Living in a Transparent Society

Commentary by Pete du Pont

Society has become much more transparent due to the advent of inexpensive computer technology, storage devices and the Internet. The spread of electronic databases in government, medicine, business, and the workplace raises serious concerns about how information will be used and the loss of freedom that might create. The crux of the issue is deciphering between the genuine invasions of privacy and perceived ones. After all, it's one thing to receive unwanted e-mail and sales calls; it's quite another to have your identity stolen.

One of the main problems with the privacy debate is that many different types of privacy are typically lumped together at a very generic level. A closer examination of the issue shows that privacy issues in medicine, employment, business and government are related only in that they are motivated by a common unease about new technologies.

In the area of consumer privacy, most experts agree that personal information will increasingly become available to those who wish to use it. Attempts have already been made to compile databases with personalized profiles.

For example, Lotus Development Corp. announced plans to produce Lotus MarketPlace: Households, a software package expected to revolutionize direct marketing by making available the names, addresses, demographics and prior purchase behavior of 120 million U.S. consumers. Similarly, Internet advertising firm acquired a database of consumer buying habits with plans to integrate it with their own Internet surfing-habits database. This would allow marketers to know which products a consumer is likely to purchase and where best to advertise to obtain business.

Despite their appeal to marketers, both companies backed away from these projects after experiencing public relations problems. But make no mistake about it, similar programs will someday become a reality.

However rational it is for companies to use these data, it does raise some possibilities that privacy will be eliminated in the interest of economic efficiency. Furthermore, this private information might not always be in the individual's best interest. For example, life insurance companies might evaluate potential customers based on past consumer purchases. Do they spend a lot of money on cigarettes, frequent night clubs, eat a lot of red meat, etc.? Or, an individual might be branded as high-risk and charged more for or even denied health care coverage due to factors unrelated to health status.

As troubling as this may seem, it is perfectly legal for a store or Web site to collect information about you (or for an insurance company to seek information about you). There are very few areas where communication is privileged and subject to extraordinary protections within the law: husband-wife, client-attorney, doctor-patient and priest-confessor. However, most other areas of communication are not protected from disclosure by either of the parties. Until recently what protected us from excessive breach of privacy by third parties was the cost of gathering information. Someone wanting to delve into our personal, medical and financial history could do so only at a fair amount of expense. This is no longer the case.

This is not to say that all information sharing is bad. In fact, information sharing can include some benefits, such as helping a consumer understand how to use the product he may want to purchase. So laws against collecting data could restrict information that would be useful.

Congress should focus on ways to lower the cost of bargaining between affected parties. Contract law can be a mechanism for agreeing on and enforcing privacy policies. For example, marketers might be free to collect data but might have to disclose what is being collected and how it would be used. Retailers might be compelled to allow buyers the ability to opt out or to clearly advertise that they sell data, and risk losing the sale. Organizations such as employers or insurance companies that rely on a third party for personalized data might be required to disclose the source upon request. Suppliers of personalized data might have to post policies on how to view and correct inaccuracies.

There are no easy solutions to protect the privacy of consumer information from those wishing to profit from its use. There are, however, risks to our constitutional rights from formulating bad policy that restricts speech. Policy should follow Nobel-prize winning economist Ronald Coase's theorem: make it easy to negotiate, specify each party's rights and allow the affected parties to bargain.

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