In an essay for the current issue of the journal Democracy, I argue that the sped-up introduction of disruptive innovations is at serious risk. Why? As the information revolution spreads the better and cheaper model of Big Bang Disruption into industries that have until now been spared transformation, start-ups are being subjected to an epidemic of misguided efforts by incumbent businesses to apply old laws to new products and services. A genuine public policy crisis for the new economy has emerged.   

This is a storm that has been brewing for nearly two decades.  Despite the failure of early efforts by the media industries to use the courts to block digital disruptors such as Napster, a dangerous precedent was set. Entrepreneurs introduce new products and services that revolutionize old ways of doing business. But rather than embrace the same technologies and combine them with their own experience and expertise, incumbents hide behind protectionist laws and regulators they long ago captured, deploying them as blunt instruments to squash consumer demand for exciting new ways to deliver, well, pretty much everything.

Consider a few recent examples: DNA testing services such as 23andMe were judged by the FDA to be medical “devices” requiring clinical trials. (The company subsequently worked out an arrangement with the FDA as a “novel device.”) App-based ride-sharing is banned because vehicles don’t comply with rules requiring mechanical meters or because drivers respond too quickly(!). And the FCC is seriously considering applying its complicated and outdated rules for cable networks to over-the-top programmers such as YouTube and SlingTV rather than setting everyone free to compete on the same terms.

AD
AD

The future is fighting a battle with the past on multiple fronts, with consumers employed by both sides as human shields in what is, ultimately, a struggle over the allocation of new economic value. In a painful irony, outdated legal rules and institutions that date back to the start of the industrial revolution are springing back to life, terrorizing start-ups in everything from 3D printing to autonomous vehicles to advanced robotics and artificial intelligence — an army of regulatory Frankenstein monsters wrecking everything in their path.  

Ranked from lowest to highest, here are the seven disruptive innovations most threatened by premature and overzealous exposure to old and often-broken legal rules:

7. 3-D printing.  Rapid price deflation for industrial prototyping has led investors to bet heavily on consumer-oriented 3-D printers that can make fully functional items—including, perhaps in the not-too-distant future, food, electronic circuitry, and human tissue. Already, 3-D printers are being used to manufacture highly customized prosthetic devices and spare parts for expensive industrial equipment that would otherwise require vast warehouses and expensive, aging inventory. It’s early days here, but dramatic improvements in production efficiency and on-demand fabrication are challenging our nearly broken copyright and patent systems, raising fundamental questions about both the need for and optimal duration of protections for industrial designs and processes. What inventions are being protected too much and for too long? Which aren’t being protected enough?

6. Advanced robotics/artificial intelligence. Dramatic improvements in hardware and software are creating a future in which computers will supplant even more human beings in a wide range of dangerous, repetitive, error-prone, or simply boring jobs. Sudden leaps in overall productivity are great for society, but the potential displacement of large categories of blue- and white-collar workers is raising anxiety levels and calling into question long-held principles of industrial policy, including the need for universal employment, the role of organized labor, and the meaning of “full-time.” Characterizing these developments as bad doesn’t help—and, frankly, doesn’t matter. They’re coming anyway.

AD
AD

5. The quantified self. As more devices inside and outside your body collect information about you and your environment, data analytics may radically alter the way we eat, sleep, raise our children, and age with dignity. But even in its early stages, the science of “the quantified self” raises fundamental problems of public policy. Health and safety rules are optimized for society as a whole, but what happens when they conflict with what is best for you as an individual, or as a parent? On the other hand, what moral or legal duty do you have to share information—the ultimate application of “big data” — with researchers and others who rely on large samples to design treatments, measure outcomes, and cure diseases? What role can and should regulated insurers, health practitioners, and government agencies play in both compelling disclosure and protecting personal autonomy

4. The Internet of things. The falling cost of sensors will soon connect every one of more than a trillion items in commerce, including furniture, appliances, commercial buildings, and public infrastructure. With the emerging Internet of Things, consumers can profoundly customize their lives, radically improve energy efficiency, and help seniors stay in their homes far longer — to name just a few benefits. Regulators, notably the Federal Trade Commission, are already wrestling with the risks to consumer privacy of Internet-based communications among and between these devices, even as the economic value of widespread deployment is still impossible to estimate. What policies and enforcement mechanisms will minimize the costs while maximizing the benefits? Do we need better security technology or invasive government oversight? And what process ensures we make the right choices?

3. Digital currency. Much of the financial system has already migrated to all-electronic formats, but the production of cash stubbornly remains a government monopoly in much of the world. Now, Bitcoin and other digital currencies are testing the possibility of financial exchanges based on new forms of trust. They’re also testing the limits of a legal system that has grown, intentionally and otherwise, to rely on money as a tool of control, whether for law enforcement, taxation, or foreign trade and debt. If digital currencies achieve the critical mass and security needed to become a more stable kind of money than scrip, it won’t just be the banking system that will have to adapt.  Governments get that—and are none too happy.

2. Autonomous vehicles and drones. Self-driving cars and self-flying aircraft will revolutionize the design of cities and roads. They will vastly improve the efficiency of agriculture and public safety by providing new sources of real-time information at minimal cost and reduced human risk. And by enabling low-cost deliveries, they will further the revolution in retailing that began with the first e-commerce sites. But federal, state and local regulators are already swooning at the prospects, with a paralyzed FAA missing every deadline for integrating drones into U.S. airspace.  How can we redesign the rules of the road on land, sea, and air — a body of law that has grown around the assumption that humans are inconsistent, easily distractible operators? What kind of police will we need? What kind of insurance? And how will we manage the transition from one transportation paradigm to the next, taking lessons from the clumsy shift to “horseless” vehicles a century ago?

AD
AD

1. The sharing economy. Technology that makes it economically efficient for consumers to share, lease, or co-own expensive fixed assets including vehicles, housing, and expertise is bringing to the surface long-buried compromises, inside deals, and outright corruption in the mostly local licensing, inspecting, and insuring of transportation companies, hotels, and professional services. Some of the largest cities in the U.S. haven’t expanded the number of licensed taxis for decades, for example, creating an artificially low supply of vehicles and complicity in the exploitation by medallion owners of a mostly immigrant pool of drivers.  Uber, Lyft, Airbnb and others seem doomed to continue running head-first into artificial and inefficient barriers to competition, at home and abroad.

Of these seven, fights over drones and the sharing economy — already an issue in the 2016 presidential race–have been the most visible. Still, battle lines have been drawn over each of these emerging disruptors, all with depressingly similar characteristics.  Today, it is start-ups and their customers who feel the brunt of the attacks. But inevitably the incumbents will become victims of their own scorched earth strategy.  

Eventually, the better technology always prevails, stranding incumbents too busy fighting to adapt and leaving accommodating regulators looking foolish and obsolete. How can we break this vicious cycle? In the Democracy article, I offer detailed advice on how to reengineer technology policy, free to any stakeholder eager to encourage rather than stifle innovation.  It’s a platform equally suited to Democrats and Republicans and, indeed, one that once enjoyed bipartisan support.  

With that consensus failing, we urgently need to find a new way to think about regulating (or not) disruptive innovation. Until then, it’s lose-lose.

This post has been updated to clarify the current relationship between the FDA and 23andMe.

AD
AD