Immigration Reform Is Key in the Recovery from the COVID-19 Crisis

May 19, 2020

Recent Changes in Policy Are Ill-Advised

Recent immigration policies regarding F-1 student visas and H-1B work visas, aligned with the protectionist executive order known as “Buy American and Hire American,” introduced by the Trump administration in 2017, have been reducing the application rates of foreigners wishing to enter universities and the workforce in the United States. This reduces America’s access to a significant number of talented and creative people and the associated benefits.

During the past two years, foreign students have increasingly shown a preference for universities in Australia, Canada, and the United Kingdom over universities in America. One reason is the desire to avoid onerous visa rules while getting equally good education. Similarly, the application rates for H-1B visas have been declining while rates of visa denial have been increasing. If current visa policy stands, it is likely that COVID-19 will further limit foreign student admissions to US universities in the coming year and perhaps beyond. This will have long-lasting effects on innovation and economic growth. Therefore, policymakers should treat the COVID-19 pandemic as a unique opportunity to relax or reverse current restrictive policies regarding student visas and H-1B visas. Effective reforms will attract bright young people who will enrich American society in many ways, not least of which being their contribution to innovation and the entrepreneurial spirit that makes the United States an economic powerhouse.

The Effects of the 2017 Executive Order on F-1 and H-1B Visas

F-1 and H-1B visas were made to create a legal environment that would attract the brightest minds to the United States. Over the years, these visa programs have undergone numerous changes. The president’s Buy American and Hire American executive order, signed in April 2017, led to the heightened screening and vetting of applications for visas and other immigrant benefits. In the wake of the executive order, the number of F-1 student visas decreased 35 percent during the 2017–2019 period from the average of the three years (2014–2016) preceding the policy change.

Moreover, since the signing of the executive order, the Trump administration has been looking for other ways to create more restrictive rules that would affect the inflow of foreign students. For example, in August 2018, US Citizenship and Immigration Services (USCIS) proposed a policy regarding unlawful presence targeting F-1 student visa holders. The proposed rule was subsequently blocked by a court injunction. In February 2020, Immigration and Customs Enforcement proposed a regulatory change that would set a “maximum period of authorized stay for students” and eliminate “duration of status.” If approved, this change would require students to get additional approvals by USCIS throughout their program of study, which would create extra costs for students, lead to arbitrary decisions by USCIS officers, and make students uncertain about their ability to finish their studies. Other recent changes include increased student visa application fees and even longer processing delays.

In Canada, by contrast, regulations are far more liberal, and graduating foreign students automatically qualify for work permits. Canada’s immigration department introduced the Express Entry program in November 2016, which simplified the process for international students to become permanent residents. Canadian policies have helped attract about 16 percent more international students to Canadian universities in 2018 alone than in the previous year, with an overall increase of 73 percent during the 2014–2018 period.

According to the Institute of International Education, international students contributed $44.7 billion to the US economy in 2018 and supported 458,290 jobs during the 2018/19 academic year. The proposed restrictions, which could reduce international student enrollment by 35 percent and Optional Practical Training (OPT) participation by 60 percent, are therefore likely to negatively affect real GDP and real wages while contributing to the loss of about 443,000 jobs, including those held by native-born workers. This evidence runs opposite to protectionist narratives of foreigners taking jobs away from native-born workers.

The H-1B visa program was originally implemented to encourage applications from workers in specialty occupations, such as information technology, science, medicine, and others. However, recent changes in the visa program, including the increase of the minimum required salary from $60,000 to $130,000 for the potential visa holder, have made it more costly for American companies to hire foreign workers. The result is a redirection of these talents elsewhere, depriving the United States of a significant resource for innovation. There is certainly greater economic potential in having more qualified workers under the visa program, as evidenced by the fact that the number of applications for H-1B visas exceeds the limit year after year. The number of H-1B visas issued for temporary workers of distinguished merit and ability for the 2015–2019 period increased by 8 percent, from 172,748 to 188,123, indicating consistent demand for talent. On the other hand, according to the most recent National Foundation for American Policy (NFAP) report, which is based on an analysis of USCIS data, “more restrictive Trump administration policies have increased denials for H-1B petitions significantly, with denial rates rising from 6% in FY 2015 to 21% in FY 2019 for new H-1B petitions for initial employment.” A study by economists at the University of California finds that following the 2008 recession, job growth would have been at least 55 percent faster if all H-1B visas had been awarded to those applying. Therefore, the current restrictive trends are detrimental to the US economy overall, and especially during recoveries from economic downturns.

