Sep 11, 2018

Evasive Entrepreneurs and Permissionless Innovation

An Interview with Adam Thierer
Adam Thierer Senior Research Fellow , Chad Reese Managing Editor

Your research and next book project are focused on “evasive entrepreneurialism” and the freedom to innovate. Tell us a bit more about this work.

Evasive entrepreneurs are innovators who don’t always conform to social or legal norms. Various scholars have documented how entrepreneurs are increasingly using new technological capabilities to circumvent traditional regulatory systems or put pressure on lawmakers or regulators to alter policy in some fashion. Evasive entrepreneurs rely on a strategy of “permissionless innovation” in both the business world and the political arena.

Some evasive behavior could even be considered “technological civil disobedience” in the sense that many innovators behave in this fashion because they find many rules to be offensive, confusing, time-consuming, expensive, or perhaps just annoying and irrelevant. In that sense, they could also be referred to as “regulatory entrepreneurs” who push back against what Tim Sandefur labels “The Permission Society.”

My book documents “evasive” behavior of this sort and explains why it is happening with increasing regularity. I also make the normative case for embracing the freedom to innovative more generally because of the many benefits society derives from technological innovations and especially “moonshots”—game-changing, transformative technologies.

You mentioned “permissionless innovation.” That was the topic of your last book. Could you explain what that means and how it relates to your new book?

The term “permissionless innovation” is of uncertain origin but generally refers to trying new things without asking for the prior blessing of various authorities. The phrase is sometimes attributed to Grace M. Hopper, a computer scientist who was a rear admiral in the United States Navy. “It’s easier to ask forgiveness than it is to get permission,” she once noted famously.

In my last book, I used the term more broadly to describe a governance philosophy for a variety of emerging technologies and contrasted it with its opposite—the “precautionary principle.” Permissionless innovation, I argued, refers to the notion 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, innovation should be allowed to continue and problems, if any develop, can be addressed later.

By contrast, the precautionary principle generally recommends disallowing or slowing innovations until their creators can prove that new products and services are “safe,” however that is defined. The problem with making precaution the basis of all technology policy is that it means a great deal of life-enriching (and even life-saving) innovation will never come about if we base policy on hypothetical worst-case scenarios.

The tension between these visions is on display in every major technology field today—drones, driverless cars, crypocurrency, genetics, mobile medicine, 3D printing, virtual reality, the sharing economy, and many others. That’s why we have made these sectors the focus of ongoing Mercatus research.

Could you give us a few examples of how entrepreneurs behave in an “evasive” fashion or how innovators engage in technological civil disobedience?

Many scholars and tech analysts have highlighted the ways in which sharing economy innovators like Uber and Airbnb engaged in regulatory entrepreneurialism, but that’s hardly the only example. Using 3D printers and open source designs, for example, many creative people are pushing up against legal norms when they fabricate prosthetic hands for children with limb deficiencies or create their own firearms for self-defense.

One of my favorite examples is the open source, do-it-yourself Nightscout Project, a non-profit founded by parents of diabetic children. These parents came together and shared knowledge and code to create better insulin remote monitoring and delivery devices for their kids. Their motto is “WeAreNotWaiting.” Specifically, these parents got tired of waiting for the development of new “professional” devices to be approved by the Food and Drug Administration (FDA), which can take many years to get through the regulatory process. Through voluntary collaboration, these parents have created reliable devices that are much less expensive than those FDA-approved devices, which can cost many thousands of dollars.

When average citizens engage in this sort of “biohacking” to create better and cheaper insulin pumps or 3D-printed prosthetic limbs but do not charge anything for it, their actions are of ambiguous legality. But even if they are breaking some laws or bending some rules, it isn’t stopping them from working together to make the world a better place. That’s technological civil disobedience in a nutshell.

So evasive entrepreneurialism can be both commercial and non-commercial in character?

Yes. Abroad range of “evasive” actors exist with large commercial players on one end of the spectrum and purely non-commercial “grassroots” or “household” innovators on the other. MIT economist Eric von Hippel calls the latter activity “free innovation,” which includes things like the 3D-printed creations I already mentioned.

