The Internet and the Digital Revolution gave us an abundance of riches—powerful computers, tablets, and smartphones; faster broadband and wireless connections; countless online websites and social networking platforms; and much more. But there’s another equally important benefit of the Internet Revolution that is often ignored: It is ushering in a momentous change in the legal and regulatory treatment of modern technological innovations.
Most information technologies of the analog era (broadcasting, cable, and telephony) were, in essence, “born in captivity.” The old policy approach that governed them was ex ante and highly prohibitionary in character, imposed in the form of top-down, command-and-control restrictions. Unfortunately, prospective regulations based on rooting out hypothetical future harms did little to advance consumer welfare and instead simply discouraged new innovation, competition, and consumer choice.
Media and communications law remains largely stuck in this box today, forcing anyone who wants to disrupt this space to first fall in line with the “Mother May, I” regulatory regime that treats new innovations as guilty until proven innocent.
By contrast, the Internet and other modern networked technologies were largely “born free.” Thanks to a series of sensible policy decisions by Congress and the Clinton Administration in throughout the mid-1990s, digital entrepreneurs were given a clear green light that they could innovate without needing to first receive some regulator’s blessing.
This new tech policy paradigm is often referred to as “permissionless innovation.” As I note in a recent book about this notion, it stands for the proposition that innovation and economic growth are far more likely when creative minds are generally left free to experiment with new technologies and any problems that develop are instead addressed in an ex post fashion.
In essence, America’s new innovation policy model can be thought of as “simple rules for a complex world,” to borrow a title from Richard Epstein’s 1995 important book of the same title. We’ve increasingly shunned ex ante administrative controls and instead relied on an assortment of more flexible ex post solutions when things go wrong. Those solutions have included both formal mechanisms (property and contract law, torts, class action activity, and other common law tools) and informal strategies (ongoing voluntary negotiations, multistakeholder agreements, industry self-regulatory best practices and codes of conduct, education and transparency efforts, and so on).
The superiority of this new permissionless innovation / ex post approach to tech policy is now abundantly clear. Not only has this new approach provided citizens with the bounty of riches already mentioned, but it has allowed American tech companies to take a commanding lead in the modern global tech economy. U.S. tech giants like Amazon, Apple, Facebook, Google, Microsoft, Tesla, Uber, and others are now household names across the globe and the envy of the world. A 2014 Booz & Company report on the world’s most innovative companies revealed that nine of the top 10 are based in the U.S. and that most of them were involved in computing, software, and Internet services. Ask yourself how many of those innovators would exist today if they would have first had to go to the Federal Communications Commission or 50 state public utility commissions and get permission to operate!
Going forward, America should apply the permissionless innovation policy model more broadly for new tech sectors including: driverless cars, consumer drones, robotics, 3D printers, virtual reality, wearable tech and smart homes, digital currency, and others. Of course, this will be more challenging when the technologies or sectors in question are not completely “born free” but instead “born captive” in heavily-regulated sectors like health care, financial services, transportation, and traditional telecommunications.
But the rise of Uber and the sharing economy illustrate the potential for a regulatory “end-around” to occur even when major legal and regulatory obstacles remain. Similarly, Bitcoin and Blockchain-based innovations make it possible to ignore many burdensome financial regs. Similarly, 3D printers and mobile phone apps are offering consumers new health technologies that Food and Drug Administration regulators can’t really police preemptively.
The result has been a sort of “spontaneous private deregulation,” with new firms gaining the freedom to offer new services even in the absence of any legal or regulatory reforms. Of course, the better solution would be for policymakers to hit the reset button and look to scrap the outmoded, top-down ex ante regulatory schemes of the past.
What the past two decades of Internet policy teaches us is that “simple rules for a complex world” can solve real-world problems while simultaneously fostering a legal environment conducive to life-enriching innovation. If we hope to spur another Digital Revolution for other technologies and sectors, we need more “out of the box” thinking and solutions, not top-down laws and regulations premised on hypothetical worst-case thinking.
Adam Thierer is a Senior Research Fellow at the Mercatus Center at George Mason University. Mr. Thierer will be a panelist at next week's Federalist Society Executive Branch Review Conference. Register now, and come check out his talk to learn more!