Economics – Technology Liberation Front

Panel Video: How Should We Regulate the Digital World & AI?

Adam Thierer — Fri, 06 Sep 2024 22:44:36 +0000

The Technology Policy Institute has posted the video of my talk at the 2024 Aspen Forum panel on “How Should we Regulate the Digital World?” My remarks run from 33:33–44:12 of the video. I also elaborate briefly during Q&A.

My remarks at this year’s TPI Aspen Forum panel were derived from my R Street Institute essay, “The Policy Origins of the Digital Revolution & the Continuing Case for the Freedom to Innovate,” which sketches out a pro-freedom vision for the Computational Revolution.

America Does Not Need a Digital Consumer Protection Commission

Adam Thierer — Thu, 10 Aug 2023 15:25:01 +0000

The New York Times today published my response to an oped by Senators Lindsey Graham & Elizabeth Warren calling for a new “Digital Consumer Protection Commission” to micromanage the high-tech information economy. “Their new technocratic digital regulator would do nothing but hobble America as we prepare for the next great global technological revolution,” I argue. Here’s my full response:

Senators Lindsey Graham and Elizabeth Warren propose a new federal mega-regulator for the digital economy that threatens to undermine America’s global technology standing.

A new “licensing and policing” authority would stall the continued growth of advanced technologies like artificial intelligence in America, leaving China and others to claw back crucial geopolitical strategic ground.

America’s digital technology sector enjoyed remarkable success over the past quarter-century — and provided vast investment and job growth — because the U.S. rejected the heavy-handed regulatory model of the analog era, which stifled innovation and competition.

The tech companies that Senators Graham and Warren cite (along with countless others) came about over the past quarter-century because we opened markets and rejected the monopoly-preserving regulatory regimes that had been captured by old players.

The U.S. has plenty of federal bureaucracies, and many already oversee the issues that the senators want addressed. Their new technocratic digital regulator would do nothing but hobble America as we prepare for the next great global technological revolution.

Why Isn’t Everyone Already Unemployed Due to Automation?

Adam Thierer — Sat, 11 Mar 2023 14:16:41 +0000

I have a new R Street Institute policy study out this week doing a deep dive into the question: “Can We Predict the Jobs and Skills Needed for the AI Era?” There’s lots of hand-wringing going on today about AI and the future of employment, but that’s really nothing new. In fact, in light of past automation panics, we might want to step back and ask: Why isn’t everyone already unemployed due to technological innovation?

To get my answers, please read the paper! In the meantime, here’s the executive summary:

To better plan for the economy of the future, many academics and policymakers regularly attempt to forecast the jobs and worker skills that will be needed going forward. Driving these efforts are fears about how technological automation might disrupt workers, skills, professions, firms and entire industrial sectors. The continued growth of artificial intelligence (AI), robotics and other computational technologies exacerbate these anxieties. Yet the limits of both our collective knowledge and our individual imaginations constrain well-intentioned efforts to plan for the workforce of the future. Past attempts to assist workers or industries have often failed for various reasons. However, dystopian predictions about mass technological unemployment persist, as do retraining or reskilling programs that typically fail to produce much of value for workers or society. As public efforts to assist or train workers move from general to more specific, the potential for policy missteps grows greater. While transitional-support mechanisms can help alleviate some of the pain associated with fast-moving technological disruption, the most important thing policymakers can do is clear away barriers to economic dynamism and new opportunities for workers.

I do discuss some things that government can do to address automation fears at the end of the paper, but it’s important that policymakers first understand all the mistakes we’ve made with past retraining and reskilling efforts. The easiest thing to do to help in the short-term is clear away barriers to labor mobility and economic dynamism, I argue. Again, read the study for details.

For more info on other AI policy developments, check out my running list of research on AI, ML robotics policy.

Quick Thoughts on Biden’s Tech-Bashing in the State of the Union

Adam Thierer — Wed, 08 Feb 2023 03:43:49 +0000

President Biden began his 2023 State of the Union remarks by saying America is defined by possibilities. Correct! Unfortunately, his tech-bashing will undermine those possibilities by discouraging technological innovation & online freedom in the United States.
America became THE global leader on digital tech because we rejected heavy-handed controls on innovators & speech. We shouldn’t return to the broken model of the past by layering on red tape, economic controls & speech restrictions.
What has the tech economy done for us lately? Here is a look at the value added to the U.S. economy by the digital sector from 2005-2021. That’s $2.4 TRILLION (with a T) added in 2021. These are astonishing numbers.
FACT: According to the BEA, in 2021, “the U.S. digital economy accounted for $3.70 trillion of gross output, $2.41 trillion of value added (translating to 10.3 % of U.S. GDP), $1.24 trillion of compensation + 8.0 million jobs.”

In 2021…

$3.70 trillion of gross output
$2.41 trillion of value added (=10.3% percent GDP)
$1.24 trillion of compensation
8.0 million jobs

FACT: globally, 49 of the top 100 digital tech firms with most employees are US companies. Here they are. Smart public policy made this list possible.

FACT: 18 of the world’s Top 25 tech companies by Market Cap are US-based firms.
It’d be a huge mistake to adopt Europe’s approach to tech regulation. As I noted recently in the Wall Street Journal, “The only thing Europe exports now on the digital-technology front is regulation.” Yet, Biden would have us import the EU model to our shores.
My R Street colleague Josh Withrow has also noted how, “the EU’s approach appears to be, in sum, ‘If you can’t innovate, regulate.’” America should not be following the disastrous regulatory path of the European Union on digital technology policy.
On antitrust regulation, here is a study by my R Street colleague Wayne Brough on the dangerous approach that the Biden administration wants, which would swing a wrecking ball through the tech economy. We have to avoid this.
It is particularly important that the US not follow the EU’s lead on artificial intelligence regulation at a time when we are in heated competition w China on the AI front as I noted here.
American tech innovators flourished thanks to a positive innovation culture rooted in permissionless innovation & policies like Section 230, which allowed American firms to become global powerhouses. And we’ve moved from a world of information scarcity to one of information abundance. Let’s keep it that way.

Dispatch from JMI’s “Tech & Innovation Summit” Panel on Progress Studies

Adam Thierer — Fri, 16 Sep 2022 13:59:12 +0000

It was my pleasure this week to participate in a panel discussion about the future of innovation policy at the James Madison Institute’s 2022 Tech and Innovation Summit in Coral Gables, FL. Our conversation focused on the future of Progress Studies, which is one of my favorite topics. We were asked to discuss five major questions and below I have summarized some of my answers to them, plus some other thoughts I had about what I heard at the conference from others.