Extant Evidence of the Boon of Immigration

Extensive research in the field of immigration for the purposes of obtaining higher education and employment in the United States has demonstrated that immigrants are highly entrepreneurial. A study conducted by scholars at Stanford University examines the productive contributions of immigrant inventors in the United States in comparison to the productive contributions of their native-born counterparts. The study finds that “immigrants account for 37% of total US innovation, despite only making up 16 percent of the inventor workforce.” Moreover, student immigrants are more likely to create successful startups than their native-born counterparts. Twenty-two percent of business founders in the United States came to the country as foreign students.

The positive effects on productivity and innovation are also the result of collaboration and, overall, are remarkable contributions to economic progress. Another study of H-1B visa data by scholars at the Mercatus Center at George Mason University shows that “for every temporary foreign worker hired by a US firm, 5 to 7.5 new domestic jobs are created in that firm’s industry.” This naturally creates new opportunities for collaboration and innovation along with many other economic benefits.

A team of scholars at Princeton University measured how much immigration boosts innovation, finding that “a college graduate immigrant contributes at least twice as much to patenting as his or her native counterpart.” They further specified that the presence of immigrants provides an additional overall benefit, assuming that in their native countries immigrants would have been less innovative owing to distorted incentives. Consequently, US native-born citizens benefit directly from increased innovation and commercialization while global markets reap a secondary benefit that would otherwise go unrealized.

Another study finds that immigrants seeking education and application of their skills in the United States outperform college-educated natives in terms of the numbers of patents and licenses granted as well as the commercialization of new ideas. These immigrants originally “entered the United States on a student/trainee visa or a temporary work visa,” and their success “is explained by their different fields of study and higher level of education” than native-born college graduates, according to the study. This finding supports the assertion that F-1 visa rules must be reformed to establish a clear path from F-1 status to H-1B status, which will capitalize on the talent being fostered in US universities and create economic opportunity more rapidly.

Perhaps one of the more telling recognitions of immigrant contribution to research and discovery in the scientific fields is that American “immigrants have been awarded 38%, or 36 out of 95, of the Nobel Prizes won by Americans in Chemistry, Medicine and Physics since 2000,” according to an NFAP report from 2019. From 1901 to 2019, 35 percent of all American Nobel Prize winners in chemistry, medicine, and physics were immigrants. The natural conclusion, therefore, is that a healthy inflow of immigrants is crucial to creating a robust economy and vibrant society able to address critical issues both in normal times and in times of crisis.

Policy Recommendations

The effects of the COVID-19 pandemic on migration will likely range from persistent travel restrictions to fear of accepting more immigrants to the outflow of migrants who currently live in the United States. And while it may be difficult to control the virus, it is still possible to create a wise immigration policy that empowers people to innovate. The sooner policies are adjusted, the better the chances are for the United States to be resilient in its response to the economic challenges of the post-COVID-19 world. Reversal of the recent policy modification per the 2017 executive order, which would restore the original intent of the F-1 and H-1B visa programs, is a first step.

Regarding F-1 student visas, application fees should be lowered and incentives should be created for greater immigrant integration into the economy. For example, students should be allowed and encouraged to work off campus in jobs related to their field of study. This policy adjustment would align with Canadian student visa policies.

Further, upon completing a program of study, which presents a significant economic cost to the student, it makes sense to allow graduates to more easily transition to H-1B status through, for example, a clearly defined change-of-status process. Current regulations require that students with F-1 visas leave the United States as soon as they finish their programs, squandering an opportunity to leverage their unique skills and human capital.

