Navigating regulations: Lessons from tobacco industry to digital platforms

Tamyko Ysa discusses how regulations, technology, and public management intersect, comparing the tobacco industry to today's digital platforms to understand regulation in the digital age.

The ratification of the EU AI Act, the first regulation on artificial intelligence, and the enforcement of the Digital Services Act (DSA) across all EU countries in January 2024 marked the beginning of a crucial regulatory journey rather than a final triumph in digital governance. This process, akin to a marathon rather than a sprint, requires clear legal frameworks, specialised expertise, and evidence-based regulations.

The dichotomy between gradual political agreements with stakeholder inclusion and the "move fast and break things" approach defines this ongoing journey. In the intricate landscape of regulating digital platform business models and generative AI, business-government relations are crucial in shaping the dynamics between corporations and governmental bodies.

Companies employ strategies beyond conventional practices like public relations and corporate social responsibility, focusing on managing public perception, engaging in political processes, and influencing legal frameworks: collectively termed Non-Market Strategies (NMS). These strategies enable companies to shape public opinion, interpret regulations, anticipate legislative changes, and defend their legal standing.

In the evolving competitive landscape of emerging markets and business models, NMSs are crucial due to the lack of regulations and the initiation of a new policy cycle. Notably, these strategies act as a means for companies to wield political capital in their interactions with government entities, providing them with soft power to gain a competitive edge.

Looking beyond surface-level tactics, historical parallels between the tobacco industry and contemporary digital platforms offer valuable insights for policymakers. The strategies employed by the tobacco industry in the 20th century resonate with those of modern digital platforms, underscoring the importance of understanding past regulatory challenges.

The tobacco industry experienced a golden era in the first decades of the 20th century. This period was marked by several contributing factors: government distribution of tobacco during world wars, a growing population of smokers, increasing autonomy of women as consumers, and competition focused on branding rather than price. Likewise, the emergence of digital platform business models ushered in prosperous markets initially defined by the unfettered dissemination of information and governmental support through tax deductions and incentives.

Moreover, public opinion formation marked a turning point in both industries. In the case of the tobacco industry, a watershed moment happened with the release of the Surgeon General's Report in 1964, which established a definitive link between smoking and cancer, reshaping public perception. In the digital platform era, concerns about externalities, exemplified by scandals like Cambridge Analytica, underscored the impact on democracy and raised privacy concerns. The primary objective of the DSA is to curb illegal and harmful online activities, including disseminating misinformation, reflecting a concerted effort to address these growing concerns.

The tobacco industry's NMS involved collaborative approaches, research funding, legal coordination, and engagement with regulatory agencies. Similarly, digital platforms have responded to regulatory threats by highlighting regulatory gaps and geopolitical concerns and implementing self-regulation measures exceeding legal requirements.

The tipping point for both industries has been whistle-blowers exposing internal practices. In the 1990s, the tobacco industry faced revelations about genetically engineered nicotine plants. In the 2020s, information platforms confronted scrutiny, job cuts, and regulatory pressures due to leaks exposing practices that negatively impact users and society.

Public policy formulation underwent a comprehensive evolution in both sectors. Over 80 years, business-government relations in tobacco regulation addressed various aspects, from manufacturing to advertising. Similarly, digital platforms encountered heightened regulatory responses, including fines, settlements, and legislative actions.

In conclusion, policymakers must draw insights from the long-term strategies employed in tobacco regulation to navigate the challenges presented by contemporary digital platforms effectively. The initial regulation of the tobacco industry only marked the beginning of a longstanding business-government relationship in the political arena. With over 80 years of regulatory history observing us, the question arises: Can regulators integrate public management strategies to effectively counter Non-Market Strategies for the next 80 years and beyond?

Teaser photo by Haim Charbit on Unsplash