change is faster. So in some ways the phenomena are more bewildering. They are harder to comprehend and understand. Their broad significance becomes apparent over time. But there’s also a sense within, I think each of those industries, that if you’re not pressing ahead daily to try something new, to explore new connections, that you’ve lost your opportunity to perform effectively. I’d say in many ways, what is especially challenging today is the level of dynamism, the speed, the complexity. Those are all harder and more difficult. And they really put a lot of pressure at the joints of the capabilities of the institutions that have been involved in this area to this point.

Tom Lenard: One of the things that struck me about all these recommendations for more aggressive antitrust and even going on to regulation is, and this is even among well-known economists, ignoring history. People say, well, we prosecuted Standard Oil. That means we should prosecute Google, assuming that all these past antitrust cases resulted in some success for consumers or general welfare. We had an Interstate Commerce Commission and we had a CAB, we should have an Internet Commerce Commission, ignoring that there’s a lot of scholarly literature on those episodes of regulations suggesting that they did not help the consumers that they were intended to help. What do you think of that? 

Bill Kovacic: I think Tom, there’s an epidemic failure in our field to make use of what we might call big regulation data, which is a large historical set of experiences going back to the foundation of the first State Regulatory Commissions and federal regulatory authorities in the late 19th century. In fragments, we know pieces of that, but we have a hard time bringing to bear that accumulated experience to current questions about what institutions tend to function better than others? What elements of regulatory design promote good performance? What were the actual outcomes with respect to economic performance or other effects that came from these other forms of regulatory intervention? I think one in that subset, that category, of experiences you referred to is simply the big question of how you do it. The question of implementation. Graham Alison in 1971 contributed a classic in political science called the Essence of Decision. He was looking at the way in which the players in the Cuban missile crisis interacted and how institutional arrangements affected their choices, sometimes predetermined different paths. The conclusion of his book is very gloomy. It’s ’71. He says there’s a crisis in our government as to whether or not it’s really capable of governing. And he said if we we’re going to do one thing well in the future, we have to think a lot harder about the process of implementation. Going from the aspiration to its actual accomplishment in practice. I think so many of the debates, if I was to point to just one thing that’s missing, it’s a fuller understanding of what you’re in for if you try to do all these things and ask whether or not the broad conception that you have about what should be done are the human beings and institutions that we’re going to count on to do this, can they actually deliver? And there’s a lot of experience, it says, that’s a difficult journey to take. And if anything you have to moderate, you have to come at it with more realistic expectations about what can actually be done in practice.

Scott Wallsten: You compare it today to, 1890 to 1930 suggesting that there really are real pressures on institutions today. What should we be doing to respond to those pressures? Tom is suggesting that the roads that people want to go down today are unlikely to be effective based on what we know from history, but what should we be doing to deal with these pressures on institutions? I guess this is sort of a normative question, where do you think we should be headed? What should we do?

Bill Kovacic: One thing generally is to improve our base of knowledge. And I realized that to elected officials today, if you say, we’ve got to study things more, we have to learn more, that seen as a pathetic form of temporizing. Let’s just go! Jack Kennedy said we’re going to the moon! But he also said we want to bring the person we send there back safely to Earth. It wasn’t just getting there. So he had a larger set of aims. But I think we do have to improve the base of knowledge in which we work, which means assimilating more effectively what we’ve learned from past experience. Second, if we’re going to have a multiplicity of public actors involved in the process, as we were saying at the top of the discussion, they have to work more carefully together in order to pool the knowledge that they’re accumulating. We need a better effort to assess the effects of past initiatives and to study what happened there, and to build the indigenous capacity of the agencies themselves to do good analytical work and to engage external co-producers as Ellen Fells, the former head of Australia’s competition agency calls them, co-producers, academic institutions thinktanks who can contribute to that, to that effort over time. Another thing I would think of doing too is I just wonder whether or not if you want to build the really high quality scale and capacity of the agencies, whether you have to rethink the way in which we pay the civil service. I think it’s crazy to cap most federal agencies at the levels we are now. If these issues matter a lot, if getting telecom policy done right- I do what is done in the jurisdiction though I study a lot these days, the United Kingdom. The head of the UK competition consumer regulator gets hundreds of thousands of pounds a year. Do does the head of the competition authority and they think nothing of it. They think that’s a damned important job that’s worth paying for. I’d double the salaries of the federal workforce. I’d say if this is really important, I’m not going to bring people in in an entry level of 70k-75k, I’ll match private sector salaries. Maybe I can’t do it all the way, but for the sake of getting the first great team of lawyers, economists, technology specialists, if these regulatory choices means so much to us, why would we think that you’re going to get Mercedes quality performance with Chevrolet prices? And I’m surprised in a way, that people that want to go to the barricades on these issues don’t talk at all about this kind of makeover. I think I’ll be persuaded about the real sincerity of the radical vision of improvement when I see the proposal to change the federal workforce, I don’t see how you can do what you do now without greatly enhancing its capability.