Additionally, the current rule creates incentives for corruption. OPT allows a three-year extension for F-1 visa holders to work in the United States. The idea is that this period allows these workers to gain practical experience. However, in some cases this has led to corruption in the form of false employment in shell companies by foreign students from countries such as China and India who wish to remain in the United States. Liberalization of policies regarding the transition from F-1 status to H-1B status could reduce this corruption. Reformed policies would give students incentives to seek legal ways of remaining in the country after graduation and would allow for the demand for talent to be determined by American businesses. Clarity and simplification of the immigration policy will produce economic benefits and could reduce economic costs such as those associated with the abuse of the system.

As for H-1B visas, application fees should be lowered to at least their previous levels to reduce costs for US employers and to provide incentives for more immigrants to apply. Further, application caps and the related lottery system should be liberalized to attract talented workers. Rather than keeping the H-1B visa cap at the same, arbitrarily set level of 85,000 visas per year, policy should be reformed to reflect market-driven data on how many applications have been submitted by companies in the previous year. A more radical approach is removing the cap altogether. This will allow businesses to define the demand for immigrant talent in the economy, which would help increase immigration of high-skilled workers into the United States to a level that is more consistent with demand. This option would be preferable for the time of crisis and beyond. It would create a much stronger public-private collaboration in terms of immigration, and it would allow states, universities, and businesses to intensify their efforts to encourage highly qualified, entrepreneurial foreigners to apply for these visa programs.

Conclusion

The COVID-19 pandemic presents a unique opportunity. While many countries are tightening immigration restrictions, the US government could instead lower barriers to entry, which would attract talent and capitalize on the significant economic benefits of immigration as America recovers from the crisis.

About the Authors

Christopher Coyne is associate director of the F. A. Hayek Program for Advanced Study in Philosophy, Politics, and Economics and F. A. Harper Professor of Economics at the Mercatus Center at George Mason University. He is also a professor of economics and director of graduate studies in the economics department at George Mason University. He specializes in Austrian economics, economic development, emerging democracies, postwar and disaster reconstruction, political economy, and social change.

Yuliya Yatsyshina has recently completed an MA in economics at George Mason University as well as an MA fellowship at the Mercatus Center at George Mason University. She has had an extensive career in both the public and private sectors, and she currently works as a researcher for projects focusing on policies of economic growth, international development, and sustainability. Originally from Ust-Kamenogorsk, Kazakhstan, Yatsyshina has traveled widely and enjoys painting, ballet, and theater in her spare time.

Reforming the Practice of Pharmacy: Observations from Idaho

April 22, 2020

When Pharmacists Can Prescribe Medications, Patients Benefit

In 2011, the Idaho legislature began by giving pharmacists authority to prescribe fluoride supplements and certain immunizations for patients ages 12 and over. In subsequent years it continued to increase the prescribing authority of pharmacists. By 2017, the state’s pharmacists could prescribe medications for conditions that

  • do not require a new diagnosis,
  • are minor and self-limiting,
  • have a low-risk test to help identify the condition (e.g., flu, strep throat), or
  • present an immediate danger and require quick treatment.

As a result of these and further reforms, Idaho pharmacists can now prescribe in these situations without first seeking permission from the state’s board of pharmacy or legislature. The reforms also expanded the practice of telepharmacy, which provides faster and more accessible care to patients, particularly those who may live in remote areas.

Why Don’t All States Allow Pharmacists to Prescribe Medications?

Given their training, pharmacists are able to perform medical tasks well beyond what most current regulations allow. Yet prescribing authority for pharmacists remains limited across the United States. Expanding Idaho’s reforms to other states would likely meet the same kind of resistance such reforms initially did in Idaho. There, detractors of pharmacy reform cited two principal concerns:

  1. Pharmacists overprescribing or prescribing for conditions outside their medical expertise
  2. A breakdown in communications between healthcare providers

In Idaho, these fears have proven unfounded. Pharmacists are still held to a high quality of care by the State Board of Pharmacy. Like physicians, they can face penalties or loss of licensure. In addition, pharmacists are well aware of the legal liabilities to themselves and their employers for overprescribing medications.  

Some Idaho pharmacists even say their increased prescribing authority has actually increased communication with other providers, since pharmacists are required to notify primary care physicians of any new prescription and to satisfy other reporting requirements.  