What is progress studies and why is it so needed today?

In a sense, Progress Studies is nothing new. Progress studies goes back at least to the days of Adam Smith and plenty of important scholars have been thinking about it ever since. Those scholars and policy advocates have long been engaged in trying to figure out what’s the secret sauce that powers economic growth and human prosperity. It’s just that we didn’t call that Progress Studies in the old days.

The reason Progress Studies is important is because technological innovation has been shown to be the fundamental driver in improvements in human well-being over time. When we can move the needle on progress, it helps individuals extend and improve their lives, incomes, and happiness. By extension, progress helps us live lives of our choosing. As Hans Rosling brilliantly argued, the goal of expanding innovation opportunities and raising incomes “is not just bigger piles of money” or more leisure time. “The ultimate goal is to have the freedom to do what we want.”

What don’t policymakers get about progress?

Policymakers often fail to appreciate the connection between innovation policy defaults and actual real-world innovation outcomes. Here is the biggest no-duh statement ever uttered: If you discourage innovation by default, you’ll get a lot less of it. In other words, incentives matters if you hope to create a positive innovation culture. Innovation culture refers to the various social and political attitudes, policies and entrepreneurial activities that, taken together, influence the innovative capacity of a particular region.

Thus, when policymakers make the Precautionary Principle the legal default for innovative activities, it means that government has put a red light in front of entrepreneurs and treated them and their innovations as guilty until proven innocent. That’s a sure-fire recipe for stagnation.

The better approach is to make Permissionless Innovation our policy default and treat entrepreneurs and innovations as innocent until proven guilty. When our policy defaults offer entrepreneurs more green lights instead of red ones, it encourages more experimentation with new and better ways of doing things. In turn, this spurs business formation, job creation, new industries and products, and broad-based economic growth.

But policymakers consistently ignore this fundamental reality about the connection between policy and progress.

Can you think of any states or governments that are doing a good job of putting the insights of progress studies into practice?

This summer, I co-authored an essay about, “How Arizona Is Getting Innovation Culture Right,” and highlighted the many important reforms undertaken over the past eight years by Gov. Doug Ducey and the Arizona Legislature. Arizona has advanced several reforms that have helped the state get its innovation culture right both broadly and narrowly. Broadly speaking, the state took steps to minimize red tape burdens and streamline permitting process and occupational licensing mandates. They also promoted “right to earn a living” and “right to try” initiatives to broaden worker and patient opportunities.

In terms of more targeted reforms, Arizona took steps to clear the way for greater broadband rollout and encouraged experimentation with commercial drones and driverless cars. The state also helped pioneer the use of “regulatory sandboxes,” which grant innovators a temporary safe space free of excessive regulatory burdens so they can experiment with new products and services.

And then there’s the city of Miami. At the JMI event, Miami Mayor Francis Suarez delivered a keynote address and he identified 3 keys to attracting talent and building opportunity: (1) Keep taxes low, (2) keep people safe, and (3) focus on innovation. He’s following that script and making Miami a hotbed of entrepreneurial opportunity.

Mayor Suarez spoke of how he is embracing emerging technologies like blockchain to compete with the traditional geographic Goliaths of tech, like San Francisco and New York. There’s been a massive inflow of companies and investors as a result. The city has become #1 in tech job growth and the inflow of tech entrepreneurs. “It turns out that if you welcome people… they come,” he said. “They want to migrate to places that are on the cutting edge of technology” and find “pathways to prosperity.”

Miami and Arizona offer great models that other cities and states could follow if they hope to improve their own innovation culture.

What is the difference between progress studies and industrial organization, or industrial policy, or “government planning, but for innovation”?

Many policymakers foolishly believe there exists a precise technocratic cocktail that can immediately unlock innovation through highly targeted interventions and spending initiatives. In reality, achieving consistent growth and prosperity requires more than Big Government gimmicks. It’s a long game.

Many politicians and pundits are often fond of using machine-like metaphors and insisting that they have the ability to “fine-tune” innovative outcomes or “dial-in” economic development according to a precise formula. This is how we end up trillions in debt without much to show for it. Most recently, we’ve witnessed an “orgy of spending” on industrial policy schemes at the federal level.

The better metaphor for thinking about a nation’s innovation culture might be a plant or garden. Two of the great Progress Studies thinkers are F. A. Hayek and Joel Mokyr. Hayek once suggested that policymakers should aim to “cultivate a growth by providing the appropriate environment, in the manner in which the gardener does this for his plants.” And Mokyr has argued that technological innovation and economic progress must be viewed as “a fragile and vulnerable plant, whose flourishing is not only dependent on the appropriate surroundings and climate, but whose life is almost always short. It is highly sensitive to the social and economic environment and can easily be arrested by relatively small external changes.”

Thus, the technocratic industrial policy mindset is always looking for “sexy” initiatives that capture a lot of short-term media attention, but typically fail to produce meaningful innovations or lasting growth. What’s more important to long-term prosperity is that policymakers get the “boring” stuff right.

The building blocks of the “boring” general approach economic development is a mix of broadly applicable tax, spending, regulatory and legal rules that help create a stable innovation ecosystem. Again, it’s like Mayor Suarez’s 3-prong approach of low taxes, safe communities, and a welcoming embrace of entrepreneurialism. That’s the secret sauce that fuels long-term progress and a sustainable prosperity.

Is there a disconnect between the theories of progress and the practice – in other words, is it a problem of governance forms?

Indeed, I already mentioned the difference between the Precautionary Principle and Permissionless Innovation and it’s always interesting to me how my scholars ignore the importance of these governance forms when thinking about how to advance progress. There exists an unfortunate tendency among many to either ignore or repeat the mistakes of the past. Having made significant economic and societal gains thanks to past technological progress, many pundits and policymakers come to take much of it for granted. Thus, Progress Studies requires a process of constant re-education to remind each new generation of what helped raise our living standards so dramatically over the past two centuries.

The dramatic growth in incomes, life expectancy, and human welfare were not the product of sheer luck but of important policy choices. The freedom to think, to innovate, and to trade are the three freedoms that gave us our modern riches. If our governance forms limit those foundational freedoms, our current welfare and future prosperity will suffer. This is the great lesson of Progress Studies.

