In March, the Federal Trade Commission(FTC) unveiled the latest in a string of projects intended to combat online fraud. Though driven by good intentions, these efforts only highlight how the Information Age is rendering the FTC increasingly obsolete. The private sector is devising innovative new mechanisms to protect consumers online, proving that the solution to the Internet’s governance problems is usually not more government, but less.

Fraud poses a substantial threat to online commerce and consumers. Freed from geographic constraints, web-based con artists can easily pose as legitimate businesses. To date, the most prevalent scams have been phony businesses and schemes that lure web surfers with the false promise of easy money. According to the FTC’s web site, its goal is to fight such deception with "a comprehensive strategy that combines traditional law enforcement with aggressive consumer and business education." But the agency efforts are meeting only limited success.

Last month, the FTC triumphantly announced the completion of "getrichquick.con," an international effort intended to identify fraudulent sites. The project’s cornerstone was old-fashioned web surfing – representatives of 150 organizations in 28 countries trolled the net for pyramid schemes and bogus work-at-home offers, compiling a list of 1600 suspect sites. "Though we speak with different languages on the subject of Internet fraud," said Jodie Bernstein, Director of the FTC’s consumer protection bureau, "it’s with one voice – con artists will not threaten the safety of the net on our watch."

Despite such grand rhetoric, the agency’s bark is bigger than its bite. Most sites will receive only a strongly-worded, email reprimand. According to a February report by the FTC, it has taken legal action against only 100 fraudulent sites in the last five years. These figures reflect not agency failure but the challenges posed by the new medium.

According to FTC Chairman Robert Pitofsky, con artists "think there’s no sheriff on the wild, wild, net, so no one is watching, but that’s not true." Pitofsky is right and wrong. There is a sheriff online, but it’s not the government. Because sites can be anonymous and national laws unenforceable, the FTC’s law enforcement efforts are necessarily constrained. The Internet requires innovative new oversight mechanisms, which private organizations are devising and implementing far more effectively than public agencies could ever hope to.

Vigilant consumers are the foundation of these mechanisms. Government bureaucrats can surf the web and spot a scam, but so can average consumers. While many sites are obviously dubious, an equal number are questionable. Because consumers want an easy way to assess sites, private organizations are helping them identify legitimate businesses and are holding merchants accountable when laws don’t apply.

The Better Business Bureau’s Internet branch, for example, awards reliable businesses with an official seal. To display this seal on their site, merchants must adopt a strict code of conduct and let the Bureau mediate unresolved customer disputes. Consumers, therefore, know that BBB-approved sites are reliable and that, should a problem arise, they will have recourse even if traditional laws do not apply. A company called WebAssured provides a similar service.

At WebAssured.com, Internet users can download "ShopAssured," a free browser attachment that immediately notifies them when they enter a site with a bad reputation. The company’s site also contains background reports on hundreds of online enterprises and posts a "watchlist" of merchants to avoid. Organizations such as this are the key to safety on the web.

As electronic commerce flourishes, web businesses will have an increasing incentive to prove their legitimacy by submitting to third-party oversight and providing dispute resolution mechanisms that guarantee consumer safety. This incentive is predicated on economics, not law; when profits are at stake, consumers call the shots, and businesses must respond or watch customers migrate to competitors.

Built on individuals exercising choice and power, the Internet has evolved from the bottom-up. Top-down governance approaches such as those floundering at the FTC are therefore destined to fail. But because government agencies will continually undertake new projects in an effort to justify their budgets, legislators and citizens must view these agencies with skepticism. If they do, and the private sector is left free to take over, the new economy’s progress will leave old government behind.

*Justin Matlick is a Senior Fellow in Information Studies at the Pacific Research Institute. To learn more about PRI and the Center for Freedom and Technology, see www.pacificresearch.org.