Key Takeaway

Idaho has given the rest of the country a roadmap for expanding pharmacists’ prescribing authority. Despite warn­ings from interest groups that opposed these efforts, no significant downside risks have been realized to date. On the con­trary, these reforms are well within the scope of pharmacists’ professional training and expertise and could expand access to medical care for millions of Americans in need.

Relax Pharmacy Regulations to help with COVID-19 Testing and Treatment

March 27, 2020

One of the most urgent challenges facing policymakers managing the current COVID-19 public health crisis is how to ramp up diagnostic testing on a mass scale. Companies such as Walgreens, CVS, and Target have already started working with the federal government, as their locations are well-suited to become testing sites. As a result, pharmacies and pharmacists themselves are likely to become instrumental in testing for COVID-19 in the coming weeks and months. However, certain regulatory restrictions on pharmacists should be relaxed so that they can practice to the full extent of their training and abilities.

The Importance of Testing

The president has declared a national emergency and the federal agencies and state governments overseeing the response to the pandemic have recommended or required that citizens stay at home, practice social distancing, and, in some instances, self-isolate, self-quarantine, or shelter in place. To-date, authorities have offered little guidance as to when these recommendations will expire. Without reliable information about how many people are infected with COVID-19 as well as the rate at which the disease spreading, it is likely that policymakers currently have no clear sense of when to recommend a return to normalcy. Critical data required to inform such decisions will only emerge once large-scale testing is implemented.

Tragically, the federal government botched its early response to the crisis. Among other things, the first COVID-19 tests distributed around the country by the Centers for Disease Control and Prevention (CDC) produced unreliable results. Furthermore, commercial labs and public health officials in the states couldn’t get initial approval to perform their own tests (though in some cases, they tested anyway). These failures, largely a result of inflexible regulations, have contributed to delaying the rollout of testing in the United States. Even now that many legal barriers to testing have been removed, shortages of supplies could be hampering the scaling up of testing.

This is a particularly unfortunate outcome because the experience of other countries suggests that testing on a large scale has been a key ingredient of an effective response to the pandemic. Testing, when combined with practices such as isolating infected individuals and using contact tracing methods to identify who else may have been exposed to the virus, has shown promising results in places such as South Korea and Singapore. Testing to confirm that those who are exhibiting no symptoms or who were previously ill are in good health could also potentially speed the transition back to normalcy.

The effectiveness of mass testing is powerfully illustrated by the experience of Vò, a small town that reported Italy’s first death from COVID-19. The town’s 3,300 or so residents were tested and retested as part of an experiment rolled out by the University of Padua, with assistance from the government of the Veneto Region and the Red Cross. Residents were tested regardless of whether they were exhibiting symptoms. Those who were confirmed as infected were quarantined. The second round of testing revealed that the number of infected residents had dropped from 3 percent of the population to nearly zero, and Vò eventually reached zero new cases within a few weeks. Notably, this outcome differs dramatically from the experience of other parts of northern Italy, which has been one of the regions of the world most affected by COVID-19.

The Role that Pharmacists Can Play

At the time of this was written, 579,000 COVID-19 tests had been administered in the United States. If the disease continues to spread exponentially, testing will have to keep up with that pace of growth. Meeting that goal is going to be a significant challenge, as laboratories are already facing shortages of testing equipment. Another challenge is going to be finding safe places where potentially infected individuals can be tested without infecting others and healthy individuals can be tested without getting infected themselves. A role for pharmacies is thus quickly becoming apparent.

Massachusetts, for example, set up one of America’s first drive-through testing facilities in a pharmacy parking lot. Other states, such as Michigan and Pennsylvania, are following suit. Major drug store chains have publicly committed their support for the fight against COVID-19.

Pharmacies are well positioned to become testing sites because of their geographical coverage across the country. There are more than 309,000 employed licensed pharmacists in the United States and its territories, and 90 percent of Americans live within five miles of a pharmacy. Many pharmacies have adequate parking, which makes them well suited for drive-through testing. Some pharmacies even have drive-through windows. The familiarity patients have with pharmacists could prove important if sick individuals are more comfortable driving to their local pharmacy than going to a doctor’s office or a hospital.