Additional Reading from Adam Thierer on Progress Studies

“Where is ‘Progress Studies’ Going?” Progress Studies, April 23, 2022.
“Is There a Science of Progress?” AIER, August 8, 2019.
“A Case for Innovation and Optimism,” Discourse, March 2, 2022 (A conversation between Adam Thierer and Jason Crawford of Roots of Progress).
“Samuel Florman & the Continuing Battle over Technological Progress,” Medium, April 6, 2022.
“How to Get the Future We Were Promised,” Discourse, January 18, 2022.
“Defending Innovation Against Attacks from All Sides,” Discourse, November 9, 2021.
“How Technology Expands the Horizons of Our Humanity,” Medium, November 19, 2018.
“Is It ‘Techno-Chauvinist’ & ‘Anti-Humanist’ to Believe in the Transformative Potential of Technology?” Medium, September 18, 2018.
“Deep Technologies & Moonshots: Should We Dare to Dream?” Medium, September 7, 2018.
Permissionless Innovation: The Continuing Case for Comprehensive Technological Freedom, 2nd ed. (Arlington, VA: Mercatus Center at George Mason University, 2016).
“Muddling Through: How We Learn to Cope with Technological Change,” Medium, June 30, 2014.

AI Eats the World: Preparing for the Computational Revolution and the Policy Debates Ahead

Adam Thierer — Mon, 12 Sep 2022 23:52:26 +0000

[Cross-posted from Medium.]

Over the past decade, tech policy experts have debated the impact of “software eating the world.” In coming years, the debate will turn to what happens when that software can be described as artificial intelligence (AI) and comes to have an even greater influence. Every segment of the economy will be touched by AI, machine learning (ML), robotics, and the Computational Revolution more generally. And public policy will be radically transformed along the way.

This process is already well underway and accelerating every day. AI, ML, and advanced robotics technologies are rapidly transforming a diverse array of sectors and professions such as medicine and health care, financial services, transportation, retail, agriculture, entertainment, energy, aviation, the automotive industry, and many others.

As every industry integrates AI, all policy will involve AI and computational considerations. The stakes here are profound for individuals, economies, and nations. It is not hyperbole when we hear how AI will drive “the biggest geopolitical revolution in human history” and that “AI governance will become among the most important global issue areas.”

Unfortunately, many policy wonks — especially liberty-loving, pro-innovation policy analysts — are unaware of or ignoring these realities. They are not focusing on preparing for the staggering constellation of issues and controversies that await us in the world of AI policy.

Innovation defenders need to keep the Gretzky principle in mind. Hockey legend Wayne Gretzky once famously noted that the key to his success was, “I skate to where the puck is going to be, not where it has been.” Yet today, many analysts and organizations are focused on the where the tech policy puck is now and not anticipating where it will be tomorrow.

Because of its breadth, AI policy will be the most important technology policy fight of the next quarter century. As proposals to regulate AI proliferate, those who are passionate about preserving the freedom to innovate must prepare to meet the challenge. Here’s what we need to do to prepare for it.

The Coming Computational Revolution

Thomas Edison once spoke of how electricity was a “field of fields.” This is even more true of AI, which is ready to bring about a sweeping technological revolution. In Carlota Perez’s influential 2009 paper on “Technological Revolutions and Techno-economic Paradigms,” she defined a technological revolution “as a set of interrelated radical breakthroughs, forming a major constellation of interdependent technologies; a cluster of clusters or a system of systems.” To be considered a legitimate technological revolution, Perez argued, the technology or technological process must be “opening a vast innovation opportunity space and providing a new set of associated generic technologies, infrastructures and organisational principles that can significantly increase the efficiency and effectiveness of all industries and activities.” In other words, she concluded, the technology must have “the power to bring about a transformation across the board.”

Contemporary AI technology fits the bill. AI combines computation, data, algorithms, machine learning, networks, and advanced mathematics, to drive a broad range of powerful applications and surfaces new techno-economic and techno-social paradigms. It will transform everything.

Several underlying realities make AI both the most important technological revolution and all-encompassing technology policy issue of our lifetime. First, AI reflects the power of combinatorial innovation in which new technologies symbiotically build on top of one another, holistically accelerating each technology’s development and sophistication over time. AI and machine-learning capabilities build upon knowledge and capabilities developed through many other important technologies and sectors, including microprocessors, the Internet, high-speed broadband networks, sensors and geolocation technologies, and data storage/processing systems. In turn, AI and ML will become the building blocks for a great many other innovations going forward.

Indeed, AI/ML is set to become the “most important general-purpose technology of our era.” This general-purpose nature is the second complicating reality of AI. AI will benefit almost all organizations’ analytics and marketing, customer service, and sales. It will also affect many other business practices, social norms and interactions, artistic endeavors, governmental operations, and much more. This broad scope of application is what makes AI so important for future innovation and growth, but also complicates its governance.

Much like consumer electronics, computing, and the internet before it, AI is difficult to govern in the abstract; it is much easier to imagine how to govern individual applications. This is one reason that governance frameworks for driverless cars, drones, and robotics are developing more rapidly than overarching regulation for general AI.

Finally, AI also raises special governance challenges because it is a dual-use (and often open source) technology that, like chemical and nuclear technologies before it, has both beneficial peaceful uses but also potentially many military or law enforcement applications. This fact is particularly important when discussing so-called existential risks.

Expanding Our Skillset

Thus, AI (and AI policy) is multi-dimensional, amorphous, and ever-changing. It has many layers and complexities. This will require public policy analysts and institutions to reorient their focus and develop new capabilities.

Market-oriented research centers tend to have lots of lawyers and economists on staff today. Those skillsets will remain essential. But AI opens new policy horizons and demands new capabilities. “Machine learning is at the intersection of statistics and computer science, occasionally also taking inspiration from cognitive science and neuroscience,” notes computer engineer Ethem Alpaydin. Those skillsets are rare in think tanks or policy advocacy shops today. But AI and ML also intersect with many softer sciences, including philosophy, sociology, anthropology, and countless others. The most important policy battles over the future of AI will be about ethics, and yet few think tanks have philosophers on staff.

