Jun 29, 2018

Do You Need a License to Innovate?

Jennifer Huddleston Former Research Fellow

Technology is breaking down borders, but out-of-date regulations threaten to hold it back. Occupational licensure, a key barrier to the right to earn a living, may also prevent new technologies from improving or disrupting licensure-protected industries. Removing or reforming such requirements for “captive” industries may be necessary if a permissionless innovation approach can ever succeed.

Edge AI v. Tennessee Alarm Systems Contractor Board provides an example of how the current system can prevent a new technology from improving existing professions. Adam Jackson, a former soldier and security specialist, had developed an AI technology that combined already-installed security camera systems with facial recognition software linked to known offender databases. However, the state Alarm System Contractors Board told him he could not sell or even donate the product without first being licensed—despite the fact that his product works with existing alarm systems and only modifies software. If the state board is successful in its interpretation, it could prevent consumers from accessing innovative software like Jackson’s.

The conflict between licensing systems and new technology is probably most obvious in the ongoing legal battles that surround ride-sharing apps like Uber and Lyft. Many taxi industries had long limited the amount of services provided through a system of licensure, and decried the deregulation and disruption that ridesharing brought with it. But rather than seeking to increase licensing requirements or limit the amount of services provided, these licensed boards should see such disruption as an opportunity to free themselves from regulatory burdens and innovate. Since ride-sharing technology became commonplace, many cab companies have launched similar online features or improved credit card payments. It is unlikely that these changes would have been made without the deregulation and disruption of new technology.

Technology may also be doing away with some of the justifications for licensure. Typically, license proponents argue that such processes are necessary for health, safety, and legitimacy. Autonomous vehicles, for example, will be much safer than driver-operated cars, but might still be subject to the restrictive fleet licensing schemes of outdated taxi regulations. The installation of security software programs doesn’t require entry into the consumers’ home or other actions that might be seen as safety issues, but might nevertheless be subject to outdated industry standards, as in the Tennessee case. If technology can decrease the safety risk in certain occupations, then policymakers should embrace it, not burden it with outdated restrictions.

Technology has also reduced the barriers for services across state lines, but licensure keeps certain services from crossing them. This lack of portability hampers innovation and decreases consumer access. This poses problems even in industries that may always needs some kind of licensing, like medicine or law. While many insurance providers use telehealth consultations to provide consumers with care for minor issues, a lack of the portability of licenses across states can prevent such an option from becoming more widely available. If an out-of-state veterinarian in Texas tries to provide the same type of service via their own website, they may find themselves battling with another state’s board for practicing without a license. Even in cases where licensure is necessary, these regulations should be carefully examined to limit their potential harm to innovation.

Recently, a few states have introduced legislation guaranteeing a right to earn a living, and many more have engaged in some form of occupational licensure reform. These are positive steps in the right direction and, coupled with other policies, could help create a framework that encourages permissionless innovation. Allowing precautionary and restrictive occupational licensure frameworks to continue is likely to restrict even more innovative and life-changing technologies from reaching consumers.

Photo credit: Mark Schiefelbein/AP/REX/Shutterstock

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