Pharmacists can be of critical assistance in triaging the coming avalanche of patients seeking diagnostics and care. Pharmacists could test patients for COVID-19 and, if the results return positive, give directions for home care if the illness is mild. If the illness is severe, pharmacists could direct patients to designated facilities for their particular area. Even if results were to come back negative, the pharmacist would save the patient from having to visit another venue of care, thereby freeing up time for other medical professionals to focus on more urgent cases. Should patients suffer from other minor ailments, pharmacists could also provide treatment (though this might require legal changes in many jurisdictions; to be discussed later in this brief).

Pharmacists’ training makes them capable of providing this kind of basic medical care. It takes about eight years to obtain a doctor of pharmacy degree, a regular requirement for a pharmacist license. This time includes three to four years of undergraduate prerequisite work and four years of additional professional study. The COVID-19 test is relatively simple and usually involves taking swabs from a patient’s nose or throat. This is a task well within the capabilities of a pharmacist to perform. Although for now the analysis of the swab is likely to take place off site at a lab, in the future this work could potentially be done on site. Indeed, rapid-turnaround COVID-19 tests are currently being developed and, in some cases, undergoing FDA approval. Moreover, pharmacists themselves stand ready to assist, as identified by a recent call by the American Pharmacists Association for expanded pharmacist services to combat COVID-19.

Policy Recommendations

Fortunately, there are not many laws standing in the way of pharmacists and pharmacies immediately assisting in testing efforts for COVID-19. Personnel working at testing sites set up near pharmacies should be able to collect specimens from patients and send those specimens to laboratories for analysis without facing significant legal hurdles. These laboratories, however, do need government approval to operate, and indeed this has been one of the central bureaucratic hurdles that has hampered the US government’s response to the crisis.

These same restrictions also affect pharmacists with respect to performing laboratory testing for other ailments. For several decades, many pharmacies have been allowed to perform low-risk health tests thanks to the Clinical Laboratory Improvement Amendments of 1988 (CLIA). Even in ordinary times, pharmacies can obtain CLIA waivers and perform tests related to such ailments as influenza, strep throat, human immunodeficiency virus, and other medical conditions.

Currently, however, the percentage of pharmacies holding CLIA waivers varies enormously across states. One study finds the percentage of pharmacies possessing CLIA waivers to be between 0 and 60 percent, depending on the state, with a median percentage of 19.56 percent. One reason for the disparity across states is varying state and local regulations, which include restrictions related to testing procedures, licensure of the personnel conducting tests or overseeing a lab, phlebotomy requirements, and waste disposal requirements.

Allowing pharmacists to perform tests in ordinary times would better prepare them for crises like the current pandemic. Moreover, as CLIA waivers have increased, pharmacists and lab technicians have been able to incorporate basic testing into their existing workload without needing to work more hours. Pharmacist testing has an additional benefit of potentially reducing the time between symptom development and treatment. Thus, ensuring that CLIA-waived COVID-19 tests quickly become available should be a top priority of the US Department of Health and Human Services.

When pharmacists are testing for an ailment, they are usually qualified to treat similar conditions as well. Florida recently passed a law that allows pharmacists to test and treat for influenza and strep throat. These kinds of changes are likely to alleviate some of the stress on the medical system as pharmacists take on the burden of handling some of the more routine cases. However, Florida’s reform remains far from ideal, in part because it requires a licensed pharmacist to have in place a collaborative agreement with a supervising physician, which can act as a disincentive for many pharmacists.

Idaho is perhaps the model state in this regard, as Idaho allows pharmacists to prescribe autonomously if a pharmacist identifies a medical condition as a result of a CLIA-waived test, as well as under a number of other routine situations, all without a collaborative agreement with a physician in place. Idaho also allows for substitution of therapeutically equivalent drugs without express physician authorization (but with notification to the physician). As more states like Idaho and Florida allow for basic testing and prescribing authority for pharmacists, colleges of pharmacy are likely to respond by updating curricula, thereby enhancing preparedness for future pandemics.

