For the last two decades, the United States has followed a policy of light regulation and minimal government intervention when it comes to the Internet. The rapid innovation that we have seen was not the result of random chance—rather, it came about because of a deliberate set of policy choices.
“By its very nature, technology often disrupts settled business models or cultural norms. As a result, our first reaction to new technologies is often one of deep skepticism and even dystopian dread... — Adam Thierer”
As the technology that propelled the Internet boom starts to move from the world of “bits” to the world of “atoms” (in other words, as we apply the lesson learned on the Web to challenges that we face in the real world), the government has another set of critical policy choices to make. It can follow the precautionary principle of regulation or decide to allow what is the subject of Adam Thierer’s new book, Permissionless Innovation. In what follows, Adam explains why his recommendation that regulators embrace regulatory humility is the best path forward for consumers, workers, and the economy.
Jared Meyer: Can you contrast the precautionary principle with permissionless innovation? I do not want anyone to think you are advocating for anarchy over consumer protection.
Adam Thierer: Permissionless innovation represents the belief that restrictions on human creativity should generally be a last resort, not our first. What that means for policy is that experimentation with new technologies and business models should generally be permitted by default. Unless a compelling case can be made that a new invention will bring serious harm to society, such as when a new drug has dangerous side-effects, innovation should be allowed to continue unabated. Problems, if any develop, can be addressed as they arise instead of when they are hypothetical. In other words, innovators should be innocent until proven guilty .
The opposite philosophy—i.e., the “precautionary principle”—refers to the belief that new innovations should be curtailed or disallowed until their developers can prove that they will not cause any harm to individuals, groups, specific entities, cultural norms, various existing laws, or traditions. The problem with making the precautionary principle the basis of innovation policy is that when we premise public policy on fear of worst-case outcomes, it means that best-case scenarios will never come about.
JM: It is clear that permissionless innovation—almost by definition—leads to higher levels of innovation. But why should we care about promoting innovation? Do you have any numbers to show the benefits that innovation brings to the economy?
AT: There exists widespread consensus among historians, economists, and political scientists that technological innovation is the primary engine of economic progress. In 2010, the Obama Administration published a white paper noting that “[t]echnological innovation is linked to three-quarters of the Nation’s post-WW II growth rate” and that “across countries, 75% of differences in income can be explained by innovation-driven productivity differentials” because “[i]nnovation produces high-paying jobs.”
It follows, therefore, that nothing could be more important for raising long-term living standards than creating a policy environment conducive to ongoing technological change and the freedom to innovate. When, by contrast, public policy is shaped by precautionary principle reasoning, it poses a serious threat to technological progress, economic entrepreneurialism, social adaptation, and long-run prosperity. This decreases the overall welfare of consumers, producers, and workers alike.
JM: You talk quite a bit in your book about why people resist the change that innovation spurs. When the benefits of innovation are so clear, why do calls to maintain the status quo continue to attract support?
AT: Change is never easy and many people are especially risk-averse when it comes to novel inventions and new ways of doing things. By its very nature, technology often disrupts settled business models or cultural norms. As a result, our first reaction to new technologies is often one of deep skepticism and even dystopian dread, which in turn spurs a policy backlash and restrictions on new inventions. I refer to these episodes as “technopanics.”
Several psychological factors fuel technopanics. Many people and institutions have a strong bias for the status quo or at least general nostalgia about the past (i.e., the proverbial “good ol’ days”). Moreover, most of us possess poor judgment skills about the relative risk of new innovations compared to the existing risks, which are usually far greater. Add to this the perverse incentive for media outlets, sensationalist authors, and regulatory activists to use Chicken Little tactics to gain attention, and you begin to understand why the deck is often stacked against new innovations.
The good news is that most technopanics blow over in due time (fears about vaccines and genetically modified crops being two stubborn exceptions) and, ironically, yesterday’s much-feared innovation becomes the next day’s must-have “killer app.” I cite many examples in my book going all the way back to the rise of the camera, which originally inspired dread among elites only to be embraced as an essential part of the American experience shortly thereafter.
JM: I know that many European countries are working to create their own versions of Silicon Valley. Why have these efforts not paid off? I think the only European tech company that I use is Spotify. All the rest are American.
AT: Europe has been the home of many innovative minds and firms in the past, but over the past two decades, public policy toward digital innovation has held back the continent’s entrepreneurial potential.
