Global Innovation Arbitrage: Driverless Cars Edition

by on August 22, 2016 · 0 comments

In previous essays here I have discussed the rise of “global innovation arbitrage” for genetic testing, drones, and the sharing economy. I argued that: “Capital moves like quicksilver around the globe today as investors and entrepreneurs look for more hospitable tax and regulatory environments. The same is increasingly true for innovation. Innovators can, and increasingly will, move to those countries and continents that provide a legal and regulatory environment more hospitable to entrepreneurial activity.” I’ve been working on a longer paper about this with Samuel Hammond, and in doing research on the issue, we keep finding interesting examples of this phenomenon.

The latest example comes from a terrific new essay (“Humans: Unsafe at Any Speed“) about driverless car technology by Wall Street Journal technology columnist L. Gordon Crovitz. He cites some important recent efforts by Ford and Google and he notes that they and other innovators will need to be given more flexible regulatory treatment if we want these life-saving technologies on the road as soon as possible. “The prospect of mass-producing cars without steering wheels or pedals means U.S. regulators will either allow these innovations on American roads or cede to Europe and Asia the testing grounds for self-driving technologies,” Crovitz observes. “By investing in autonomous vehicles, Ford and Google are presuming regulators will have to allow the new technologies, which are developing faster even than optimists imagined when Google started working on self-driving cars in 2009.” 

Alas, regulators at the National Highway Traffic Safety Administration are more likely to continue to embrace a heavy-handed and highly precautionary regulatory approach instead of the sort of “permissionless innovation” approach to policy that could help make driverless cars a reality sooner rather than later. If regulators continue to take that path, it could influence the competitive standing of the U.S. in the race for global supremacy in this arena.

Crovitz cites a recent essay by innovation consultant Chunka Mui’s on this point: “The appropriate first-mover unit of innovation is not the car, or even the car company. It is the nation.” Mui uses the example of Singapore, where “the lead government agency [is] working to enhance Singapore’s position as a global business center” and has been inviting self-driving car developers to work with the island nation to avoid what Mui describes as “the tangled web of competition, policy fights, regulatory hurdles and entrenched interests governing the pace of driverless-car development and deployment in the U.S.”

That’s global innovation arbitrage in a nutshell and it would be a real shame if America was on the losing end of this competition. To make sure we’re not, Crovitz notes that U.S. policymakers need to avoid overly-precautionary “pre-market-approval steps” that “would give bureaucrats the power to pick which technologies can develop and which are banned. If that happens,” he notes, “the winner in the race to the next revolution in transportation is likelier to be Singapore than Detroit or Silicon Valley.”

Too true. Let’s hope that policymakers are listening before it’s too late.


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