Scott Wallsten: We do seem to be seeing some proposals on how to deal with the federal workforce that go in the opposite direction. The USDA economic research service is being scattered to the winds now. 

Bill Kovacic: This was the challenge that Graham Alison posed. He said if you want to know how well the match is going to go, tell me who’s playing. Tell me about the quality of the teams. Tell me about their capacity. The luxury at the FTC of working with a lot of extremely exceptional people, but I know what happens when you mount major challenges involving significant economic interests. What happens? They bring the best in the world to bear on the other side of the room. And how many of those battles can you age at one time? I was a junior case handler at the FTC at the end of the 1970s when the consequences of FTC cases to restructure the oil industry, the breakfast cereal industry, the photocopier industry, parts of the chemical industry, the auto rental secto,r and others. That’s just a short list when those came to earth. And what you witnessed was a staggering mismatch between the commitments and the capabilities of the agents. And when I look at a number of our regulatory authorities that are dealing with all of the hard problems, be it telecom, energy, data protection, competition, we spend peanuts on that. And then we wonder, well, why isn’t it better? The better team by itself isn’t enough. But I worry in this environment where they’re being told, do 10-15 different new things at once. Don’t try them out one of the time, do them all at once. I see a repeat of that experience in the 70s where many of these things failed. 

Scott Wallsten: Any one person, no matter how high up they are can only have limited effect. But if you were Joe Simonson, if you were the chairman of the FTC today, what would you do along those lines? How would you work towards that goal?

Bill Kovacic: In the first instance, it’s very hard about whether I’m making the best possible use of what I’ve got. That’s going to be the initial responses we give you- I think the FTC’s budget roughly stated is about 300 million year. Peanuts, but it’s 300 million. It’s more money than I would leave on the sidewalk, of course, if it was in front of me, I wouldn’t step over $300 million. I’d pick them up, a few of them. But you would be asked to any political overseer, well, are you making good use of what we have? I look at that very carefully. I’d look at whether I’ve deployed those people the right way. Have I formed an internal organization framework in which I get the best possible use? But I’d sit down with them too and say, I’m going to show you what we face. I’d sit at the table at one of these hearings and say, this is what we face. This is what we faced in the future. And all of you on the other side of the table with the greatest possible respect had been telling us do more, more, more. And I’m going to ask myself, with what? You want me to take on the kinds of capabilities that will be brought in our direction? The full forces of the defense bar, the best consulting economists in the world, academics and others? They’ll be on the other side of the courtroom. I can fight a couple of those battles at one time. I can’t do five.

Tom Lenard: This is antitrust is very interesting. But I’d like to have time to get to the other big issue, which is privacy. What did you think of the Facebook settlement?