Yet advocates of aggressive AI regulation can be found in many of these academic fields, and many think tanks and policy advocacy organizations on the Left are already gearing up to handle AI policy in a more holistic fashion, incorporating perspectives from many of these disciplines. This leaves individuals and groups who defend markets and innovation woefully behind. When one examines the major conferences on AI and robotics today, there is very little ideological balance. That’s not just because the conference sponsors are guilty of a pro-regulatory bias, but also because the pipeline of talent on the other side of the fence is dry. There are not many obvious free-market scholars who could bring greater balance to such programs.

Thus, the first order of business for our movement is clear: We need to get serious about developing new talent and bringing new skillsets to better address AI policy issues and defend innovation and progress in this arena. The free-market movement has done a good job developing young talent in economics programs and law schools, but it’s far behind in developing a diverse new generation of scholars in all those other fields mentioned. As AI eats the world, it also eats the academy, and it won’t be just the lawyers and economists weighing in on policy matters.

Mapping the AI Policy Terrain: Broad vs. Narrow

Beyond talent development, the other major challenge is issue coverage. How can we cover all the AI policy bases? There are two general categories of AI concerns, and supporters of free markets need to be prepared to engage on both battlefields.

These categories correspond to the two different forms of AI: strong and weak. Strong AI generally refers to general machine-based cognitive capabilities, the strongest of which is sometimes also called artificial general intelligence (AGI). An AGI would have cognitive traits as broad and as plastic as human cognition, and would be able to engage on many different types of problems — perhaps even surpassing human ability.

The vast majority of AI experts agree that such AGI and especially so-called superintelligence claims are wildly overplayed and that there is no possibility of machines gaining human-equivalent abilities any time soon — or perhaps ever. “In any ranking of near-term worries about AI, superintelligence should be far down the list,” says AI expert Melanie Mitchell, author of Artificial Intelligence: A Guide for Thinking Humans.

Nonetheless, superintelligence claims attract considerable public attention because it conjures up gloom-and-doom scenarios. In popular culture, AGI figures prominently in the plots of many dystopian depictions of artificial intelligence, including many science-fiction books, movies, and television shows. Thus, while over-hyped and unrealistic, techno-panicky fears about superintelligent robots or AI systems will need to be addressed to ensure policy discussions are not dominated by sensationalism and irrational speculation about machines attaining human-level capabilities. This broad concern about AI is particularly acute in discussions about what governments should do to address existential risks or global catastrophic risks around “killer robots” or other military or law enforcement uses of AI. These issues will demand more serious consideration, but few free-market analysts are paying attention to them today.

Most of the AI policy action today involves various classes of narrow or “weak” AI applications, Weak AI executes a specific task extraordinarily well. Examples include mundane, behind-the-scenes functions such as playing games, image or language translation, or recommender systems on various websites. But narrow AI is also used in the other sectors already identified, such as medicine, fintech, energy, etc.

In one area of weak AI, transportation, free-market analysts and organizations are relatively well represented. A growing number of analysts and organizations are participating in the debate over autonomous driving and flying systems. These are critical policy areas that will continue to require attention. Unfortunately, the involvement of free-market analysts and organizations here is an outlier. Such views are not well-represented in many of the other sectors that computational science and machine learning are set to revolutionize.

This is why far more specialized knowledge — of both the technologies and the nuanced issues and policies surrounding them — will be essential. Tech analysts will need to work their way up entirely new learning curves and master a much wider array of topics and skills if they hope to defend AI innovation in targeted fields and sectors.

As research organizations get more involved in AI policy, they will need to consider whether they have the capacity to take on AI issues both generally and specifically. For many organizations, their core competency will likely lie in the targeted policy topics that they’ve long covered and for which they have skilled analysts who can expand their portfolio to include AI-related matters as AI enters those fields.

This is entirely logical, but a good grasp of the big picture — and some policy focus on it — is essential. Again, AI is amorphous and increasingly ubiquitous; technologies and related policy issues will collide and entangle as combinatorial innovation accelerates. Previously distinct technologies or issues will no longer be easily compartmentalized the way they were in the past.

For example, the safety, security, and privacy considerations surrounding data-driven and connected “smart” devices or applications in one sector (say, health care) could intersect with similar concerns in other fields (like financial technology) when their underlying technologies interact. Likewise, the regulation of algorithmic processes for one purpose (ex: online content moderation on social media sites), could end up creating a variety of unanticipated policy issues (ex: cybersecurity vulnerabilities or privacy considerations).

In sum, attempts to regulate computational capabilities in one way could have profound implications for many other technologies, sectors, and fields of science. Thus, when critics blithely suggests “we should take steps to control AI,” slow its development, or even shut it down, they are (perhaps unknowingly) recommending that we should take steps to control or influence a wide swath of economic activity and innovation.

Confronting the Formidable Resistance to Change

Finally, free-market analysts and organizations must prepare to defend the general concept of progress through technological change as AI becomes a central social, economic, and legal battleground — both domestically and globally. Every technological revolution involves major social and economic disruptions and gives rise to intense efforts to defend the status quo and block progress. As Perez concludes, “the profound and wide-ranging changes made possible by each technological revolution and its techno-economic paradigm are not easily assimilated; they give rise to intense resistance.”

So too for AI. Resistance to AI-driven technological change will grow far more intense. The challenge for innovation defenders will be to craft constructive responses to the many arguments and policies set forth by those who oppose further progress in our computation capabilities.

One thing should be clear: China and many other nations understand the stakes in the global AI race, and they are looking to greatly enhance their computational capabilities to ensure they possess the talent, firms, capital resources, and policies to challenge the U.S.’s early leadership in AI. America’s early lead in this race is an outgrowth of our success with the Internet, e-commerce, and digital technologies. That stunning success story was enabled by wise policy choices that promoted a dynamic culture of creativity and innovation and rejected calls to settle for past technological, economic, or legal status quos.

Will America rise to the challenge once again by adopting wise policies to facilitate the next great technological revolution? Will our nation’s governance vision be rooted in the power of permissionless innovation, giving entrepreneurs the green light to find new and better ways of improving the human condition with life-enriching and life-saving technologies? Or will our governance vision shackle innovators with precautionary principle-based regulatory mandates, that put up the red light or endless prior restraints on creative activity?

It’s time for liberty-loving analysts to step up and prepare to do their part to ensure the benefits of this revolution come to fruition. I personally plan to spend every waking moment of my life in coming years making the continuing case for the importance of innovation and progress in this crucial technological sector. Will you join me?

