What is the best way to regulate artificial intelligence companies? The answer may lie in the political legacy of Franklin D. Roosevelt. The 32nd U.S. President, despite his criticism of the financial industry, rejected calls for bank nationalization during the Great Depression, opting instead for a self-regulatory mechanism that allowed the industry to police itself without stifling competition.
The 1934 Model
Despite pressure from populist senators like Robert M. La Follette Jr. and Edward Costigan for federal control of banks, Roosevelt championed the Securities Exchange Act of 1934. This law did not impose a government takeover but established a framework for “Self-Regulatory Organizations” (SROs). The central insight was that the government is not the best-suited entity to manage complex markets; instead, market participants with specialized expertise can set standards and enforce rules under the oversight of the SEC.
AI at the Same Crossroads
Today, the AI industry finds itself in a position similar to the financial sector of the 1930s: largely unregulated, heightening fears of widespread harm. Proposals for drastic government intervention have already emerged, such as Senator Bernie Sanders’ proposal for a 50% public ownership stake in major AI firms.
However, placing the federal government in control risks squelching potential and handing an unassailable lead to Communist China. Instead, a 21st-century self-regulatory model could require AI companies to work together to devise industry-wide rules, checking each other’s excesses and ensuring the technology serves the common good.
Self-Regulation vs. Bureaucracy
In contrast to the European model of centralized government regulation, which has struggled to foster growth, the American SRO model—exemplified by organizations like FINRA—has proven successful in protecting investors while encouraging innovation. A similar organization for AI could provide consumers with confidence that the products they use adhere to strong standards, without sacrificing market dynamism.