Bill Kovacic: Too early to tell if it worked. I am dismayed. At the outset with any settlement, there is an act of faith where you build in structures and frameworks about the future. In many respects, you don’t know how that’s going to go. We won’t know for another 5 or 10 years, maybe 10 years. We won’t know. There’s a lot of policy-making where you’re trying to effectuate a change in corporate behavior where you’re wondering what’s going to work. We don’t know. There’s a lot of experience that I think tells us that. And in light of that, I’m dismayed at two things. One is how that element of uncertainty is just been assumed away in the process. Now, the FTC has been hammered repeatedly to the point where I’d say it’s reputational capital is in serious ways being drained away because of the chorus of attacks. The first wave came when the monetary amount of the settlement became known before the conduct controls were known. That was immediately called a slap. On a wrist, a chump change, a whole host of slogans and cliches pour forth from our legislature right away and from other commentators. Is it a fair point to ask what effect monetary sanctions have? Yes, and maybe if we think more broadly about Europe with the 9 billion assessed against Google so far, if the money means nothing, the 9 billion means nothing in the Google case either. And to this point, they’ve gotten a lot of favorable attention for that. That’s meaningless as well, isn’t it? So to the extent that the criticism says, let’s focus more on the question of what’s gonna actually change conduct and behavior. That’s a fair point. In my business, in academia, we grade on a curve and the 5 billion is far more than the FTC’s ever touched in a matter. It’s the biggest civil result I think any of our public agencies have achieved in the history of the republic. The FTC does not litigate this case on its own. The Department of Justice represents it in the courtroom. The FTC makes a recommendation. The Department of Justice decides to prosecute how to prosecute and possibly settle. So when people said you the FTC should have sued them. No, we can’t sue them. That’s the Department of Justice. There’s another party in the negotiation and you just don’t go into them and throw a draft complaint on the table and say, I want 50 billion. I went 10, I went 5, just do it. And they say, thanks your recommendation. We’ll take a look at this. But beyond the surprisingly dismissive approach- and, and you’ve seen the language that’s been used by so many public officials and others. It’s as if the Federal Trade Commission is one of the worst agencies ever founded.

Tom Lenard: Well, this is part of the problem now. This was the question I was going to get next, is in the Facebook settlement as well as the YouTube settlement, they were 3-2 decisions along partisan lines-

Bill Kovacic: And the dissents are incredibly harsh. One of those dissents said this result is headline driven. The result was driven by coming up in effect with a big round number that would go into headline 5 billion. A polite interpretation of that is that there was an excessive focus simply on the monetary recovery coming up with a number that in some sense was a leader in the clubhouse. But another way to look at that is that your colleagues are engaged in an utterly cynical exercise and that their decision making process lacks legitimacy, that the work of your staff lacks legitimacy. That’s doing a drive by on your own agency. And I can assure you that foreign officials around the world read every word. When they see that being the characterization of what the agency did, what its motives were, the stock of the Federal Trade Commission and its larger regulatory program falls like stone, which is happening. And part of what’s dismissed again, the idea that none of the conduct controls matter. It’s a get out of jail card for Mark Zuckerberg, nothing changes. And again, we’re not gonna know for awhile.

Scott Wallsten: It’s interesting, the dissents, the internal criticism is almost exactly the opposite of the external criticism. They’re saying in the inside you’re just looking for a big number, you pick five, and outside they’re saying, God, that number wasn’t big enough.

Tom Lenard: I don’t think the rest of the dissenters agree with that.

Bill Kovacic: I think Scott, part of what it’s saying is that if the money really mattered, 5 billion, the dissenters are saying, doesn’t get my attention at all. If it were 15, maybe that’s interesting. Or let’s take a dramatic percentage of your annual gross or net that somehow corresponds to the scope of the injury suffered here. I’ll pick a number out of the air. 10. 15. Suppose it was 15. I don’t know quite how many months of revenue that is for Facebook. I don’t know what net corresponds to the 15 billion. I don’t know how many months they have to operate to get that. But I’m assuming there is a number that would’ve caused the dissenters to say for a moment, maybe even in a low voice, wow that would be a real number. But I think in part of their saying is 5 billion- if money is the device to change behavior, 5 billion is not going to do it. But beyond that, the absolutely dismissive approach to the conduct controls, which might be effective, might not. The FTC, as we recall, when they did the original settlement with Facebook, heralded this as a big change in the privacy environment. And I think we remember that it was a 20 year order. Not 5- 20 years. It committed the company to adopting broad aspirational privacy policy to build it in rather than saying tack it onto the outside. There’s going to be a third party monitor on the outside that was going to do the audits. And this was clearly seen by the commission, when this was adopted in 2011, 2012 when it becomes final, this is going to be the template for the tech sector. This is not your old, more cautious Federal Trade Commission. This is a new and aggressive FTC that’s setting a framework that’s gonna apply across the whole piece of the tech sector and information services. So I had great hopes for that. Apparently didn’t work as planned, which is something we’re studying a lot more before you decide that the next set is worthless and even studying and thinking about what the next set of controls ought to look like. Assume that the original settlement was in some sense a big failure, a smash up. If it were the transportation sector. What do you do after a smash up? You don’t just say, oh, it was a crash. Terrible, tragic. There’s a lot of effort taken to reassemble all of the pieces to put you in a position looking at all the information you can to say, why did the smash up happen? What caused the crash? What caused the calamity? I don’t know how much of that happened inside the FTC and formulating the next solution, but you’d want to know that because there was a third party monitor turning out reports that were saying looks pretty good so far. So far, so good.

