The Consumer-Regulated Business

As the Internet continues to make information free, sites like Angie’s list, customer review sites, blogs, forums, and even sites for whistle-blowers like wikileaks, will all start to take a dominant role in the regulation of business.

Reputation and word of mouth are pivotal to businesses, and perhaps one day they’ll be more pivotal than a state license or registration. The purpose of registration and licensure is, after all, to protect consumers and provide them with information about a firm’s legitimacy. This has been a pretty good system so far (though I agree with Milton Friedman that licensure is not unlike the guild system of the Medieval period). I predict that the Internet will effectively replace the need to have practices licensed by the state. While the Internet might not always provide perfect information regarding the safety and legitimacy of a business or practice, neither does a state-issued license.

Internet-powered business regulation won’t stop there. As a society, our behavior and decisions will be influenced by the omnipresence of social media. I believe that as we continue to put our whole lives and the lives of others on the Internet (see first couple posts about branding), we will increasingly find ourselves trying to find the ethical way out of a dilemma. As our lives become more transparent, our selfish desires will be overshadowed by the threat of being exposed.

Think of the impact that sites like wikileaks will have on the future of business. Right now, federal and state regulatory agencies aggressively investigate and prosecute businesses for anticompetitive behaviors like price-fixing and creative accounting. Likewise, there’s organizations like the EPA and the FDA. Their purpose is to monitor products and regulate operations in order to ensure the public’s health and safety. Regulatory agencies are also good, like licensure, but they’re also complex, quite easily bypassed, and they indiscriminately slow all businesses down. They’re also frequently coaxed into protecting one company from another, with overall societal benefit a moot point. A whistle-blower, however, is an omnipresent threat. In any situation, even the most Machiavellian of future managers will have to take into account the very likely threat of being exposed.