Aug 17, 2018

Using Infrastructure Control as Innovation Regulation

Adam Thierer Senior Research Fellow

The ongoing ride-sharing wars in New York City are interesting to watch because they signal the potential move by state and local officials to use infrastructure management as an indirect form of innovation control or competition suppression. It is getting harder for state and local officials to defend barriers to entry and innovation using traditional regulatory rationales and methods, which are usually little more than a front for cronyist protectionism schemes. Now that the public has increasingly enjoyed new choices and better services in this and other fields thanks to technological innovation, it is very hard to convince citizens they would be better off without more of the same.

If, however, policymakers claim that they are limiting entry or innovation based on concerns about how disruptive actors supposedly negatively affect local infrastructure (in the form of traffic or sidewalk congestion, aesthetic nuisance, deteriorating infrastructure, etc.), that narrative can perhaps make it easier to sell the resulting regulations to the public or, more importantly, the courts. Going forward, I suspect that this will become a commonly-used playbook for many state and local officials looking to limit the reach of new technologies, including ride-sharing companies, electric scooters, driverless cars, drones, and many others.

To be clear, infrastructure control is both (a) a legitimate state and local prerogative; and (b) something that has been used in the past to control innovation and entry in other sectors. But I suspect that this approach is about to become far more prevalent because a full-frontal defense of barriers to innovation is far more likely to face serious public and legal challenges. For example, limiting ride-sharing competition in NYC on the grounds that it hurts local taxi cartels is unappealing to citizens and the courts alike. So, NYC is now making it all about traffic congestion. Even if that regulatory rationale is bunk, it is a much harder narrative to counter in the court of public opinion or the courts of law. For that reason, we can expect more and more state and local governments to just flip the narrative about innovation regulation going forward in this fashion.

How should defenders of innovation and competition respond to state and local efforts to use infrastructure control as an indirect form of innovation regulation? First, call them out on it if it really is just naked protectionism by another name. Second, to the extent there may be something their asserted concerns about infrastructure problems, propose alternative solutions that do not freeze innovation and new entry outright. The best approach is to borrow a page out of Coase’s playbook and use smarter pricing and property rights solutions. Or perhaps use unique funding mechanisms for new and better infrastructure that could accommodate ongoing entry and innovation.

For example, my Mercatus colleague Salim Furth recently penned a column (“Let Private Companies Pay for More Bike Lanes”) in which he noted how the electric scooter company Bird has offered cities a dollar a day per scooter to help build protected bike lanes. In doing so, Furth notes, Bird is:

"offering to enter the long tradition of private provision of public goods. The original subway lines were private. Private institutions have frequently built or maintained public parks. Radio broadcasts, a textbook example of a public good, are largely private in the US. Companies often provide public entertainment because they benefit from the attraction."

In a similar way, Uber has already supported usage-based road pricing to alleviate congestion.  We could imagine still other examples like this for emerging technology companies. Drone manufacturers could help create or pay for “aerial sidewalks” or easements so they can deliver goods more efficiently. Scooter and dockless bike companies could help pay for bike and scooter paths either directly or through promotional efforts. Driverless car fleet providers could help build or cover the cost of new parking garages or for road improvements that would help make autonomous systems work better in local communities.

That is the pro-consumer, pro-innovation path forward. Hopefully, state and local officials will embrace such forward-looking reform ideas instead of seeking to indirectly control new entry and competition under the guise of infrastructure management.

Photo credit: Justin Lane/EPA-EFE/REX/Shutterstock

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