[I thank Neil Chilson for feedback on this essay.]

__________

Additional Reading

Adam Thierer, “‘Running Code and Rough Consensus’ for AI: Polycentric Governance in the Algorithmic Age,” Medium, September 1, 2022.
Adam Thierer, “AI Governance ‘on the Ground’ vs ‘on the Books,’” Medium, August 19, 2022.
Adam Thierer, “Why the Future of AI Will Not Be Invented in Europe,” Technology Liberation Front, August 1, 2022.
Adam Thierer, “Existential Risks & Global Governance Issues around AI & Robotics,” [DRAFT CHAPTER, July 2022].
Adam Thierer, “How Science Fiction Dystopianism Shapes the Debate over AI & Robotics,” Discourse, July 26, 2022.
Adam Thierer, “Why is the US Following the EU’s Lead on Artificial Intelligence Regulation?” The Hill, July 21, 2022.
Adam Thierer, “Algorithmic Auditing and AI Impact Assessments: The Need for Balance,” Medium, July 13, 2022.
Adam Thierer, “The Proper Governance Default for AI,” Medium, May 26, 2022.
Adam Thierer, “What I Learned about the Power of AI at the Cleveland Clinic,” Medium, May 6, 2022.
Adam Thierer, Governing Emerging Technology in an Age of Policy Fragmentation and Disequilibrium, American Enterprise Institute (April 2022).
Adam Thierer and John Croxton, “Elon Musk and the Coming Federal Showdown Over Driverless Vehicles,” Discourse, November 22, 2021.
Adam Thierer, “A Global Clash of Visions: The Future of AI Policy,” The Hill, May 4, 2021.
Adam Thierer, “A Brief History of Soft Law in ICT Sectors: Four Case Studies,” Jurimetrics, Vol. 61 (Fall 2021): 79–119.
Adam Thierer, “U.S. Artificial Intelligence Governance in the Obama–Trump Years,” IEEE Transactions on Technology and Society, Vol, 2, Issue 4 (2021).
Adam Thierer, “The Worst Regulation Ever Proposed,” The Bridge, September 2019.
Ryan Hagemann, Jennifer Huddleston Skees & Adam Thierer, “Soft Law for Hard Problems: The Governance of Emerging Technologies in an Uncertain Future,” Colorado Technology Law Journal, Vol. 17 (2018).
Adam Thierer & Trace Mitchell, “No New Tech Bureaucracy,” Real Clear Policy, September 10, 2020.
Adam Thierer, “OMB’s AI Guidance Embodies Wise Tech Governance,” Mercatus Center Public Comment, March 13, 2020.
Adam Thierer, “Europe’s New AI Industrial Policy,” Medium, February 20, 2020.
Adam Thierer, “Trump’s AI Framework & the Future of Emerging Tech Governance,” Medium, January 8, 2020.
Adam Thierer, “Soft Law: The Reconciliation of Permissionless & Responsible Innovation,” Chapter 7 in Adam Thierer, Evasive Entrepreneurs & the Future of Governance (Washington, DC: Cato Institute, 2020): 183–240.
Andrea O’Sullivan & Adam Thierer, “Counterpoint: Regulators Should Allow the Greatest Space for AI Innovation,” Communications of the ACM, Volume 61, Issue 12, (December 2018): 33–35.
Adam Thierer, Andrea O’Sullivan & Raymond Russell, “Artificial Intelligence and Public Policy,” Mercatus Research (2017).
Adam Thierer, “Shouldn’t the Robots Have Eaten All the Jobs at Amazon By Now?” Technology Liberation Front, July 26, 2017.
Adam Thierer, “Are ‘Permissionless Innovation’ and ‘Responsible Innovation’ Compatible?” Technology Liberation Front, July 12, 2017.
Adam Thierer, “The Growing AI Technopanic,” Medium, April 27, 2017.
Adam Thierer, “The Day the Machines Took Over,” Medium, May 11, 2017.
Adam Thierer, “When the Trial Lawyers Come for the Robot Cars,” Slate, June 10, 2016.
Adam Thierer, “Learning by Doing,” the Process of Innovation & the Future of Employment,” Technology Liberation Front, September 25, 2015.
Adam Thierer, “Problems with Precautionary Principle-Minded Tech Regulation & a Federal Robotics Commission,” Medium, September 22, 2014.
Adam Thierer, “On the Line between Technology Ethics vs. Technology Policy,” Technology Liberation Front, August 1, 2013.

“Building Again” Must Be More than Just Rhetoric

Adam Thierer — Fri, 29 Apr 2022 18:22:05 +0000

As I note in my latest regular column for The Hill, it seems like everyone these days is talking about the importance of America “building again.” For example, take a look at this compendium of essays I put together where scholars and pundits have been making the case for “building again” in various ways and contexts. It would seem that the phrase is on everyone’s lips. “These calls include many priorities,” I note, “but what unifies them is the belief that the nation needs to develop new innovations and industries to improve worker opportunities, economic growth and U.S. global competitive standing.”

What I fear, however, is that “building again” has become more of a convenient catch line than anything else. It seems like few people are willing to spell out exactly what it will take to get that started. My new column suggests that the most important place to start is “to cut back the thicket of red tape and stifling bureaucratic procedures that limit the productiveness of the American workforce.” I cite recent reports and data documenting the enormous burden that regulatory accumulation imposes on American innovators and workers. I then discuss how to get reforms started at all levels of government to get the problem under control and help us start building again in earnest. Jump over to The Hill to read the entire essay.

Slide Presentation on “The Future of Innovation Policy”

Adam Thierer — Mon, 18 Apr 2022 19:24:10 +0000

Here’s a slide presentation on “The Future of Innovation Policy” that I presented to some student groups recently. It builds on themes discussed in my recent books, Permissionless Innovation: The Continuing Case for Comprehensive Technological Freedom, and Evasive Entrepreneurs and the Future of Governance: How Innovation Improves Economies and Governments. I specifically discuss the tension between permissionless innovation and the precautionary principle as competing policy defaults.

Opportunities for Students at the Mercatus Center

Adam Thierer — Mon, 14 Feb 2022 15:07:00 +0000

Are you a student or young scholar looking for opportunities to advance your studies and future career opportunities? The Mercatus Center at George Mason University can help. I’ve been with Mercatus for 12 years now and the most rewarding part of my job has always been the chance to interact with students and up-and-coming scholars who are hungry to learn more and make their mark on the world. Of course, learning and researching takes time and money. Mercatus works with students and scholars in many different fields to help them advance their careers by offering them some financial assistance to make their dreams easier to achieve.

