Privacys Bully Pulpit

The FTCs Orson Swindle takes a stand for industry self-regulation, federal privacy rules and the free flow of information.

by / May 6, 2001 0
Orson Swindle was sworn in as commissioner of the Federal Trade Commission on Dec. 18, 1997. Previously, Swindle served in the Reagan administration from 1981 to 1989, directing financial-assistance programs to economically distressed rural and municipal areas of the country.

As assistant secretary of commerce for development, he managed the Department of Commerces national economic development efforts and directed seven offices across the country. Swindle was also state director of the Farmers Home Administration for the U.S. Department of Agriculture, financing rural housing, community infrastructure, businesses and farming.

Government Technology: In March, the House Commerce Committees Trade and Consumer Protection Subcommittee held its "Privacy in the Consumer World" hearing. What role do you see the FTC playing as the debate over Internet privacy continues?

SWINDLE: I would hope we play the role of an honest broker, drawing the attention of Congress and Internet-related businesses to the concerns of the general public about privacy. The public is obviously concerned about privacy. Unfortunately, its been over-emotionalized, and when we get into over-emotionalizing issues, we often do rash things.

I hope the debate will be honest. I felt the commission was way out of line last May when we recommended legislation.

[Ed. Note -- On May 22, 2000, the FTC released its "Privacy Online: Fair Information Practices in the Electronic Marketplace" report to Congress. In that report, the FTC asked Congress to enact legislation in an attempt to create a minimum level of privacy protection for Net surfers and shoppers. The FTC wanted the legislation to establish "basic standards of practice for the collection of information online." The FTC wanted commercial Web sites "that collect personal identifying information from or about consumers online" to "comply with the four widely accepted fair information practices: notice, choice, access and security." Commissioner Swindle was a vociferous critic of the report.]

I dont think that was appropriate, especially in light of the fact that, in my mind, we have no concrete evidence that there was a market failure. We certainly had not done any cost-benefit analysis as to whether wed be better off with or without some strong or burdensome regulatory regime. I hope that the commission [does] not renew its advocacy for another set of regulations to burden business.

GT: Your stance on industry self-regulation vs. government regulation is pretty well chronicled. Are you still in favor of industry self-regulation?

SWINDLE: Yes. But as you noted [in earlier correspondence], Ive been rather direct in speaking to industry. The bottom line is this: If we have regulation, you, leaders in the industry, dont blame the bureaucrats. Blame yourselves for not getting it done.

Industry has the capacity, the motivation and the creativity to solve these problems as well as theyre going to be solved. We will never completely have an ironclad way to protect everybodys privacy to the nth degree, and it would be easier to argue that we dont need that, either. But we can do better. Industry has made a lot of progress, and Im very pleased.

In particular, Ive made the point to industry that concerns for customer privacy ought to be a part of your corporate culture. Ive told them, "It ought to be a part of your thinking that when you design, create and manufacture devices for the online world, that you think, What does this do that jeopardizes the privacy of consumers? and solve that problem."

Im pleased at the leadership thats being shown by companies such as Microsoft, IBM and Disney. Major companies are weighing in to try to find solutions. Every week, it seems, somebodys got a new piece of software that will help consumers.

Were making progress, but we need to keep moving the ball. Otherwise, sure as were talking, there will be enough emotion to cause Congress to pass some rules, which wont solve the problem and will probably do more harm than good.

GT: Does it get even more complicated if a series of congressional laws get passed that take a piecemeal approach to privacy?

SWINDLE: You say congressional laws? How about state laws? Some would argue that maybe we need to have different states have their own laws. That argument, as intriguing as it is, would do more harm than good and make it very burdensome for industry.

As the pitch of the rhetoric heats up, the emotionalism and the awareness of what can and cant be collected, how its collected and how its used has also heated up. But if you ask people if they want to get rid of this exchange of information ... Our entire economy, to a great extent, is built on the foundation of the free flow of information. Imagine the credit-card business or the mutual fund business: If we didnt have the free flow of information, we wouldnt have much in the way of these conveniences that we all enjoy today.

