Consumer Privacy: A Free Choice Approach

Published April 29, 2004

An examination of the privacy debate reveals a number of myths that need to be challenged and dispelled by informed consumers, nonprofits, and legislators. Those myths include:

  • Profits are at odds with consumer privacy preferences.
  • Information-sharing harms consumers.
  • Everyone wants an extremely high level of privacy despite cultural differences and free-speech concerns.
  • New technology mainly harms, rather than protects, privacy.
  • Privacy laws will have a positive or benign effect.

Many technologies are available to protect individual privacy, and new ones are being developed all the time. Technology is better than legislation at protecting privacy because it is proactive, not reactive. Government must be careful not to discourage the creation of privacy-protecting tools by passing laws diminishing consumer demand.

The best way to provide for consumer empowerment and choice is to leave the Internet free of broad privacy regulations, allowing consumers to determine–through contracts, market pressure, and new technologies–what level of privacy they will have. This policy is also best for e-commerce–the energy fueling our economy. Strict privacy regulations would restrict the free flow of information, harming businesses and consumers. If government ties up firms in red tape, not allowing them to freely exchange information, everyone will suffer the costs in terms of prices and lost choice.

For example, the Federal Trade Commission’s Fair Information Practice Principles (FIPPs) are unnecessary, costly, and, worst of all, may ultimately give consumers less privacy.

One of the worst potential unintended consequences of the FIPPs is that consumers, under the impression the government is protecting them, will lose interest in the technologies that protect privacy. If that happens, fewer of these technologies will be produced and consumers will be left in a situation much worse than if there had been no laws at all.

Meanwhile, self-regulation is alive and well, as evidenced by the growth of privacy policies, Chief Privacy Officers, and privacy audits. And the recent Toysmart case is an example of why self-regulation, with enforcement of privacy contracts, is preferable to government oversight. One privacy law worthy of consideration would ensure that contracts made online are enforceable, unable to be usurped by government agencies.

With estimated regulatory compliance costs of $400 billion to $700 billion a year for the American economy, it is extremely important that governments demonstrate new regulations will be both effective and cost-efficient. In short, no new privacy regulations should be passed if:

  • no privacy problem is demonstrated (as opposed to simply asserted);
  • the problem can be addressed by the marketplace; or
  • the regulations are more damaging than the actual problem.

The coming year will showcase much posturing about privacy. It is important that legislators, the media, and the public know the facts and understand the issues. Otherwise, the nation may be heading down a dangerous path, with no way back.

Excerpted from “Consumer Privacy: A Free Choice Approach,” published by Pacific Research Institute. The complete study can be found at