A Nice Illustration of The Law of Disruption in Action

My friend and frequent co-blogger Larry Downes has shown how lawmaking in the information age is inexorably governed by “The Law of Disruption” or the fact that “technology changes exponentially, but social, economic, and legal systems change incrementally.” This law is “a simple but unavoidable principle of modern life,” he said, and it will have profound implications for the way businesses, government, and culture evolve going forward. “As the gap between the old world and the new gets wider,” he argues, “conflicts between social, economic, political, and legal systems” will intensify and “nothing can stop the chaos that will follow.” This has profound ramifications for high-tech policymaking, or at least it should.

A powerful illustration of the Law of Disruption in action comes from this cautionary tale told by telecom attorney Jonathan Askin in his new essay, “A Remedy to Clueless Tech Lawyers.” In the early 2000s, Askin served as legal counsel to Free World Dialup (FWD), “a startup that had the potential to dramatically disrupt the telecom sector” with its peer-to-peer IP network that could provide free global voice communications. Askin notes that “FWD paved the way for another startup—Skype. But FWD was Skype before Skype was Skype. The difference was that FWD had U.S. attorneys who put the reigns on FWD to seek FCC approvals to launch free of regulatory constraints.” Here’s what happened to FWD according to Askin:

In lightning regulatory speed (18 months), the FCC acknowledged that FWD was not a telecom provider subject to onerous telecom regulations. Sounds like a victory, right? Think again. During the time it took the FCC to greenlight FWD, the foreign founders of Skype proceeded apace with no regard for U.S. regulatory approvals. The result is that Skype had a two-year head start and a growing embedded user base, making it difficult for FWD, constrained by its U.S.-trained attorneys, to compete.

FWD would eventually shut down while Skype still thrives.

This shows how, no matter how well-intentioned any particular laws or regulation may be, they will be largely ineffective and possibly quite counter-productive when stacked against the realities of the fundamental “law of disruption” because they simply will not be able to keep up with the pace of technological change. “Emerging technologies change at the speed of Moore’s Law,” Downes notes, “leaving statutes that try to define them by their technical features quickly out of date.”

With information markets evolving at the speed of Moore’s Law, I have argued here before that we should demand that public policy do so as well. We can accomplish that by applying Moore’s Law to all current and future technology policy laws and regulations through two simple principles:

• Principle #1 – Every new technology proposal should include a provision sunsetting the law or regulation 18 months to two years after enactment. Policymakers can always reenact the rule if they believe it is still sensible.
• Principle #2 – Reopen all existing technology laws and regulations and reassess their worth. If no compelling reason for their continued existence can be identified and substantiated, those laws or rules should be repealed within 18 months to two years. If a rationale for continuing existing laws and regs can be identified, the rule can be re-implemented and Principle #1 applied to it.

If critics protest that some laws and regulation are “essential” and can make the case for new or continued action, nothing is stopping Congress from legislating to continue those efforts. But when they do, they should always include a 2-year sunset provision to ensure that those rules and regulations are given a frequent fresh look.

Better yet, we should just be doing a lot less legislating and regulating in this arena. The only way to ensure that more technologies and entrepreneurs don’t end up like FWD is to make sure they don’t have to deal with mountains of regulatory red tape to begin with.

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