Many states are relaxing other kinds of regulations as a result of the COVID-19 pandemic. Massachusetts has allowed pharmacies to produce hand sanitizer and mandated that insurers cover certain telehealth services. Some states are now accepting out-of-state medical licenses or embarking in reciprocity agreements with other states with regard to medical licenses. Again, Idaho has a reciprocity law for pharmacists that could serve as a model in this regard.

Relaxing restrictions on telepharmacy could also yield beneficial outcomes. Currently, most tests for COVID-19 have a relatively long turnaround time, often requiring patients to wait at home for results. When results become available, tested individuals could have a consultation with the pharmacist on the phone or via video conferencing platforms such as Skype or Zoom. Not only is this convenient for the patient, it also encourages social distancing. Currently, there is a debate taking place about take-at-home COVID-19 tests. If these tests become common, relaxing telepharmacy rules could enable pharmacists to provide remote instructions to patients administering their own tests. Telepharmacy reforms have also been known to increase access to pharmacies among underserved populations, such as rural populations.

Importantly, as pharmacists take on additional responsibilities, they will likely need to rely more on pharmacy technicians to pick up more routine tasks. However, many states have restrictions in place that mandate a maximum ratio of technicians that can work with each pharmacist. Notably, many states have no ratio requirements, and some states even have provisions in place that allow technicians to work remotely, suggesting that some restrictions on pharmacy technicians can be relaxed or lifted altogether.

In short, pharmacists could readily play a role in ramping up COVID-19 testing and treatment, and eventually, when available, providing the vaccine. Relaxing state phlebotomy laws could yield additional benefits, as drawing blood may be necessary in efforts to search for antibodies for COVID-19. Any restrictions on the ability of pharmacists to immunize using FDA approved vaccines should also be reconsidered.

Conclusion

As pharmacies and pharmacists become instrumental in COVID-19 testing, any related regulatory restrictions at the state and federal level should be reconsidered. States should make it easier for pharmacies to obtain CLIA waivers, pharmacists should have the ability to prescribe in low-risk situations, regulations should be amended to make it easier for pharmacists licensed in one state to practice in another state, and the use of telepharmacy should be encouraged. Restrictions on pharmacy technicians and the ability of pharmacists to vaccinate are also areas where liberalization could prove beneficial. Combined, these reforms are likely to improve the public’s access to testing and treatment for COVID-19 as well as a variety of other medical conditions. Equally important, these reforms can enhance preparedness for future pandemics.

Using Networks to Govern Network Problems

Wednesday, March 20, 2019

Today, botnets and the Distributed Denial of Service (DDoS) attacks that can accompany them, are considered among “the most severe cybersecurity threats.” Botnets have caused extensive economic harm to businesses, banks, hospitals, and government agencies around the world. Furthermore, botnets are used to spread political propaganda aimed at distorting democratic elections. In fact, U.S. government officials concluded that the Russian propaganda campaign has not stopped since the 2016 election and the magnitude of the issue is expected to grow. Yet, a time-tested framework for addressing the problem already exists. Governing complex internet-based problems is best accomplished by a network of stakeholders similar to the way the internet is currently governed.

In her Nobel Lecture, Elinor Ostrom emphasized the necessity to study human economic behavior in any complex system. She added that no “one size fits all” policy solution would work for a highly complex socio-economic issue, but approaches created by a disperse, spontaneously self-organized group are far more innovative. This is the essence of polycentric order as defined by Elinor and Vincent Ostrom. A polycentric order has multiple overlapping decision-making centers comprised of individuals equipped with necessary knowledge and expertise to create better outcomes for issues of high complexity.

In the case of cybersecurity, where dynamic response is critical - distributed network actors are best suited to govern complex cyber problems. While policymakers are one such group in this governance network, the efforts of other stakeholders are critical to maintaining flexibility and adaptability to emerging threats. The role of policymakers is to facilitating the emergence of multiple decision-making centers, which is key for resolving botnet issues.

