The solution to each of these is the same: Embracing policies that promote the very best in better and cheaper technological innovations, or what my co-author Paul Nunes and I have termed “Big Bang Disruptions.”
The entrepreneurs are watching. Oh sure, for the first decade or so of the information revolution, my fellow Silicon Valley innovators operated in blissful (if negligent) ignorance of the very existence of Washington. The occasional but often catastrophic imposition of antitrust law was seen as a kind of natural disaster, unavoidable and uninsurable.
But as collisions at the accident-prone intersection of innovation and the law grow more frequent and more destructive, we are waking up.
Today, our start-ups are coming into conflict with an expanding range of federal and state regulators whose inner workings are unfamiliar to us, including the FAA (commercial drones), the FTC (the Internet of Things), the SEC (crowdfunding), the FCC (net neutrality and mobile spectrum), the FDA (home genetic testing), taxicab and limousine regulators (ride-sharing services), state public utility commissions (accommodations and other “sharing economy” services), and more. That’s in addition to some of the usual suspects, including the patent and copyright offices, immigration authorities and the IRS. Not to mention regulators outside the United States.
Examples range from the sublime to the ridiculous. A community advisory group in my small unincorporated Bay Area town held up applications for over a year to put new cell phone antennas on existing utility poles, even as residents complain about spotty coverage for their surgically-attached smartphones.
At the other end of the spectrum, I recently returned from yet another international conference where bureaucrats at the United Nations — pushed from behind by repressive governments in China, Iran, and Russia — tried desperately to wrest basic Internet governance from the able hands of the engineers who built and continue to maintain the network. Their goal, of course, isn’t to do a better job, but to do what they can to stuff the genie of freely-flowing information back into the bottle. And then bury the bottle.
Here at home, the opportunity to wrap themselves in the flag of innovation is knocking for both parties, but so far there are few takers. Republicans and Democrats regularly invoke the rhetoric of innovation, entrepreneurship, and the transformative power of technology. But in reality neither party pursues policies that favor the disruptors. Instead, where lawmakers once took a largely hands-off approach to Silicon Valley, as the Internet revolution enters a new stage of industry transformation, the temptation to intervene, to usurp, to micromanage, to circumscribe the future — becomes irresistible.
The disruption of everything
It’s no wonder the pace and trajectory of our flight into the future has grown so contentious. Today, every aspect of daily life is being redefined at an accelerating pace by core technologies that improve exponentially in both price and performance every 12 to 18 months, a phenomenon known in computer science as Moore’s Law.
With each cycle of Moore’s Law, consumers are migrating that much more enthusiastically from the world of the physical to the world of the virtual. The digital revolution long ago engulfed the industries closest to it — computing, communications, consumer electronics, entertainment and media — the purest incarnation of what economist Joseph Schumpeter called “the perennial gale of creative destruction.”
But as computing, storage, and broadband capacity continue their ascent into the stratosphere of ever-faster, cheaper and smaller, even the most mature industries are being transformed by innovations built from these technologies — the driver behind an accelerating series of Big Bang Disruptions.
Today, every industry is becoming digital, including some of the most mature and most regulated — even government itself.
Health care, for example, is being deconstructed by the proliferation of low-cost sensors and the decoding of the human genome; manufacturing is being redefined by advanced robotics and 3D printing; energy stands poised for rebirth as the scarcity of fossil fuels sparks innovation in a variety of more sustainable alternatives. Agriculture, professional services and retailing are likewise transforming. In every case, the revolution is being driven, or at least aided and abetted, by cheap computing, the cloud, mobile networks, and a dozen or so related technologies.
But even as consumers move faster toward building digital lives, lawmakers are increasingly if spastically putting on the brakes, embracing pro-innovation policies only when it’s convenient. Which it rarely is.
For one thing, as the information revolution pushes deeper into industries far from the no holds barred world of Silicon Valley, staid incumbents are fighting back the only way they know how — calling for protection from Congress, state and local governments, regulators, and the courts. From health care to transportation to manufacturing, education and financial services, when push (innovation) comes to shove (incumbents), more familiar and better-connected industry insiders regularly get the lawmakers to carry their water.