Tom Lenard: That leads to the question of  what the relationship is between the settlement, including the $5 billion and the harms that were caused by whatever Facebook did, with Cambridge Analytica.

Bill Kovacic: It’s really hard, Tom, to come up with a confident view on the outside about how they came up with the 5 billion because the technical method for calculating order violations, civil penalties could generate based upon the alleged number of breaches and amount of money that’s bigger than the amount of money ever made. You could have trillions if you’d taken all of the breaches. If you have at the one end, all the money ever created or spent and zero, how’d you get to 5 billion? I don’t have a sense of that at all. One of the reasons that the civil penalty mechanism is set the way it was is simply to avoid having to do that. To give a basic message to the company: you don’t abide by the order, it’s gonna sting, which takes us back to the question of how much stings, but it was there. Was there a really confident basis for saying harm? About 5 billion. Or was that a negotiation that took a new account with the Department of Justice would accept and litigate and press for? Some idea of what had been done before? Notice during the FTC’s press conferences they’re continuing references by the majority to what had been done before. This is multiples more than what had been done before, low baseline in the past, going way beyond that. So a rough comparison with the past, and I suspect some sense that if you outrun that too much, you’re going to have a hard time getting either the Department of Justice or ultimately a judge to accept the bigger number. I suspect it was a lot more art than science involved in coming up with 5 billion.

Tom Lenard: Getting back to the internal dissents among the commissioners, I mean my impression, and obviously you have a lot more experienced than I do, my impression is that the FTC, the Commissioners, they try to be collegial, historically they have tried to be collegial. I’m curious at how unusual these party line votes are historically.

Bill Kovacic: There was one circumstance that I think may have impeded the development of a commitment to the common cause, to the common pool, and that’s that all 5 were appointed in one year. This is the first time since 1915 that one president within a 12 month period in one calendar year, picked them all. You don’t have any holdovers from another period. You don’t have a process of getting to know you and developing common norms. Y’all arrive at roughly the same time, within a period of months. That inhibits the development of sense of how things are going. Of course, the burn it down critique says those older norms and customs are all rubbish. You need someone who’s just going to mix it up with no effort to form these more modulated approaches to doing things. I think that gets in the way. Another is that we have a mechanism in our system of administrative law called the Government in the Sunshine Act. And it means that for collaborative bodies, colleges, a quorum cannot meet unless it’s in public or subject to very limited exceptions, can meet privately. If, for example, it’s a meeting to discuss a proposed law enforcement action that has to be vetted by the general counsel’s office. it has to be noticed to the world, then you can close the meeting. It means what you cannot do is have spontaneous discussions among colleagues. You cannot invite everyone to come into the chair’s office, bring your lunch. I’ll provide the drinks and the snacks. I just want to talk about what we did this week and what we’re going to do next week. I want to know Commissioner Leonard, what’s your plan for next week? You gave a talk earlier this week. What did you learn? What is our common purpose here? I’ve never seen a collegial governance mechanism where the members of the college did not do that on a regular basis, whether it’s a federal district court with all the members on the bench, a court of appeals, whether it’s a government agency out the outside the United States. You tell our counterparts outside of this country that if you have two people in the lunch room talking about a merger or about privacy policy and the third member of the commission joins them, the discussion has to change immediately to sport, cinema, holidays. You can’t talk about the business of the agency. And I think that failure, that inability to have that regular social engagement, including being able, where you see something that you think is way out of bounds, to bring everybody else in the room and say, this is a common partnership. We’re all playing for the partnership. You’re playing with the partnership’s money. It’s the difference between saying I disagree. I think you’ve miscalculated. I think you misunderstand the problem. I have another view to saying the only thing you cared about was a headline. That’s the only thing you want. You weren’t interested in the long-term interest of this institution or the people of this country. Why did you say that? Do you think that helps us? Now maybe everyone walks out of that room, minds unchanged, saying, I’m going to forge on myself. I’m going to talk to the outside. I’m not going to talk to you. I don’t care. 