In his book Networks and States, Milton Mueller offers a comprehensive analysis of network actors outside of the nation-state system as well as their effectiveness in addressing cybersecurity issues. Mueller outlines distinct challenges of cybercrime such as its globalized scope, boundless scale, and its decentralized and distributed nature. He argues that efficient institutions and new organizational forms are in a continuous process of emerging out of the interactions between public and private actors.

Mueller asserts that meaningful solutions to cybersecurity issues are only possible at the trans-national level. Such large international organizations as Internet Corporation for Assigned Names and Numbers (ICANN), The World Intellectual Property Organization (WIPO), and Internet Governance Forum (IGF) among others, provide governance at the international internet governance. Mueller highlights that an effective global internet security policy will recognize the interdependence of markets, nation-state specific property rights protections, and shared information and communication resources. He proposes that a “denationalized liberal approach” would be effective in resolving this dilemma. Moreover, he concludes that a true denationalized liberal governance will emerge out of the interactions of globally networked communities. His conclusions regarding internet security governance are, therefore, aligned with the Ostromian approach.

There have been some promising developments in collaboration between private and public sectors. In 2018, USTelecom and ITI announced the creation of the Council to Secure the Digital Economy. The Council brings together the leaders from the Information and Communication Technology sector to create a more resilient digital ecosystem. For example, they produced the botnet guide, a compilation of best practices by large scale enterprises that can be implemented in a variety of industries to mitigate the threats of the distributed denial of service attacks. Additionally, the Federal Trade Commission has been facilitating meetings between stakeholders.

Past and future administrations can learn from the Clinton Administration’s Framework for Global Electronic Commerce that made space for stakeholders to be involved in governing the internet and maximized cooperation between public and private initiatives for cyber-security. Indeed, the Obama administration’s cybersecurity plan included a call for technology companies to fight botnets collectively. The Trump administration declared its commitment to giving the Federal agencies legal authority to combat botnets.

Government should not be the only source of governance in addressing cybersecurity problems. Botnets are best combated by a multistakeholder effort between public and private entities. The tenants of “polycentricity” and “decentralized liberalism” capture the wisdom of a more distributed governance approach.

What Scooter Regulations Mean for Riders and Companies

Friday, December 7, 2018
Authors: 
Jennifer Huddleston

Cities have responded in various ways to the arrival of dockless electric scooters. The regulatory reactions have ranged from a wait-and-see approach or active collaboration with scooter innovators to hefty fines and flat-out bans on the devices. Following in the footsteps of earlier sharing economy entrepreneurs like Lyft and Uber, scooter innovators have mainly acted first and asked for permission (or forgiveness) second.

At times the economic impact of regulation on this growing transportation innovation is quite apparent. For example, permit costs, daily surcharges, and relocation fees imposed by cities like Portland, Oregon and San Antonio, Texas will decrease the profitability of each scooter and could directly raise the cost per ride. But regulations such as caps and distribution requirements also affect innovation and market entry in ways that may impact both industry costs and rider prices.

Direct Cost to Consumers

So far, scooter companies appear to have absorbed the cost of city regulations and have not passed them along to the consumer. Pricing has remained consistent across cities, even though some cities place more costly burdens on these innovators than others. Since most of these regulatory efforts have been reactive in nature, this may simply be because prices had already been established and there is a strong desire to maintain consistent pricing across the country to encourage adoption and easy deployment.

Maintaining low prices has been key to the success of these scooters, and despite claims to the contrary, this low-cost transportation option has been most favorably received by those making less than $50,000 a year. If scooters continue to face increasing regulatory costs, they will eventually be forced to raise their prices—which will harm consumers seeking low-cost transportation options.

For example, in addition to requiring non-refundable permit fees of $5,250 during the four-month pilot program, Portland, Oregon officials introduced a surcharge of $0.25 per ride. The maximum number of shared scooters allowed at the time of the pilot program deployment is 200. That means that a company would incur $1.25 for every five rides, in addition to a fixed cost of up to $26.25 per scooter during these four months. If these costs were passed along to the consumer, the cost of an average scooter ride would increase by almost 20 percent from its current $1.91 (based on average trip length and time) to approximately $2.25, assuming the current average of five rides per day continued. This does not include any additional increases in operating cost due to other requirements or restrictions, such as caps or area-specific deployments or features or a decrease in ridership that might occur from an increase in pricing.