Before we restrict the free flow of information and disrupt all these services and products that we enjoy, we better be careful. I dont think the American consumer is really saying that. In fact, recent surveys indicate that as long as consumers have the belief that the use of the information is appropriate, they are fairly comfortable with it because they derive benefits from it. Direct marketing is a great business. Something like 130 million people in 1999 participated in direct-marketing purchases -- thats half the people in the country. That could not be possible if there wasnt information flowing about.

Its going to be an interesting debate.

GT: If you had to sit down and try to convince a state CIO, a state legislative committee or even a governor that too much regulation is a bad thing and that states shouldnt be able to create their own privacy laws, how would you do it?

SWINDLE: In the first place, I wouldnt try to do that. Federalism is alive and well, and the states have the right to do as they choose. But common sense has to prevail, and its going to take some rational and calm thinking on how to do this best.

Were going to be in a state of flux; theres no doubt about that. There are going to be different opinions, and I tend to favor preemption -- as I did with adding new taxes to the Internet. I was definitely in favor of the moratorium on new Internet taxes. Doing something similar on privacy regulation might be a good thing, just to let the furor die down. Lets get to work to find some solutions that make sense -- that are based on facts, rather than emotion.

GT: Does the media play a role in the emotion? Has the privacy issue been misrepresented? Or has it been over-sensationalized?

SWINDLE: Its been over-sensationalized, and Im not blaming the media by any stretch of the imagination. I would put more blame on the FTC and its action last May. We just poured gasoline on the thing last May. Then there are obviously proponents of a regulatory regime, and theyre always beating the drums.

GT: Its difficult to determine which approach works best with privacy. Do you use the carrot or the stick?

SWINDLE: You use both. Ive been a proponent of self-regulation, but Im also making some stern warnings to industry.

As consumers become more and more concerned about the potential for violation of their privacy or the misuse of their personal information, theyre going to demand something be done. Those businesses that do the better job of protecting peoples privacy will win that business. An unhappy customer is not going to come back. He or she is going to go to somebody that can take care of his or her concerns.

One of the great failings of the industry is that theyve not done a very good job of explaining why the use of information exchange is necessary: why we need cookies; that cookies make certain devices and programs work; that there are benefits derived from it and those benefits come in the form of targeted advertising that makes [things] available to people theyre interested in; and that the use of information helps pay for the "free" Internet.

Industry just isnt doing a good job of selling its product.

GT: Is this difficult, since people have no problems giving up certain bits of information about themselves to get discounts?

SWINDLE: Right; they do it all the time in grocery stores. A couple of years ago somebody got the idea that they would offer free PCs in exchange for personal information, and they were swamped [with] people wanting to give up information.

GT: Is there one part of the Internet privacy debate that has the potential to derail useful dialog about privacy? Will opt-in vs. opt-out derail the whole process?

SWINDLE: I dont think this thing will be derailed. We will have a lively debate on this for quite some time. The debate will not only make consumers aware of the issue, but if industry reacts by alleviating their customers concerns and providing products and up-front privacy policies that the consumers can have confidence in, those businesses will compete for being a standard-bearer of protecting consumer privacy.

Well have a heated debate over opt-in and opt-out. I predict that were not going to go to opt-in; it would be devastating to the general dynamics of our society. We have a different way the information flows now; it flows much faster. I dont think anything is going to sidetrack the debate and the effort to seek the right kind of rules, regulations or whatever we choose.

GT: Theres been some call to create a federal privacy commission that would coordinate different privacy laws. Does that approach have merits?

SWINDLE: I dont think we need any more commissions. Weve got plenty of people around. The FTC is obsessed with looking at privacy. Such a commission might upstage us, and wed hate that. Im being facetious, of course, but I dont think such a commission will come to pass.

GT: If theres going to be any one single federal agency or entity that gets the job of dealing with Internet privacy, will it be the FTC?

SWINDLE: The FTC has been quite an activist in this field since 1995 -- well before I got here. The FTC has been on an intentional journey to make sure it is the leader. Whether I agree with that is a moot point because we are, in effect, the agency to which many look as far as guidance, cooperation and clout. Thats the way it is, and I dont think thats going to change appreciably.