Scott Wallsten: Do you think it also has the effect of giving the permanent staff more power than the commissioners? They can talk about themselves. They don’t change. They have the institutional knowledge. 

Bill Kovacic: Scott, one of the conventional workarounds is that the Government of the Sunshine Act does not apply to your own internal staff, what the Europeans would call your cabernet, advisers can talk with the others all they want. So the adults can’t talk, but the children can, and they do. There are crucial conduits for helping define what the compromises will be. It does devolve a lot of authority. Human beings are very creative. It didn’t take long for the collegiate agencies after the Sunshine Acts adopted in the 70s to say, okay, you can talk, you go talk. Here’s what we have in mind. I think it does give the non- presidential appointees more power, which it seems to me to be a perverse result with respect to legitimacy and accountability, but where were the professional staff watches the rock throwing going on at the top, and where they’re getting caught in the crossfire, you’re asking them to do extraordinary amounts of work on difficult matters and make hard choices. And instead of the people on the bridge coming down to the engine room where I’m throwing coal in the bunkers saying, good job, the ship wouldn’t move if you weren’t doing this, you’re reading speeches and statements where they saying, those derelicts down in the boiler room are not working hard enough. They don’t have the sense to throw the coal in the right spot. They’re not really doing their job. And maybe it’s because they don’t really know how either. Having been one of those people in the boiler room, that is faintly demoralizing and does not generate that additional effort that says this is worthwhile. It’s the great difference that being told this is a mistake as opposed to being told you’re operating in bad faith. That doesn’t help. Name me an organization where that kind of dialogue happens and the recipients, that kind of invective come away from it saying, oh, that felt pretty good. I feel deeper bond with my colleagues.

Tom Lenard: So I have, even though we’re probably running out a time, I do have another question, which is actually a fairly big question, but I’d like your views on it. What should the FTC do if Congress fails to enact a privacy law, of which there’s a fairly decent chance that they will, given that the FTC will then have to operate in a context which includes state laws, which includes the European GDPR, what should they do? How should they handle a privacy enforcement? More specifically? I’ve heard some people recently suggest, well, they should do a Magnuson Moss rule, which I don’t know if we have time to explain what all that is, but-

Bill Kovacic: As long as they’re encumbered by jurisdictional carve-outs that were established in the earlier part of early parts of the 20th century, they will be inherently disabled in functioning as a really effective national privacy institution and a counterpart abroad. They are out of common carriers completely, which means no telecommunications, no airlines, they are completely out of not-for-profits, which means universities, charities, all of which have masses of private information that they’re responsible for handling, and they’re out of key parts of financial services. So as a starting point, if the legislators who demand stronger efforts to do a good job will not hear and pay attention to the refrain they’ve heard for the Commission now for 20 years, which is change the inane carve-outs, that is an organized hypocrisy in the legislature. But let’s assume that since hypocrisy is such a valued commodity in this city with different wear vintages that we’re going to keep drinking that hypocrisy, what do you do if you get no relief from the exemptions and you’re told fare as well as you can. I suspect one thing to do is- and you’re not going to get any more money either. The total privacy team has maybe 40 or 50 people. There’s some affiliated skills they can bring into the agency too, but 40-50 people to do privacy work in this country? Comic. Let’s suppose those are the lasting constraints. I suspect that one thing that Joe and his colleagues can do and is hard to do because the fractious environment in the Commission is to say, what are the 3 best things we can do to make the most use of what we have here? Is it to lean very hard on the monitoring and implementation of this settlement that’s been described as so useless? Do we need a broader debate about what the framework of controls ought to be? You can discuss rulemaking, you can. They should, they have that authority, but what’s the rule gonna look like? What do we want to cover them? What techniques do we think would be best used in a rule? And how are you going to enforce a rule, implement a rule with the resources we have? That’s a worthy topic for discussion. I suspect what’s going to happen is that we will have a national privacy standard set and it’s going to be set by the state of California and by the European Union. That’s where we’re gonna get national US privacy because those kinds of efforts are going to encroach more and more on the federal realm and on businesses that have to make a decision. What are you gonna do? And I think increasingly they’re starting to say, GDPR, we’ll live with that. We’ll adjust our policies to deal with GDPR. State of California, quickly becoming the equivalent of a national policy maker in some ways, we’ll live with that too. If I were thinking strategically at the FTC and I saw these two forces basically enveloping the entire policy domain in the United States, I’d be asking myself, am I happy with all the standards that are coming out of that? Do I have to engage more fully with those institutions that are setting policy? And as a footnote, we have no regular process in the United States where the state and federal institutions that have a major hand in policy sit down regularly and talk about what they’re going to do. Our European counterparts are a lot better off than we are in that respect. Much more networked policymaking and governance. We have no regular process but which they sit down and talk together about what they’re going to do or at least with a remote teleconference to talk regularly, not just once a year, see someone at a conference, lovely conferences that they are, but to sit down and say, what’s our plan here and what you’re doing over there, how does that relate to this larger ecology policy that we have? I think in some way, in addition to thinking about how to use its other capabilities continue to do the studies that can do act as a convener. Maybe one of the contributions to the FTC is to say, how do we achieve as a convener a broader understanding of what we’re doing, how we’re doing it, and how we do it overseas. Because overseas we have no credibility because our program at home is rubbished as it has been in the last month or so on Facebook, ridiculed. We’re told there’s nothing that’s affective about it. And the only hope we have in the continental United States is the state of California. That’s it. Uh, so how do you engage externally to increase confidence on the part of your counterparts that you have a faint idea of what you’re doing? I’d say a lot of what the FTC has to do is to continue and meet and talk to these people to convince them that we are not a complete bunch of idiots. Because that is the basic message that’s coming through the commentary is that you either don’t know what you’re doing or you’re too scared to do your damn job. 

