Intangible protectionism: when firms support privacy regulation

The standard narrative of politics in the digital economy pictures a struggle between privacy-adverse companies and governments trying to enhance citizens’ data protection rights. However, survey data shows that across the economy many firms indeed support some proposals to enhance data protection rights. How to explain this? In this paper, I claim that firms support privacy regulation when it provides a form of “intangible protectionism”: that is when it increases the relative data management costs for foreign rivals. When a policymaker proposes data protection rules that disproportionately increase the costs for foreign firms, domestic firms are more likely to support such proposals even if they have to pay an adjustment cost. I empirically test this hypothesis by analysing survey data coming from consultations on the European Union’s Data Act and General Data Protection Regulation’s cross-border transfer mechanism. Both consultations involved data protection provisions that disproportionately impact firms based outside the EU in comparison with the ones based in the EU. By using regression analysis on the preferences expressed by firms, I show how EU-based companies are significantly more likely to support such provisions. The paper contributes to the debate on the politics of regulation in an increasingly intangible-intensive economy. Particularly, it shows how regulation can become a tool through which firms substitute more traditional protectionist policies. Also, it contributes to the literature on interest groups by explaining the emergence of “baptists and bootleggers” coalitions (i.e. with consumer associations) in the digital era.