Social entrepreneurialism is a closely related concept. Several of my Mercatus colleagues have documented how social entrepreneurs were instrumental in helping community recovery efforts following hurricanes and other disasters. Entrepreneurs aim to create social value through innovative acts that can assist their communities, while also potentially helping them create new business opportunities later down the road.

What’s interesting about “free innovation” and social entrepreneurialism is that much of this activity happens at the boundaries of what it technically legal. These innovators just want to help others. When laws stand in the way of that, they sometimes creatively evade them to get things done. That’s clearly the case with the open source DIY insulin pumps or 3D-printed prosthetic limbs.

Another example involves drone enthusiasts who often help out in search-and-rescue missions for missing people and pets even though they could be running afoul of various aviation regulations in the process. Even something as routine as children setting up free lemonade stands without local permits serves as an example of how people can behave in an evasive fashion to serve others.

The so-called “pacing problem” figures prominently in your work. Could you explain what it is and why it is important to the future of innovation policy?

As I noted in a recent Bridge essay, the pacing problem refers to the notion that technological change increasingly outpaces the ability of laws and regulations to keep up. The power of “combinatorial innovation,” which is driven by “Moore’s Law,” fuels a constant expansion of technological capabilities. Meanwhile, citizens quickly assimilate new tools into their daily lives and then expect that even more and better tools will be delivered tomorrow.

This makes it difficult for government officials and organizations to keep policy in line with fast-moving marketplace and social developments. That is especially true because of how increasingly dysfunctional and unable to adapt many government bodies and processes have become. This is why I argue that the pacing problem is becoming the great equalizer in debates over technological governance; policymakers are being forced to rethink their approach to the regulation of many sectors and technologies. This is especially the case because the pacing problem can be exploited by evasive entrepreneurs who are looking to do an end-run around slower regulatory processes.

Will “evasive” tactics work for entrepreneurs in every context? It seems like this would be more challenging in some regulatory contexts than others, right?

Evasive techniques are obviously more likely to succeed for technologies and sectors that are “born free” as opposed to “born captive.”  Technologies that are “born free” are not confronted with old laws and regulatory regimes that require permission before new products and services are offered. For example, there is no Federal Robotics Commission, 3D Printing Safety Act, or Virtual Reality Agency. It’s obviously easier to innovate as you wish in those fields, at least currently.

If, however, you want to put a driverless car on the road or a drone in the sky, preemptive approval is required, making evasive acts far riskier. Of course, it is exactly those sectors where evasive acts are potentially most needed! Too many old sectors are immune from new entry and consumer choice due to cronyism and industrial protectionism. As we saw with the ride-sharing services and now electric scooter sharing, sometimes evasive techniques can work for a time and then give innovators more leverage at the bargaining table.

In some cases, like space policy, supersonic transportation, or new FinTech offerings, evasive strategies are largely impossible because of the stifling morass of overlapping laws and regulations. Agencies will not tolerate much (if any) departure from regulatory norms in those instances. The Federal Aviation Administration (FAA), Federal Communications Commission (FCC), and FDA are particularly notorious for stifling entrepreneurial efforts.

But I am sometimes surprised to find evasive efforts happening even in those sectors. While the FAA is quite heavy-handed about strictly regulating airspace, the agency isn’t doing much to enforce its current drone registration requirements. Countless Americans fly their drones every day without a care about what the feds say. And while 23andme got a cease-and-desist order from the FDA due to their evasive efforts with home genetic test kits, the creators of many mobile medical devices and 3D-printed medical objects are currently being allowed to push up against the boundaries of legality under traditional FDA rules. The agency has bent its rules to accommodate that activity. When agencies take a pass on enforcing their own regulations, that is called “rule departure,” and it seems to be happening with greater regularity, probably due to the combined influence of both the pacing problem and evasive entrepreneurialism.

What’s at stake if policymakers push back too aggressively against evasive innovators?

