Competition among sub-contractors can be beneficial

The argument

Managing electronic identities is a technical service, and the case against the state doing it rests on what competition supplies that a single provider cannot. Sub-contracting the work to private companies opens it to the pressures that ordinarily produce cost savings and benefits to citizens: providers competing for custom have reason to reduce what they charge, to improve what they offer, and to market the difference to people in a position to notice it. The arrangement does not require the state to withdraw from the field, and proponents of this position are careful to say so. The state can define the quality requirements any provider must meet — the standards of security, reliability and interoperability an identity system has to satisfy — and then appoint one or more distributors licensed to operate within them. What is handed over is delivery, not the setting of the rules. That is what distinguishes the proposal from simple deregulation: the floor remains public, and a provider falling below it loses its authorisation. What changes is that citizens can select between several providers on the basis of costs and the services each provides. That choice is the mechanism doing the work. A single state-run system leaves users with no alternative if it proves expensive, cumbersome or poorly supported, and no way to signal dissatisfaction except through politics, which operates slowly and rarely on questions of this kind. Several competing providers, all meeting the same mandated standards, give users a direct means of rewarding better service and abandoning worse, and give providers a continuing reason to improve rather than merely to persist. On this argument the benefits of competition — lower costs, better services, and a real choice for the citizen — are available only where delivery is opened to competing sub-contractors. Electronic identities should therefore not be managed by the state itself.

Context

A state can auction or license the services of providing electronic ID to private companies instead of doing on its own.

Premises

Counter-arguments

The risks behind a free-market approach are several. As an example: - The private companies in order to offer competitive prices might lower the quality thus comprising also privacy and exposing customer to threats. - A cartel can emerge thus depriving citizens of a real choice.

Rejecting the premises

[Rejecting P1] Competition produces those results in markets where buyers can observe quality and switch cheaply. Neither condition holds for identity credentials: a citizen cannot inspect a provider's security practices, a failure becomes visible only after a breach, and price pressure therefore bears on the attribute nobody can see — a provider competing on cost has a direct incentive to reduce exactly the safeguards buyers cannot evaluate. [Rejecting P2] Defining quality requirements and authorising distributors is itself state management; the premise concedes the state's role while relocating it to regulation, where enforcement is harder and slower than direct provision. It also assumes durable choice. Identity infrastructure has strong economies of scale and high switching costs, conditions under which markets tend toward a small number of providers or an effective cartel, leaving citizens choosing among few options over a credential they cannot decline to hold.