The Mercatus Center’s Academic & Student Programs team (ASP) are the ones that make all this happen. ASP is currently accepting applications for various fellowships running through the 2022-2023 academic year (for students) and 2023 calendar year (for our early-career scholars). ASP recruits, trains, and supports graduate students who have gone on to pursue careers in academia, government, and public policy. Additionally, ASP supports scholars pursuing research on the cutting edge of academia. Mercatus fellows have an opportunity to learn from and interact with an impressive collection of Mercatus faculty, affiliated scholars, and visitors.

ASP offers several different fellowship programs to suit every need. Our fellows explore and discuss the foundations of political economy and public policy and pursue research on pressing issues. For graduate students who follow this blog and are generally interested in the big questions surrounding innovation, we especially encourage you to consider the Frédéric Bastiat Fellowship which will be premiering its innovation study track for the 2022-2023 academic year. I usually am an instructor at the session on tech and innovation policy.

Here are more details on all the academic fellowships that Mercatus currently offers. Please pass along this information to any students or early-career scholars who might be interested.

For Students at Any University and in Any Discipline:

The Adam Smith Fellowship is a one-year, competitive fellowship program for graduate students enrolled in PhD programs at any university and in any discipline including, but not limited to, economics, philosophy, political science, and sociology. Adam Smith Fellows receive a stipend and attend colloquia on the Austrian, Virginia, and Bloomington schools of political economy. It is a total award of up to $10,000 for the year. The application deadline is March 15, 2022.
The Frédéric Bastiat Fellowship is a one-year, competitive fellowship program for graduate students who are enrolled in master’s, juris doctoral, and doctoral programs from any university and in any discipline including, but not limited to, economics, law, political science, and public policy. Frédéric Bastiat Fellows receive a stipend and attend colloquia on political economy and public policy. It is a total award of up to $5,000 for the year. The application deadline is March 15, 2022.
The Oskar Morgenstern Fellowship is a one-year, competitive fellowship program for students who are enrolled in PhD programs from any university and in any discipline with training in quantitative methods. Oskar Morgenstern Fellows receive a stipend and attend colloquia on utilizing quantitative and empirical techniques to explore key questions and themes advanced by the Austrian, Virginia, and Bloomington schools of political economy. It is a total award of up to $7,000 for the year. The application deadline is March 15, 2022.

For Those Considering or in the Early Stages of Graduate School:

The Don Lavoie Fellowship is a competitive, renewable, and online fellowship program for advanced undergraduates, recent graduates considering graduate school, and early-stage graduate students. Fellowships are open to students from any discipline who are interested in studying key ideas in political economy and learning how to utilize these ideas in academic and policy research. It is a total award of up to $1,250 for the semester. The deadline to apply for the Don Lavoie Fellowship for the Fall 2021 semester is April 15, 2022.

For Early Career Scholars:

The Mercatus Center’s James Buchanan Fellowship is awarded to scholars in any discipline who have recently graduated from their doctoral programs. The aim of this fellowship is to encourage early-career scholars to critically engage ideas in the political economy of Adam Smith and the Austrian, Virginia, and Bloomington schools of political economy. It is a total award of up to $15,000 for the year. The application deadline is April 15, 2022.

Thoughts on the America COMPETES Act: The Most Corporatist & Wasteful Industrial Policy Ever

Adam Thierer — Wed, 26 Jan 2022 19:37:24 +0000

On Tuesday, Nancy Pelosi, Speaker of the U.S. House of Representatives, posted the text of the “America Creating Opportunities for Manufacturing, Pre-Eminence in Technology and Economic Strength Act of 2022,” or “The America COMPETES Act.” As far as industrial policy measures go, the COMPETES Act is one of the most ambitious and expensive central planning efforts in American history. It represents the triumph of top-down, corporatist, techno-mercantilist thinking over a more sensible innovation policy rooted in bottom-up competition, entrepreneurialism, private investment, and free trade.

Unprecedented Planning & Spending

First, the ugly facts: The full text of the COMPETES Act weighs in at a staggering 2,912 pages. A section-by-section “summary” of the measure takes up 109 pages alone. Even the shorter “fact sheet” for the bill is 20 pages long. It is impossible to believe that anyone in Congress has read every provision of this bill. It will be another case of having “to pass the bill so you can find out what’s in it,” as Speaker Pelosi once famously said about another mega-measure.

Of course, a mega bill presents major opportunities for lawmakers to sneak in endless gobs of pork and unrelated policy measures they can’t find any other way to get through Congress. The Senate already passed a similar 2,600-page companion measure last summer, “The U.S. Innovation and Competition Act.” Lawmakers loaded up that measure with so much pork and favors for special interests that Sen. John N. Kennedy (R-La.) labelled the effort an “orgy of spending porn.” Like that effort, the new COMPETES Act includes $52 billion to boost domestic semiconductor production as well as $45 billion in grants and loans to address supply chain issues.

But there are billions allocated for other initiatives, as well as countless provisions addressing other technologies and sectors. The list is seemingly endless and includes: 5G mobile networks, biometrics, quantum information science, “the development of safe and trustworthy artificial intelligence and data science,” cybersecurity literacy, drone security, microelectronics, electronic waste, genomics, isotope development, and the Large Hadron Collider and high intensity lasers, among many other things. The measure also proposes a broad array of Green New Deal-esque efforts focused on things like: biometrology, climate and Earth modeling, deforestation and overfishing / “driftnet” fishing matters, marine mammal research, solar energy, bioenergy, the creation of a National Engineering Biology Research and Development Initiative and a Regional Clean Energy Innovation Program at the Department of Energy, clean water programs, a national clean energy incubator program, and helium conservation, again among many other things. There are even provisions addressing the trading of shark fins and almost 70 pages of provisions on coral reef conservation.