Technological innovation is the fundamental driver of human well-being. When we let people experiment with new and better ways of doing things, we not only allow for the constant expansion of new goods and services, but we grow opportunities, incomes, and knowledge. This is how countries raise their overall standard of living and achieve prosperity over the long haul.

Entrepreneurs are the key to this process because by taking risks and exploring new opportunities, they continuously replenish the well of important ideas and innovations. If, therefore, we punish creative people for seeking creative solutions to hard problems—even those sometimes behaving “evasively”—we will be denied the fruits of those creative efforts. We will also be denying them the right to earn a living and enjoy the fruits of their labors. In this sense, the freedom to innovate is closely linked with individual autonomy and self-worth and deserves greater protection. It is about being free to pursue happiness however we each see fit.

Policymakers should, therefore, give innovators greater freedom to experiment, even when those efforts prove to be highly disruptive. Moonshots may not happen unless public policy supports a culture of experimentation and risk-taking. This is also crucial to the competitive advantage of nations. Scholars from many different fields have observed how a nation’s attitudes toward entrepreneurialism create a sort of “innovation culture,” which sends signals to individuals and investors about where they should spend their time and money. Unsurprisingly, where public policy frowns upon entrepreneurial effort, you get a lot less of it. Like a plant, innovation must be nurtured to help it and the economy grow.

In today’s highly integrated global economy, you either innovate or perish thanks to the increasing prevalence of “innovation arbitrage.” This refers to the fact that ideas and innovations will often flock to those jurisdictions that provide a legal and regulatory environment more hospitable to entrepreneurial activity. We see it happening today with drones, driverless cars, and genetic testing to just name three prominent examples.

Don’t you think that policymakers will bring down the regulatory hammer on evasive entrepreneurs? Should they?

Humility, patience, and flexibility are the key virtues for policymakers in this regard. If policymakers can come to appreciate the ways in which evasive entrepreneurialism can help advance economic and social opportunities, then they should consider giving innovative acts a wide berth—even when entrepreneurs are not in strict compliance with all laws and regulations.

Evasive acts are not usually undertaken to completely defy the law. Instead, they often represent the beginning of a negotiation. Many innovators have grown frustrated with public policies that block new entry or just defy common sense. Evading anti-competitive or illogical restrictions is a way to gain some degree of leverage in political negotiations. Sometimes it works; sometimes it doesn’t. But traditional reform avenues are often foreclosed because incumbents and other defenders of the regulatory status quo don’t like change.

Policymakers should see evasive entrepreneurialism as a signal that politics sometimes fails to serve the public when change is needed most. And once they sit down with innovators to discuss a better way of crafting policy, they need to be willing to adapt and devise more flexible governance frameworks, most of a “soft law” variety. As my colleagues and I explain in a recent law review article, soft law refers to a hodge-podge of informal governance tools for emerging tech, such as multistakeholder processes, industry best practices, agency guidance and consultation, and so on. Such informal governance mechanisms will need to fill the governance gap left by the gradual erosion of hard law thanks to the growth of the pacing problem and the expansion of evasive entrepreneurialism.

But what about the worst-case scenarios some fear, like the proverbial mad scientist who concocts a horrific virus in their basement? Even if they are still just hypothetical, aren’t some serious risk worth addressing preemptively?

Indeed, there are some extremely serious harms that are worth addressing preemptively, but that’s all the better reason to not get obsessed with lesser concerns. Over-regulating entrepreneurial activity is foolish in a world where policymakers are both knowledge- and resource-constrained.

My Mercatus colleagues have documented the astonishing growth and cost of regulatory accumulation. But forget about the burden excessive regulation poses to entrepreneurs and the economy for a moment, and instead consider how all those enforcement activities divert the time and attention of regulators themselves away from bigger problems. When policymakers get lost in a convoluted compliance maze of their own making, they lose the ability to address big risks in a sensible, timely fashion. That’s why we need a new governance vision for the technological age that is more flexible and adaptive than the heavy-handed regulatory regimes of the Industrial Era. 

Photo credit: VALENTIN FLAURAUD/EPA-EFE/Shutterstock

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