Data regulation could power a new era of tech growth

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(Bloomberg View) -- The secret use of Facebook data in the U.S. presidential election has forced governments and consumers to think about how such companies gather and profit from personal information — a major concern overdue for close attention. This scrutiny may be the beginning of the end of the unregulated growth of Silicon Valley.

Tech companies and their investors may shudder at the thought, but their fear of regulation may be unwarranted. Part of the maturation process of any industry is regulation that suits its activities, and the gains from a safer, more trusted technology sector could quite plausibly outweigh any losses.

This was one theme that emerged from discussions at last week's Bloomberg Ideas event in San Francisco, where Bloomberg columnists discussed some of the issues facing the technology sector. In a panel on regulatory challenges, columnist Joe Nocera talked about the growth of the credit-card industry decades ago. The industry fought regulation that imposed limits on how much cardholders could be liable for in the case of fraud or theft, but after the industry lost that fight and consumers had some protections, plastic became the coin of the realm. This would not have happened if the credit-card industry had remained a Wild West.

This is the model Silicon Valley should consider as its ambitions expand to industries at the heart of our daily lives. It was one thing when the industry was more focused on semiconductors and database software, where product failures may have been a big problem for engineers who relied on them but were a nuisance at worst for the public at large. It's quite a different matter when the industries in question are transportation, media, health care and finance — when failure has a much graver real-world impact on far more people.

One industry where regulation may provide the greatest catalyst for growth, as became apparent in my own Bloomberg Ideas panel on capital markets and innovation, is cryptocurrencies. While I remain a skeptic about the future of cryptocurrencies, a member of the audience expressed the modern version of the case Nocera mentioned: that institutional investors who are interested in cryptocurrencies could be waiting for a regulatory framework to emerge before allocating money to them. The early enthusiasts focus a lot on how a regulatory crackdown could represent the demise of cryptocurrencies — but clear rules and investor protections may provide the foundation for a more legitimate and much larger industry to emerge.

My decision to deactivate my Facebook account last week in response to the company's data practices reflects this theme. While I remain a fan of Facebook's product as a user — there's no better way for me to keep up with distant family members and local news — I'm concerned with how the company and others use my personal data in ways I don't know about, and how indifferent the company seems to be about the appropriate business use of said data. My hope is that continued public scrutiny on the company leads to adequate reform or regulation, after which I would gladly reactivate my account.

A regulated tech sector will be different, but there’s no cause to assume it will be worse. By curtailing some actions, regulations will encourage the public to go along with everything else the companies do — ultimately supporting this dynamic sector toward continued growth.

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