The Google Way: How Washington Can Regulate Without Killing Growth

The Federal Trade Commission's looming antitrust settlement with the search giant shows how regulators can do their job without stifling innovation.

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(Reuters)

The Federal Trade Commission seems ready to announce a settlement with Google today, bringing to a close a 20-month antitrust investigation. The settlement reportedly would avoid antitrust charges against the search giant, while requiring Google to agreeing to change some of the practices that other companies have complained about.

On its own, the settlement is good news for consumers, workers, and the whole U.S. economy. Objectionable conduct would be moderated without dampening the incentive for Google to innovate and provide new services. It's also true that it never made much sense to attack one of America's prime innovative companies at a time when competitiveness, growth, and job creation are at the top of the economic agenda.

More importantly, the FTC's approach to the Google investigation shows that regulatory agencies can be thoughtful about adopting pro-innovation, pro-growth policies without abandoning their core missions. A critical question facing the U.S. economy--and indeed, the European economy as well--is whether the existing regulatory structure is flexible enough to deal with the fast changing world of technology. If regulators apply old rules too strictly, they run the risk of squashing the very innovation needed to drive growth, job creation, and competitiveness.

This issue comes up repeatedly not just in regards to the FTC, but the Federal Communications Commission, the Food and Drug Administration, and other economic regulatory agencies. There are plenty of examples of important innovations apparently stalled by either politics or excessively cautious regulators (See, for example, the 2011 analysis by the Progressive Policy Institute of the FDA's treatment of one dermatological innovation).

In general, we need to make the regulatory system more innovation-friendly. This can be done through institutional changes, such as creating a "regulatory improvement commission" with a mandate to pare away outdated or obstructive regulations, which PPI has previously proposed. Such a commission could be structured in a way that is politically feasible, even in today's polarized political landscape.

The other alternative is for the regulatory agencies to consciously shift their policies towards more emphasis on innovation, rather than attacking innovative companies. That doesn't require any new legislation or restructuring of the agencies. However, it does expose regulators to political pressure, as the FTC has been discovering.

Re-opening the Google investigation, as some groups have pushed for, would only send a signal that innovation and growth are not high priorities for regulators. No one disputes the need for a fair and balanced government referee, but throwing star players out of the game is self-defeating. That's not a message the Obama Administration can afford to send.

By contrast, following through with this settlement will encourage other regulators to give the appropriate emphasis on innovation and competitiveness. That's the best way President Obama can leave behind a legacy of job growth and rising living standards that benefits everyone.

Presented by

Michael Mandel is chief economic strategist at the Progressive Policy Institute.

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