GT: Is there anything else that people need to think about when they consider Internet privacy?

SWINDLE: People always have to be responsible for their own actions. As a general rule, I dont engage in sites where theres no privacy policy stated, although Im not overly fearful of information being gathered on me.

The consumer can make choices. If theres no privacy practice stated; if there is doubt about what theyre doing with the information; and if sites are being too inquisitive, I just click them off. Consumers have to be accountable for their own conduct.

However, there are obviously things going on that the consumer doesnt always know about: the clandestine gathering of information, not only by industry, I might add, but by government as well, I suspect. Its those sorts of things that I find particularly egregious -- the gathering of information without you knowing about it.

People really get upset when you tell them that a third party is gathering information about them. They get upset when they learn that those third parties, without their permission, are transferring the information. And people really get bent out of shape when they learn that the third parties may be getting paid for that information.

Its just a matter of time. People are expressing their dislike for that. Industry will react. They will seek to satisfy customers, and they will evolve out of this. Wouldnt it be better to go after the bad guys instead of trying to put a blanket over everybody and wrap them up in a bunch of regulations?

GT: You arent overly concerned about information being collected about you?

SWINDLE: I couldnt care less if somebody knows I wear a size 46 sweater and I like red. But if I try to sign onto a newspapers Web site and they want to know my name or my income category -- thats none of their business. I just say, "Heck with this. Im out of here."

GT: We talked earlier about the states coming up with a simplified sales-tax system as a precursor to setting up some sort of vehicle to tax Internet commerce. With all the difficulties states have in passing legislation internally, will this happen?

SWINDLE: I started to laugh when you said a "simplified tax system." There are approximately 30,000 taxing entities in the United States alone. I dont know how youd do this. What wed have to have is a big database, and every time somebody bought something, the seller would have to inform this database that Mr. Joe Smith in Tupelo, Miss., bought a sweater from L.L. Bean. Then, that information would have to be channeled to Mississippi so the state knew that Mr. Smith needed to be taxed.

This huge database would have to track and pass this information around on every transaction that goes on. Who is likely to have that database? Probably the government. Weve already seen in recent weeks that we may not want the government in that role because they cant keep anything secret. Its mind-boggling.

Maybe the best way to do it is to just have no tax whatsoever. Everybody will say, "That really hurts Main Street." In a way, it does, but there are things about shopping on the Internet that arent very satisfying. I like to shop in the Internet, find what Im looking for, look at the various options, and then run out to a store to touch it, feel it and try it on. The Internet is a tool.

If we start taxing everything, businesses will move. Thats the likely outcome of states going their own way and creating more and more taxes; the businesses will go to someplace where the taxes arent so onerous.

GT: A lot of states and local government organizations complain that if they dont get their hands on the revenue that could be derived from taxing Internet commerce, theyre going to wither away and die. What is your reaction?

SWINDLE: First and foremost, they are getting some dollars from taxing the Internet. The Internet is not free; it is taxed. The telephone-line connections are taxed. The computers that people buy are taxed.

As to whether theyre going to dry up, the statistics Ive read in recent years seem to argue against that. The vast majority of states have surpluses. Theyve got money galore, and thats a factor of a booming economy. Whats driven the economy? To a great extent, information technology has driven it. Do we want to clamp down on information technology? Gear down the economys growth? Start to lose revenues because gross revenue is down and taxes have been diminished?

I dont think the argument holds up.

The other side is that, as time goes by, more and more businesses will start using the Internet as a way of marketing. It will be another market segment for them. That doesnt mean the Main Street stores will shut down. Those Main Street stores are still going to be taxed. Theyre being taxed for good reason; they occupy property; the property has a street in front of it; it has parking places; it has water and electricity delivered to it -- all those things cost money.

The Internet is not using those types of things. There are a lot of plusses and minuses to this argument, and I believe that if you think them all through, the bottom line is that we dont need another tax. The [Internet tax] moratorium is the right way to go and I hope they extend it.