Scott Wallsten: And does that include Congress cause you haven’t mentioned them at all? So we’re just assuming as usual, then nothing will happen. 

Bill Kovacic: I’ve wondered for a long time what was going to be the equivalent of the Exxon Valdez oil spill, that was going to be seen as such a jarring result that you would get action. And we’ve had spills of data, big ones. Cambridge Analytica, which raised everybody’s pulse for a while. I had thought that we would see the impetus pushing in the direction for something. And I wonder more and more if it’s going to come from the business enterprises themselves. Is that going to be the catalyst stole the mentally where they join arms go up to the Congress and they’ve talked about this for a long time, but you’re not doing anything about it and you’re gonna talk for another decade, again, we’ll show you where the privacy standards are gonna come from. They’re gonna come from Europe and they’re gonna come from California and legislators, if you’re happy with that, just keep talking. Don’t do anything else. So I wonder if the sense of common cause in the business community. Is it going to be the product of, uh, of a continuing set of calm conversations? And I think of the work that Tom, you’ve done, Scott, the whole team here. I can’t exaggerate too much the importance of events like the TPI’s Aspen program where you try to develop a common set of norms across a large number of people. The program that Phil Weiser ran when he was Dean at the University of Colorado, now of course the Attorney General of Colorado, but the Silicon Flat Irons program, all of the institutions that are trying to build some sense of what the norms ought to be so that you have at different opportunities, the possibility of coming to legislators and other policy makers and saying, you’re talking about this and the house is burning down. And basically what you’re doing is watering the rose bushes in the backyard and the house is burning down. Don’t you want to do something?

Tom Lenard: So I was thinking, we were talking about we should try to end on a slightly more optimistic note. 

Scott Wallsten: That was a positive statement about the TPI Aspen Forum. 

Tom Lenard: Exactly, there was a positive statement about groups like TPI and Silicon Flat Irons. So I’ll take that.

Bill Kovacic: I’m part of an academic institution which is supposed to perform this role to some extent too, which is to be the forum. It’s what some political scientists and public administration specialists and academics call the role of the convener. You provide a trusted forum in which people who do not agree with each other will feel comfortable learning each other, getting to know them better, even developing friendships, and that people who have think that their counterparts are completely wrongheaded, we’ll engage in a conversation that ultimately leads to some areas of agreement. Where they realize that the Venn diagram of preferences is not two isolated circles, but there’s some overlap to work with, I think that is a valuable role to play. I go so far as to say that it helps build both the human glue and the intellectual bonds that ultimately can help promote the development of a consensus. And not the only ingredient that has to go into the process, but I don’t undersell it as well. It’s not just because I worked for one. 

Tom Lenard: So that is a more optimistic 

Scott Wallsten: Thank you so much. That was great. 

All: Thanks. Thanks. My pleasure. Thank you.

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