## Wednesday, June 29, 2016

by Ajay Shah.

#### Foundations

The State must have a monopoly on violence. In democracies, the coercive power of the State is enveloped in the rule of law. There is separation of powers: Parliament writes criminal law, the Police enforces this law, and a judge awards the sentence. Laws are legitimate either when they are written by Parliament (where legislators have won elections), or when narrow authority for drafting subordinate legislation is given to officials along with a sound regulation-making process. The accused knows the law, is given a hearing, and must be proven guilty beyond all reasonable doubt. The order must be written through a quasi-judicial procedure. It cannot merely hand down punishment; it must be a reasoned order. The accused must have the ability to appeal the order.

Most States are flawed creatures, and many of these things do not work correctly at present. As an example, these foundations of liberal democracy are found in the Indian Financial Code but not in the existing financial law and financial agencies. But the previous paragraph gives us a compact sense of the machinery of sound liberal democracies. The problem faced in constructing this civilised behaviour is politicians and officials who desire unaccountable power [example].

#### Vigilante justice

There are other ways in which we can go astray. One of them is to slip into vigilante justice: where coercion is imposed by ordinary citizens. A mob who beats up a person who is accused of a crime is a throwback to the medieval ages. It is not rule of law.

We have to be vigilant in detecting and blocking vigilantism. As an example, consider the RBI concept of Wilful Defaulters'. Under this framework, private persons are supposed to identify wilful defaulters', and once this is done, the coercive power of the State is used to force all private persons to punish the chosen one. However, private persons cannot run a rule of law process to identify wilful defaulters in a fair manner. This regulation puts the coercive power of the State in the hands of private persons; it is tantamount to State-sanctioned vigilantism. It is not rule of law.

Google would say: But we are not the State; we're just your friendly local restaurant that decided to stop selling sugar water. It is the legitimate right of a firm to do business with those that it likes. E.g. an ordinary firm can decide that it does not like to do business with (say) Christians. The reason for concern is that things are different with a dominant player like Google. If Google decides to block ads by person X, that matters disproportionately, as Google has something like 70% market share in digital advertising in the US and very large market shares in most countries of the world.

Checks and balances of the State are missing. Because Google is so important in shaping the way people access Internet content, this action by Google is uncomfortably akin to State action which prohibits advertisements of payday lenders. Action by Google, who is a corporation and is not the State, is faulty in that Google does not work by the machinery described in the first paragraph:

• Preventing a private person (a payday lender) from showing me advertisements is coercion. This should be the monopoly of the State.
• Google chooses what industries are harmful for consumers. This `legislative' power is illegitimate as it is not grounded in Parliamentary law.
• The persons who are adversely affected have no recourse. to the due process of law.

Are you sure? Some people believe that the end justifies the means; they are convinced payday lending is bad, and don't care how it is obstructed. But who can know these things for certain?  As an example, many people believe that micro-finance lending in India suffers from problems similar to those of payday lending in the US. However, careful research on this question has shown that this preconception is wrong. The realities of these complex questions generally go beyond media viewpoints. What if payday lending is actually good for the people who buy it? We are protected from mistakes by the deliberative and public legislative process, where diverse viewpoints are debated in public. Google is a private person and is not required to use such a legislative process. This makes their do-gooding dangerous.

A slippery slope. Today it is payday lending. What comes next? Humans follow ads shown by Google in all sorts of self-destructive ways. Humans use Google search to find ways to inflict pain and harm upon other humans. Google does not kill people, people kill people.

A more appropriate stance. In other contexts, Google has been more careful. Examples include child porn and sex determination ads, where the decision to coerce is grounded in the State, and Google is just taking instructions. Their behaviour on payday lending is out of line when compared with their own restraint in these other situations. Google appears to now be doing a lot of censorship, which raises important questions such as this one.

#### If payday lending is bad for its customers, how should it be tackled?

If payday lending has problems, the solution to this lies in financial regulation. This is the business of the State, and not a do-gooding IT company. The machinery of consumer protection in the Indian Financial Code is the mechanism through which the State should exercise coercive power and diminish the damage that payday lending can potentially do. This must be a deliberate and careful process, with checks and balances.

I thank Naman Pugalia and Renuka Sane for useful discussions.

1. Interesting thought. But google is selling a product and hence it is in its (financial) interest to appease its customers. If its policies are thought to be bad by customer it would be pumished by its declining demand.

2. One issue that you did not discuss in detail is what makes Google different from say Bing? I don't think you would have any problem if Bing imposed the same restrictions on its users. So on what basis are you saying Google differs from Bing?

Competition law defines a "dominant player" in the relevant market as an enterprise which can —

(i) operate independently of competitive forces prevailing in the relevant market; or

(ii) affect its competitors or consumers or the relevant market in its favour.

Google is a dominant player in the search engine market. Therefore, it is like a state in a limited sense. Just like a state can't discriminate on the basis of sex, gender, religion, caste etc., Google in its capacity as a search engine should not discriminate on the basis of sex, gender, religion or caste, unless allowed by law (Eg. in case of child pornography).

3. Agree with Ajit. Once we start scrutinizing the business model of private entities (it can be argued that accepting some types of ads and rejecting others is in the best interests of google, from a risk management perspective), it is a case of unwarranted intrusion into a functional market - a concept which this very blog has been vocal against. To provide an example, if an event sparks off negative publicity with payday lending firms tomorrow, the impact could rub off on google as well. In such a case, it will be Google which bears the cost of negative publicity. Firms must be free to identify and mitigate risks as they see fit, as long as it is within the ambit of their (internal) business models

4. Competition law defines "dominant player" for the purpose of "abuse of dominant position". Abuse of dominant position is when the dominant player does something to create a monopolistic scenario by making it difficult for competitors to compete or new entrants to enter the market.

Competition law, like other laws have a specific purpose. The definitions in the law should be used only for that purpose. For example, the Indian Penal Code (criminal statute) states all references to males include references to females. But that is for that specific law and not for general grammar or describing the world.

Banning payday ads does not seem to and "abuse of dominant position" as understood by competition law. Therefore using the definition of "dominant player" is not appropriate here. If we are espousing a new requirement for "dominant player" we should reconsider and state the principle. The blog raises an interesting question about liabilities of dominant players in such cases and we must consider

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