Raging against the machine
Lawmakers are increasingly on the wrong side of Big Bang Disruption, slowing rather than encouraging wealth-creating transformation. We see it in efforts by local regulators of all persuasions to protect their clients in the taxicab business, and in other industries threatened by the better and cheaper innovations of the so-called “sharing” economy, in which consumers use the Internet to efficiently leverage expensive assets, including their cars, homes, and even their expertise.
We see it, likewise, in the FDA’s growing discomfort with new technologies, such as the DNA testing service 23andMe, that are being translated into new products and services circling the moribund health care industry, giving patients access to information about their own bodies that have long been the exclusive fiefdom of medical professionals.
And we hear it, too, in the approaching drumbeats of the FTC’s vocal unease with connected device technologies in the so-called Internet of Things, skepticism they couch in the inflammatory language of privacy protection and cybersecurity.
Each of these examples is connected by a common thread: a political vacuum of lawmakers committed to the unavoidably chaotic if ultimately benevolent process of disruptive innovation (creative yes, but only after the destruction).
The failure of policymakers to support the disruptors when it really matters explains such disparate embarrassments as Congress’s inability to pass no-brainer legislation curbing patent trolls, irrational immigration policies for high-tech workers, and counter-productive tax laws that discourage the repatriation of foreign earnings.
But the source of the problem goes well beyond catering to vested interests. Governments are designed to prefer deliberated change over revolutionary breakthroughs — what historian Thomas Kuhn termed “paradigm shifts.”
Indeed, the instinctive reaction of policymakers to innovations that move in a single step from science fiction to practical science has long been to first to stop it and figure out appropriate controls later — perhaps much later. Within weeks of scientists announcing the cloning of Dolly the Sheep in 1996, President Clinton banned federal funding for the technologies used.
More recently, Congress ordered the Federal Aviation Administration in 2012 to come up with rules for commercial unmanned aircraft, which have immediate potential to transition from deadly military drones to better and cheaper applications in everything from public safety to agriculture to environmental protection to news-gathering and retail delivery services.
We’re still waiting. Meanwhile, a multi-billion dollar industry is being unnecessarily retarded as the FAA tries to impose a pre-emptive (and legally sketchy) ban on any commercial use of the technology while they deliberate.
It is not for nothing that science fiction author Arthur C. Clarke famously observed, “Any sufficiently advanced technology is indistinguishable from magic.” And we know how the Salem Witch Trials, for one, viewed the appropriate response of law to the possibility of magic.
Even when governments don’t ban the disruptors outright, they prematurely force-fit them into the ossified regulations of their distant ancestors (“taxicabs,” “hotels,” “common carriers”), a symptom of what psychologists might call denial of the future. It’s easier, after all, to mislabel and dismiss true innovations than it is to evaluate the splintered paths of their uncertain potential, even when doing so limits that potential.
On the wrong side of (Moore’s) Law
But when traditional law conflicts with Moore’s Law, progress is slowed, innovation is skewed, and value is lost. The future is needlessly deferred, or ceded to others to create and enjoy. And when it comes to the future, timing is everything. As the novelist William Gibson famously wrote, “The future is already here — it’s just not evenly distributed.”
To continue the profound economic growth our digital innovations have provided, we desperately need to realign our innovation policy. We need an Innovation Platform that promotes rather than proscribes disruptive innovation.
That may sound impossible, but it wasn’t so long ago that the Innovation Platform was an uncontroversial and bipartisan reality. For a brief and critical period in the 1990’s, political leaders in both parties embraced the Innovation Platform, generating a technical and economic miracle whose riches we continue to enjoy.
The Innovation Platform embraced by the Clinton Administration and continued well into the George W. Bush era recognized both the profound economic, social and political potential of connected computing as well as the likelihood that its promise would never be fulfilled without leaving it to the entrepreneurs, engineers, investors and consumers to define. It is no exaggeration to say that if not for the light-touch regulatory framework established at the outset of the commercial Internet’s emergence, the digital revolution we already take for granted would have never happened.
