Jean Tirole’s Urgent Call for Smarter Regulation in the Digital Age

Nobel laureate Jean Tirole has never been one to toe the line of economic orthodoxy. In a time when many of his peers advocate for deregulation and free markets as a default stance, the economist insists on strong regulation - but the right kind. “We need regulation, but we need smarter regulation,” Tirole told an audience at HEC Paris, where he received an honorary doctorate from the hands of a couple of his former students, including the school dean, Eloïc Peyrache.

Jean Tirole’s reputation as one of the world’s foremost economists stems from his rigorous work on industrial organization, macroeconomics, psychology-based economics - and the limits of laissez-faire capitalism. The academic from the Toulouse School of Economics has enjoyed a stellar and transatlantic career: on top of his hometown TSE, Tirole holds posts at the Institut de France, and a long-term visiting position in his alma mater, MIT.

Much of his erudition and commitment transpired in a daylong exchange with HEC students and professors, which culminated in an honoris causa ceremony broadcast around the world. This February 13 ceremony was followed by a lecture on privacy in the digital age. But prior to the evening event, Tirole granted a one-on-one interview mapping out his current preoccupations in which he underscored the stakes behind his choice of subject: “I’m upset by both sides of the debate,” he admitted right off the bat. “We need regulation, but not the kind that stifles innovation or is just a bureaucratic burden.”

At the core of the 71-year-old’s argument is the increasing power of platforms and governments to surveil and influence individual behavior. And he’s well placed to reflect on their impact: his research over the past two decades explores the role of reputation, image concerns, and their effects on decision-making. Much of that research has been published, part of a legacy which includes 200 articles in international scientific journals and 15 books. Now, with artificial intelligence and facial recognition, Tirole sees the risks as having grown exponentially. “Governments and tech platforms have access to who we are in ways that we never imagined,” he said. “This isn’t just about privacy. It’s about control.” Tirole pointed to China’s and other countries’ use of surveillance technology to curb dissent as instructive cases in point. “You can try to hide, but technology will still find you,” he warned, referencing to information shared by one’s social graph (friends, colleagues, family).
 

Europe’s Entrepreneurship and Governance Dilemmas

Europe has attempted to address these challenges through regulations such as the General Data Protection Regulation (GDPR). But while Tirole acknowledges the initiative as a step in the right direction, he believes it remains flawed. “GDPR is far from perfect, it still requires information that the citizen does not possess,” he insisted. “But it exists, and that’s important.”

Tirole’s concerns go beyond privacy. The 2014 Nobel laureate is deeply worried about Europe’s lagging position in the global technology race. “None of the top 20 startups or top tech market caps in the world are European. That’s scary. The wealth and innovation are being created in the U.S. and China, while Europe is being left behind.” The cause, he argued, is not just a lack of funding. “We are indeed falling behind in terms of  financial investment, but I will never say, ‘Let’s just throw money at the problem and hope for the best.’ It’s about governance. How do we allocate research funding? How do we structure our universities? How do we ensure that money is spent wisely, including toward disruptive innovation?” Tirole referenced the European Research Council (ERC), which he called a “role model” for how scientific grants should be allocated - by scientists, not politicians. “The problem,” he insisted, “is that this model is under attack. Politicians and bureaucrats want more control, but the truth is, they don’t know better than the experts.” This governance dilemma, in his view, is a major reason why Europe struggles to compete in the global tech economy.

If anything, Tirole’s warning is one that policymakers worldwide would do well to heed: regulation appears all the more necessary, but only if it is smart, adaptive, and rooted in economic reality. As the senior economist summed up, ill-advised policies can stifle innovation and inadvertently harm the very consumers they aim to protect. In parallel, he continued, pervasive data collection, primarily by major platforms and governments, raises significant concerns about consumer rights and societal impacts. Europe can be a leader in answering such challenges but, while it boasts talent, it lags behind the U.S. and China in producing leading tech firms.

The Role of Courts and the Erosion of Checks and Balances

The academic’s critique extends to the fragility of democratic institutions themselves. “In the U.S., we’re seeing the power of courts weakening,” he confided in our exchange. “When the judicial system can no longer act as a counterforce to political overreach, then things become dangerous.” A captured or under-funded judicial body can erode good governance and suppress or curtail individual freedom.

Tirole drew certain ominous historical parallels to emphasize the current fragility of the West’s democratic institutions. “People forget that Hitler came to power through elections,” he explained bluntly. “It wasn’t a coup. It was a democratic process - until it wasn’t.” The rise of illiberal leaders today, he fears, is following a similar trajectory.

With the advent of mass data collection, the ability of governments to suppress dissent has only increased, both in the West and the East. “Young Chinese citizens today might not even know what Tiananmen Square was. And even if they wanted to organize a peaceful protest, the government would know in advance, through surveillance and social media analysis.”

The Need for a Smarter Path Forward

For Tirole, the way forward is clear: better, evidence-based policymaking that aligns with both economic principles and democratic values. “Economists should not become politicians. But they should understand the country’s political economy. They should understand the constraints politicians face, while also providing them with better frameworks to navigate those constraints.” This means not just calling for regulation but designing it intelligently. “Bad regulation is worse than no regulation,” he said. “But when done right, regulation prevents market abuses, protects consumers, and fosters competition rather than hindering it.”

The approach by the author of the bestselling Economics for the Common Good, stands in contrast to both free-market purists and bureaucratic regulators who impose restrictions without economic rationale. His call for reform is not about stifling progress but ensuring that innovation benefits society as a whole. At HEC Paris, Tirole was honored for his lifelong contributions to economic thought. But the accolades matter less than the impact, he insisted. “I don’t expect my recommendations to be adopted overnight,” he told the 100-strong audience in the HEC Bellon amphitheater present for the award. “But throwing them into the debate is already a contribution.”

In this way, the ceremony celebrating Jean Tirole’s honorary doctorate from HEC was the moment for him to issue a clarion call: to preserve democracy, he told the students and professors in front of him and online, they must be part of a concerted and international effort to strengthen and uphold judicial and democratic structures. This, he emphasized, needs nuanced policymaking bringing together economists, technologists and politicians to answer multifaceted challenges of our digital age. In a world increasingly shaped by digital power, getting this balance right may determine the future of democracy itself – at a time when it has rarely felt under such threat.