A Sweeping Macroeconomic Planning Exercise

There are more sweeping macroeconomic provisions and mandates in the bill. For example, the COMPETES Act would create a new “national supply chain database,” as well as a Supply Chain Resiliency and Crisis Response Office in the Department of Commerce, while also requiring the Director of White House Office of Science & Technology Policy to develop and submit to Congress a 4-year comprehensive national S&T strategy. The measure also includes trade adjustment assistance for workers, firms, and farmers and even provisions dealing with currency undervaluation. There are also many provisions addressing drug manufacturing and medical supply chain issues. There are even proposed expansions of federal antitrust power. (Apparently, once America’s grandiose industrial policies magically create global powerhouses in every sector, we’ll need expanding antitrust action to tear them all down and start all over again! Meanwhile, perhaps the greatest irony of the new industrial policy efforts is that, while lawmakers are falling all over themselves to shower corporate America with hundreds of billions of taxpayer dollars, policymakers are simultaneously on a regulatory and antitrust jihad against many successful tech companies with bills that would break them up or destroy their business models.)

Perhaps most radically, the measure includes a 25-page section proposing a sweeping new “National Critical Capabilities Review” process to oversee outbound investments. Covington lawyers noted that, if such a regulatory regime is enacted, “the United States would become the first major Western advanced economy to adopt a broad-gauged outbound investment screening process, raising the prospect of a new era in national security-based reviews and restrictions of international investment flows.”

Finally, the COMPETES Act includes a huge assortment of other national security and foreign policy-related provisions, most of which focus on countering China in some fashion. “There’s a lot of Cold War-style influence mongering happening here,” says Reason’s Elizabeth Nolan Brown, including programs that sound like they could have been concocted by the CIA, such as the bill’s “Countering China’s Educational and Cultural Diplomacy in Latin America” initiative. But there is also a lot of language here addressing other regions or countries, including: Oceania, Africa, the Arctic, the Middle East, Iran, Hong Kong, Taiwan, and others.

The relationship of most of these provisions to U.S. industrial competitiveness is tenuous to say the least. Nonetheless, those provisions take up a huge amount of space in this nearly 3,000-page industrial policy measure and may end up complicating its passage.

A Chicken in Every Pot

The inclusion of “Regional Technology and Innovation Hubs” in the bill deserves special attention. The Act proposes $7 billion over four years to fund 10 different innovation hubs and it includes many provisions about how and where money will be spent. It’s hard to see how spreading $7 billion across 10 hubs is actually going to result in much once every special interest gets their cut of the action, but proposals like these are all the rage these days. It’s the equivalent of policymakers promising a high-tech chicken in every pot, or a Silicon Valley in every state.

In a two-part series for Discourse, I documented the problems associated with the many previous government efforts to create innovation hubs, tech clusters, or science parks. The government’s track record in this regard is long and lamentable. Instead of following a time-tested approach getting the broad innovation policy environment right through a “generalized” approach to economic growth and development, most policymakers took unwise shortcuts and tried using “targeted” development schemes that were incredibly risky and ended up squandering a huge amount of taxpayer resources.

But all those failed past efforts probably won’t stop this high-tech pork barrel effort from rolling forward in some fashion. The proposed new regional hub effort comes on top of an announcement last July by the Commerce Department that the agency plans to allocate $1 billion in pandemic recovery funds to create or expand “regional industry clusters” as part of the administration’s new “Build Back Better Regional Challenge.” The agency’s list of possible winning funding ideas includes an “artificial intelligence corridor” and a “climate-friendly electric vehicle cluster.” And there are many other federal and state programs throwing money at the idea of hub or “cluster” formation, or even just highly cronyist efforts to attract a single big tech firm. (Anyone remember the Foxconn fiasco in Wisconsin?)

As Matt Mitchell and I have noted, this growing trend represents the collision of federal industrial policy and long-standing state-based economic development efforts. Regardless of how well-intentioned they may be, it is highly unlikely these new tech pork barrel efforts will produce better results than the long string of earlier federal and state failures.

Secondary Effects & Unforeseeable Costs

A bill this big presents many other big opportunities for corporations and other special interests. It’s no wonder that many companies, trade associations, and other special interests are lining up to support this effort. In a recent study co-authored with Connor Haaland (“Does the US Need a More Targeted Industrial Policy for AI & High-Tech”), we outlined “the way rent-seeking and cronyism often become chronic problems for highly targeted, big-budget industrial policy efforts.” Those problems will grow exponentially if the COMPETES Act passes. Everyone expects a cut of the action when Washington starts showering sectors with money.

But there’s a bigger problem associated with the everything-and-the-kitchen-sink approach to such a massive industrial policy bill. All the ambiguities associated with a monster measure like this means that agency bureaucrats will be left to fill in all the details for many years to come. It is folly of the highest order to believe that all these agencies will work together in a tightly coordinated and consistent way to advance industrial policy efforts or address “strategic objectives.” Anyone currently following the fight between the FAA and FCC over the rollout of 5G wireless networks will know what I am talking about. Moreover, delegating broad authority and big money to all these agencies just further reinforces the rent-seeking instincts of special interests, who will rush to their respective regulatory masters with hat in hand. This presents agencies with an added policy lever to blackmail companies into doing what they want without any new regulations even being issued.

And then there is the final consideration: where will all the money come from for this grand exercise in technocratic central planning? The Senate bill costs an estimated $250 billion. To be clear, that’s A QUARTER TRILLION DOLLARS. We’re talking big money, and chances are that the final price tag for the House’s COMPETES Act will be even higher. Does the money to fund all this profligate spending just fall like manna from industrial policy heaven? No, it will come out the pockets of the American taxpayer and American companies (who will just pass the bill along to consumers). This will have dynamic effects on growth and innovation that are almost never discussed in industrial policy debates. Here’s how Connor Haaland and I put it in our big study:

“First, a dollar spent pursuing one objective is a dollar that could have been invested differently, and potential better. Second, the very act of imposing taxes to cover these state gambits results in costs and distortions that must be accounted for. Some of these costs are deadweight losses associated with taxes and tax collection more generally. But this points to a third lesson: The true potential costs associated with industrial policy programs also need to account for the negative secondary effects of rent-seeking, bureaucracy, and the many other downsides of the political system, included cost overruns and corruption.”

As the old saying goes: There is no free lunch.

Conclusion: There Is a Better Way

Some advocates of the COMPETES Act label it a “competitiveness bill” or an “innovation initiative.” It takes a great deal of hubris to pretend that that the economy is just a giant machine to be manipulated and that policymakers can easily “dial in” the desired innovation results through massive bills and expanded bureaucracy.