To pick one small but revealing example, Section 230 of the 1996 Communications Act can probably be credited more than any other policy decision with securing America’s continuing dominance in Internet products and services.
That simple provision immunizes third parties—including Web sites and Internet service providers — from being treated as publishers of content posted by their users, keeping them from becoming the targets of endless defamation lawsuits.
It’s hard to imagine multi-billion dollar social media powerhouses including Google, Facebook, Twitter and Reddit thriving without such protection. Which is why it’s no surprise that none of them, or nearly any other major content or social media company, were launched outside the U.S., where the opposite legal rules largely apply.
Those were the days. But with the accelerating digitization of the industrial economy, the Innovation Platform has now been largely muffled by those with parochial and decidedly anti-innovation tendencies.
There’s still hope for a return to the Innovation Platform, and to its bipartisan pursuit. Disruptive innovation, as Silicon Valley’s wide-ranging political culture suggests, is neither liberal nor conservative. It includes core values of both Republicans (limited government, faith in the invisible hand) and Democrats (consumer empowerment, level playing fields).
But to embrace it, political leaders in both parties must accept severe limits in their ability to shape the destination if not the trajectory of new technologies, limits that increase inversely to the pace of Moore’s Law. Technology and policy run at different clock speeds, and the gap is getting wider. As Intel’s then-CEO Andy Grove put it in 2005, “Technology will always win. You can delay technology by legal interference, but technology will flow around legal barriers.”
Toward an innovation platform
A return to the Innovation Platform begins by recognizing that natural economic forces are far more likely to resolve market failures than regulators, and do so at a lower cost. Not because markets are perfect, or appropriate subjects of uncritical reverence, but simply because markets react more quickly than governments do to the negative but usually short-term side-effects of disruptive innovation.
When new products and new enterprises rise and fall quickly, in other words, market dominance, anti-competitive behavior, and even predatory pricing are increasingly short-lived problems. The next generation of technology is far more likely to remedy consumer harms than Congress and the courts, and with considerably less economic friction. Even with the best of intentions, the most nimble regulatory agency still can’t safely keep pace with changes in consumer markets.
In concrete terms, then, the Innovation Platform limits the interposition of slow-moving governments whenever possible. Lawmakers must shy away from the instinct to do something — anything — to fix what is often just a temporary or even a theoretical market failure. As Federal Trade Commissioner Maureen Ohlhausen puts it, we must “embrace regulatory humility.” Or, as medical interns are instructed on their first day in the emergency room, “Don’t just do something. Stand there.”
When intervention is unavoidable, the Innovation Platform looks for remedies and enforcement mechanisms that are flexible and efficient, regulating as narrowly as possible. It resists the hubris that imagines expert agencies can craft prophylactic rules (a favorite phrase at the FCC) for applications that haven’t been invented, trusting instead in the flexibility of case-by-case adjudication.
It generally favors federal over state action, and multi-stakeholder non-governmental bodies over federal agencies or, even better, of self-regulation by the engineers themselves (as is the case with the Internet’s core protocols and other architecture). It favors regulations over statutes, and standards over regulations.
The Innovation Platform celebrates the new, especially when it is better and cheaper, and resists the fetishization of the old. It rejects cloudy nostalgia as a basis for reactionary lawmaking.
Encouraging small business growth is a worthy goal, for example, but preserving bankrupt business models and the obsolete technologies they were built around provides no economic value. Digitization displaces the video store clerk, the bank teller, and the Fotomat, just as an earlier wave of Big Bang disruptors displaced elevator operators, switchboard operators, and urban stable hands. Economic policy that retrains the displaced rather than patronizing them is harder to implement. But with or without it, shift happens.
That’s why the Innovation Platform decidedly favors what George Mason University’s Adam Thierer calls permissionless innovation over pre-emptive controls — prevalent in much of the world and in many industries — in which disruptors must seek approval from regulators before they can offer their products to the market. And why it favors support for university-based basic research (whence the Internet) over subsidies for applied research (sorry, Solyndra).