The numbers don’t lie. Just look at tech “unicorns,” or firms with a market value of over $1 billion. The market capitalizations for America’s major tech companies with a value over a billion dollars was almost $2 trillion in 2015, while the market caps for the handful of large European tech firms was just $120 billion. Facebook’s value alone was roughly double all of Europe’s tech unicorns and Apple’s was triple that. Even Airbnb—a firm that isn’t even 10 years old—already has market value that exceeds the value of all of Germany’s tech unicorns combined .
These staggering imbalances must have something to do with public policy. In my book, I argue that long-entrenched cultural attitudes toward risk and failure throughout Europe combined with specific concerns about digital technology have resulted in public policies of a highly proscriptive, precautionary nature. That resulted in a drying up of venture capital and the gradual erosion of digital innovation across the continent. As a result, it is challenging today for most people to name any major tech innovators based in Europe. Meanwhile, U.S.-based firms are household names across Europe and the globe.
JM: I often write on how technological progress enabled the growth of the sharing economy. What lessons about permissionless innovation can we learn from Uber and Airbnb?
AT: There’s probably no better example of the power of permissionless innovation in action today than the rapid rise of the sharing economy . Most of us had not even heard of the term just a few years ago, but today more and more consumers are embracing the sharing economy every day.
In many cases, sharing-economy firms have been successful in offering consumers a growing array of new service options by bucking traditional permission-based regulatory regimes, which had discouraged competition, choice, and higher quality options. But now we’re experiencing a sort of “Empire Strikes Back” moment with incumbent special interests and local regulators joining forces to restrict these new choices.
What new sharing economy innovators can learn from Uber and Airbnb is that getting up to scale quickly by innovating without permission can help you build an army of citizen-lobbyists to fight for your freedom to innovate. But even then you have to be prepared for the inevitable backlash from those who want to protect the old, broken, and inefficient ways of doing things.
JM: How optimistic are you that the next Congress and next administration will follow your prescriptions for growth? Judging by the rhetoric on the campaign trail, I cannot imagine that you are very enthusiastic.
AT: On one hand, I am quite concerned about political attitudes and rhetoric related to innovation policy issues. Republicans often too closely align themselves with old incumbent industries and professions and fail to appreciate the importance of fostering an environment conducive to the next generation of disruptive technologies. And Democrats can’t talk about innovation policy without either calling on governments to (a) craft industries policies to promote they sort of innovations they prefer, or (b) regulate the technologies and sectors that are having disruptive effects they dislike for whatever reason.
On the other hand, I remain optimistic because—no matter how hard the special interests and regulators might try—it is very difficult to put technologies back in the bottle once they get out. And they are getting out faster and more easily than ever. As author Larry Downes has noted, policymaking in the information age is inexorably governed by the “law of disruption” or the reality that “technology changes exponentially, but social, economic, and legal systems change incrementally.”
That’s not to say technology is going to be completely regulation-free going forward, but it does mean that policymakers will quite often be a step behind and trying to play catch-up. As a result, they’ll need to consider new and more constructive approaches to technology policy that focus on addressing hard problems after-the-fact. This will require using a better toolbox of flexible, “bottom-up” solutions, such as: torts, property law, contract law, and other common law tools. These bottom-up solutions consistently prove to be the best form of consumer protection, as the enormous body of product defect, anti-fraud, and nuisance law all illustrate.
We also need to embrace other informal strategies such as multistakeholder agreements, industry self-regulatory best practices and codes of conduct, education and transparency efforts, and so on. This approach can help us solve problems in a less costly fashion while preserving a world of boundless permissionless innovation opportunities.
JM: I share your optimism mostly because innovators are always at least one step ahead of regulators . For example, the U.S. Post Office still has a monopoly on letter delivery, but was rendered nothing more than the butt of jokes about government inefficiency because of the innovators who built FedEx and UPS—to say nothing of email and other electronic messaging platforms. Similarly, taxi medallion and permit schemes haven’t gone away, but ridesharing was able to innovate around these antiquated regulations.
If I could pick one guiding principle for public policy moving forward, it would be embracing permissionless innovation. There’s no telling what prosperity the future will bring if we allow driverless cars, 3D printing, the “Internet of Things,” blockchain technology, and all the other innovations that we cannot even imagine yet to grow free from precautionary principle-style regulation.
This piece originally appeared on Forbes
This piece originally appeared in Forbes