Analysts widely believed 2022 would be the year Congress would finally pass a much-needed federal data standard and eliminate the zip-code lottery of data privacy rules. But as February turned into March, the prospects of such data protection standard materializing have floundered, and Congress has shifted its focus to more piecemeal reforms, notably the Banning Surveillance Advertising Act of 2022.
Unfortunately, the Banning Surveillance Advertising Act would be incredibly harmful to American businesses, as it fundamentally seeks to alter how they connect with their customers and make it harder for them to grow. The result for consumers will be higher prices, reduced innovation, and diminished consumer welfare.
Simply put, Congress is focusing its attention on bad bills that would make it harder for small businesses to operate rather than passing a much-needed federal data standard.
More specifically, the Banning Surveillance Advertising Act would prohibit companies from “targeting ads based on protected class information, such as race, gender, and religion, and personal data purchased from data brokers.”
In a public statement announcing the bill, Sen Booker argued that such prohibitions were needed because “Surveillance advertising is a predatory and invasive practice. The hoarding of people’s data not only abuses privacy, but also drives the spread of misinformation, domestic extremism, racial division, and violence.”
Unfortunately, the Banning Surveillance Advertising Act could deny small businesses and start-ups substantial savings. A 2019 report from the Small Business and Entrepreneurship Council (SBEC) reported that targeted adverts allowed small businesses to save $163 billion annually. These savings are possible because targeted ads increase productivity, allowing small businesses owners to spend more time “innovating, managing, and growing the business.” By prohibiting targeting ads, Congress would deny small businesses access to important savings, forcing them to increase costs for the goods and services they sell.
Banning targeted adverts could also lead to fewer businesses being started each year. In the same 2019 report, SBEC reported that 80% of business owners agreed that the “ability to reach customers and potential customers was an important factor in starting my business.” Without the ability to connect with consumers, entrepreneurs will inevitably be less incentivized to create new businesses, denying consumers access to new and innovative goods and services.
This concern is particularly pertinent given the Congressional Budget Office’s warning that entrepreneurship and innovation has declined in America over the past forty years. Disincentivizing new businesses from growing will do little to slow this decline.
Clear empirical evidence shows that targeted adverts benefit consumers. For example, a 2016 study by Adlucent found that 71 % of consumers “prefer ads tailored to [their] interests and shopping habits.” In addition, 46% of surveyed consumers stated that they believed personalized adverts helped “reduce irrelevant ads,” while 25% said targeted adverts helped them “discover new products.” Recognizing the public’s wider attitudes toward tailored ads, it is clear that the Banning Surveillance Advertising Act attempts to solve a problem that only exists in Congress’ mind.
While Congress is facing increasing pressure to legislate the online realm, any moves to prohibit targeted advertising could backfire on businesses and consumers. While undoubtedly well-intentioned, the Banning Surveillance Advertising Act will raise costs for businesses, increase prices for consumer goods and services, and disincentivize innovation. The proposal also ignores the reality that consumers prefer targeted ads. Rather than focusing on flawed bills, lawmakers should devote more time to passing a much-needed federal data standard from which all consumers will benefit.