Even better, it advances policies that encourage private experimentation and investment, such as exempting emerging technologies, whenever possible, from restrictions and taxes accreted over long periods of time to resolve forgotten problems generated by earlier innovations.
For some innovations—new drugs for example—regulated R&D is clearly justified, though there are plenty of opportunities to improve the efficiency of the processes for testing and approval. Likewise, mature and dangerous technologies, including chemicals, mining, space travel and nuclear energy, still require close supervision.
But we should also acknowledge that existing methods for oversight are expensive, inefficient, and inescapably prone to corruption. We should work to minimize the need for close oversight, using the same digital tools that are making markets for everything more transparent. Real-time ratings by actual customers, spread through social networks and cloud-based computing, correct market failures with ruthless efficiency, in sharp contrast to the indifferent or corrupt periodic report of the government inspector.
An Innovation Platform, however, isn’t simply a set of things for policy-makers to avoid doing. Proactively keeping markets as open as possible is also critical. Regulatory backstops and other means of keeping dominant firms (whose dominance, however, is more fleeting all the time) from gaming the system are imperative.
So are laws prohibiting practices with demonstrable consumer harms (but not competitor harms) as well as enforcement agencies with the power and will to efficiently and effectively enforce them, on a case-by-case basis, when necessary. Usually the threat of enforcement is enough to discipline the market long enough for technology to do the rest.
That’s why, despite a decade of dithering at the FCC over “net neutrality” prohibitions against ISPs, the parade of horribles repeatedly predicted by self-styled consumer advocates never arrived. And why, in the absence of heavy-handed regulation, over a trillion dollars in private capital has been invested in communications infrastructure in the last decade, giving the United States the most robust and cost-effective mobile and wired networks in the world.
Yet today the FCC stands on the brink of caving to high emotions of Internet activists riled up by interested parties, and replacing the engineering-driven model of Internet governance with, as President Obama urged the agency late last year, the complex and corruptible rules of public utilities — like the water, power, and other public infrastructures that continue to crumble in the face of poor maintenance and cozy relations between regulator and utility. It’s exactly the wrong way to solve a problem that has yet to materialize, and one that more technology would likely fix quickly if it did.
The challenge of radical transparency
These are just the outlines of an Innovation Platform for the 21st century, but they are enough to make clear the challenges of adoption even for politicians who accept its principles. A true embrace of the Innovation Platform would take political will, and sticking with it even when the going got tough would require profound courage. But the payoff — economic as well as political — would more than justify the costs.
The alternative, on the other hand, would be more of the kind of Internet mob rule that has become dangerously common. Following a remarkable 2012 organic user revolt against an ill-considered Internet copyright bill known as SOPA, incumbents are now determined to find the right emotional buttons to push to harness the power of the well-intentioned masses.
Their proxies are now busily engaged around the world in perverting old-fashioned rent-seeking, trade warfare, and protectionism with the inflammatory rhetoric of democracy, free speech, and social justice. (Again, see the on-going net neutrality fight, which is about anything but.)
Americans, especially those under the age of 30, are already deeply cynical about the political process. As perhaps they ought to be. They live in a universe where technology can be counted on to make the world a better and more interesting place every 12 to 18 months, where life is approached as a series of problems to be solved through clever hacks and where even impractical dreams can be realized in weeks through a successful Kickstarter campaign.
Long before the most recent revelations about free-wheeling surveillance by the NSA and other law enforcement agencies at home and abroad, Internet users were justifiably suspicious when traditional governments showed up online, offering to slay the demons they created in the first place.
To reactivate the Innovation Platform, lawmakers will need first to prove they understand the kind of radical transparency that makes the digital market function so well.
Put another way, why should we trust politicians who don’t live in our world, or share our optimism for its future, and who can’t be counted on to do what it takes to maximize its potential? Especially when that just means staying out of the way.
Larry Downes is co-author, with Paul Nunes, of “Big Bang Disruption: Strategy in the Age of Devastating Innovation” (Portfolio 2014). He is project director at the Georgetown Center for Business and Public Policy. His previous books include the best-selling “Unleashing the Killer App” and “The Laws of Disruption.”