Caps on the total number of scooters prevent companies from diluting the fixed costs of permits, so even if individual scooters are used more, costs would still increase. As trips per day increase for each individual scooter, so would the maintenance and charging costs. As a result, the cost and price of each scooter ride might actually rise.

When it comes to permit fees and per ride surcharges, the costs are quite apparent, but other regulations can also raise prices on consumers.

Effects on Competition

In some cases, scooter regulations place less of a burden on the early evasive players and serve more as a deterrent to new players looking to deploy dockless scooters or other micro-mobility transportation options. Early movers may either be grandfathered into more friendly regulatory environments or better able to meet requirements such as equitable deployment around the cities based on their existing fleet.

Caps on the number of scooters per company can limit the number of new players entering the market if they are set too low or have minimum deployment requirements. Total caps on the number of scooters can be even more harmful if they clearly benefit larger players and those who enter the market early.

Deploying caps after scooters have already arrived could be particularly damaging for competition and innovation in the industry. In some cases, these caps have been set lower than the number of scooters currently deployed, forcing companies to withdraw scooters regardless of consumer demand. These caps are rarely accompanied by an articulated rationale of how they were calculated, but rather appear to be an arbitrary number set by regulators at their discretion. If these caps remain static, they may encourage newer entrepreneurs to seek less regulated markets rather than having to worry about artificial limitations on potential growth or not being able to adequately deploy in the first place. Meanwhile, existing players have little incentive to provide broader service or expand into additional areas of the city. This is not a new tactic from regulators. Similar caps were used in the taxi market, resulting in higher prices for consumers and preventing new innovators like Uber and Lyft from entering the market.

Regulations can also limit competition by effectively requiring city specific products. For example, DC’s new scooter guidelines cap the speed of the devices at 10 mph rather than the standard 15 mph they currently travel in other markets such as California. Some jurisdictions also require companies to accept additional payment options and create low-income pricing plans. As a result, an innovator would be forced to choose between creating a DC-specific product, undertaking significant costs to change the existing product, or completely leaving the market in that area. Pursuing any of these options would decrease the number of competitors in the micro-mobility market in DC.

With fewer competitors in the market, it is likely consumers will see fewer options, less innovation, and higher prices negating what many enjoy about micromobility options like scooters in the first place.

What Happens Next?

In some ways, ensuing interactions between scooter entrepreneurs and regulators can be predicted from historical behaviors of other firms that, after initially thriving due to a lack of regulation, may end up later seeking regulation. To quote The Dark Knight, “You either die the hero or live long enough to see yourself become the villain.”

In 1971, George Stigler emphasized that regulation is often “acquired by the industry and is designed and operated primarily for its benefit.” Moreover, according to Stigler, when supply is more elastic, which is the case for urban scooter vendors, larger providers are likely to be more interested in influencing regulation. Later, Fred McChesney advanced the theory by introducing the role of the politician in extracting returns from the proposed regulation (1987). The variety of responses among cities to the scooter “invasion” supports the observations of these economists.

Therefore, when the scooter companies negotiate operations in any given city, it is in their interest to preemptively negotiate regulations to properly address the company’s business model without imposing additional costs. Furthermore, in considering regulation proposals, companies should anticipate the costs associated with political resistance or logrolling.

So far scooter companies and other micromobility entrepreneurs seem committed to outpacing and opposing regulation. Unlike other sharing economy innovations, there does not seem to be a direct analog industry that is being displaced or has an existing special interest. As a result, some scooter companies may work cooperatively with policymakers to develop innovation-friendly frameworks for regulation.

In the past year, cities have experimented with a variety of different regulatory frameworks when faced with the rapid deployment of technology. The cities that have taken the most hands-off approach will likely see the greatest benefits in the form of a diverse transportation ecosystem, while those that have taken a more stringent approach will see fewer options and rising costs. As with any new technology, it remains to be seen how much of these costs will be passed on to consumers. But for cities struggling to increase transportation options and decrease road congestion, it would be wise to consider the impact that these regulations might have on entrepreneurship and innovation.

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