Lawmakers and bureaucrats are not going to allocate capital more efficiently than private innovators and investors. Nor are they going to be able to “shore up supply chains” or create tech hubs in every city just by sprinkling a little magical industrial policy pixie dust thinly across the entire nation.

We should not try to compete with China by becoming China. Nor do we need to. Markets and supply chains recover from setbacks faster than governments can. This week, the White House reiterated its support for industrial policy efforts to strengthen supply chains and extend subsidies to the semiconductors industry. But, assuming the COMPETES Act passes, it’ll take years to get all the planning and spending going. When government spins those proverbial dials, it does so very slowly and extremely inefficiently. Meanwhile, the same day the White House was making these announcements, it was also touting that $80 billion in private investment has been announced by the US semiconductor industry recently. Just last week, Intel announced it plans to invest at least $20 billion in two new chip-making facilities in Ohio. Scott Lincicome and Ilana Blumsack have documented the many other private initiatives underway by the semiconductor industry to expand domestic manufacturing capacity, as well as efforts by foreign firms like Samsung to invest here to take advantage of our skilled workforce and vibrant capital market. This is all happening despite the fact that Congress is still debating an industrial policy measure that may end up being too bloated to even achieve successful passage this session.

Does government have any role to play? It certainly does. Most current industrial policy proposals fail to understand that the most important thing that policymakers can do is to clean up decades of earlier failed industrial policy efforts. Industrial policies in fields like energy, aviation, space, communications and other sectors skewed markets in unnatural and inefficient ways by favoring specific technologies and companies over others. This is because industrial policy all too often devolves into the business of picking winners and losers. This is not always done in a formal way or even with clear intent. Rather, when government is throwing around billions and engaging in casino economics by placing big bets, a lucky few will win at the expense of others.

Of course, not all government support is as wasteful or corporatist in character. “Basic” R&D efforts are certainly more defensible than most “applied” or “targeted” efforts. “When government is supporting basic R&D,” Connor Haaland and I have noted, “the chances of wasting scarce resources on risky investments can be minimized to some degree, at least as compared with highly targeted applied R&D investments in unproven technologies and firms.”

And then there are all of the education and training efforts governments can undertake. If lawmakers were smart, they would have just limited their efforts to the sort of things found in Titles III, V, and VI of the COMPETES Act, which relates to boosting STEM education, high-tech workforce training, improving National Science Foundation research efforts, and funding various other federal science agencies and labs, that conduct more basic research. And more flexible immigration policies are also essential.

Meanwhile, government defense spending isn’t going to dry up anytime soon and it continues to represent an indirect form of industrial policy given the trillions of dollars that are spread around through the so-called “military-industrial complex.” That certainly doesn’t mean America should be greatly expanding its already bloated defense budgets in the name of expanding industrial policy. Yet, for better or worse, government is always going to be spending a lot of money on defense priorities and it gives it a chance to address whatever “strategic” needs it has.

But the current industrial policy behemoth advancing in Congress represents a misguided effort at domestic retrenchment and a collapse into a lamentable sort of techno-mercantilism thinking that happens every quarter century or so. In my paper with Haaland as well as a separate essay, I have documented just how misguided the “Japan panic” of the 1980s and 90s was. One policymaker and pundit after another lined up to breathlessly proclaim the end of America if we failed to adopt a grandiose industrial policy to counter Japan. Of course, that industrial policy approach ended up being such a disaster that even the Japanese government itself declared in a 2000 report that “the Japanese model was not the source of Japanese competitiveness but the cause of our failure.”

Moreover, it is worth noting what happened with the Internet and digital technology in the U.S. versus the rest of the world in the 1990s and beyond. America essentially put a policy firewall between the emerging digital technology sector and the old industrial policy regime we had for analog sectors and technologies, like broadcasting and wireline telephony. And thank God we did! America’s digital technology sector thrived, and U.S.-headquartered tech companies became household names across the globe. Meanwhile, the Europeans have spent 20 years crafting one misguided industrial policy scheme after another to equal America’s accomplishments. Despite highly targeted and expensive efforts to foster a domestic digital tech base, the EU has instead generated a string of industrial policy failures that Haaland and I documented in detail here.

Corporatism, cronyism, and profligate pork-barrel spending were not the sources of America’s competitive advantage in digital technology, and top-down planning did not make our digital technology companies global powerhouses. Instead, we got our innovation culture right for digital technology. First and foremost, our the default regulatory policy for the digital economy was permissionless innovation. No one had to ask anyone for the right to develop all those new digital technologies and online platforms. The Clinton Administration’s 1997 “Framework for Global Electronic Commerce” announced that “governments should encourage industry self-regulation and private sector leadership where possible” and “avoid undue restrictions on electronic commerce.” Second, investors saw that positive policy ecosystem developing and moved quickly to shower entrepreneurs in this sector with unprecedented private venture capital investment. Third, education and career opportunities in these sectors expanded accordingly. Real-time “learning by doing” took place as millions of people learned new digital skillsets on the fly. Kids learned how to code before anyone could even teach them how to type. Most importantly, talented immigrants and foreign investors then came here to take advantage of all this, allowing America to steal away the best and brightest from the rest of the world.

This constitutes one of the greatest capitalist success stories in human history, and it all happened without targeted, technocratic, top-down industrial policy planning. This is the more principled and less costly vision for innovation policy America needs today to counter China and the rest of the world. There is absolutely no reason that we can’t apply this same vision to aviation, space, semiconductors, energy, nanotech, AI, and many other sectors of importance.

Additional Reading from Adam Thierer on Industrial Policy:

Adam Thierer & Connor Haaland, “Does the US Need a More Targeted Industrial Policy for AI & High-Tech?” Mercatus Center Research Paper, November 17, 2021.
Adam Thierer, “The Coming Industrial Policy Hangover,” The Hill, February 16, 2022.
Podcast: “What’s Wrong with Industrial Policy,” Hold These Truths with Rep. Dan Crenshaw, February 16, 2022.
Adam Thierer, “Government Planning and Spending Won’t Replicate Silicon Valley,” Discourse, August 18, 2021.
Adam Thierer, “To Promote Tech Hubs Across the Country, Governments Should Focus on Improving the General Business Environment,” Discourse, September 9, 2021.
Adam Thierer, “Industrial Policy as ‘Casino Economics‘,” The Hill, July 12, 2021.
Adam Thierer, “‘Japan Inc.’ and Other Tales of Industrial Policy Apocalypse,” Discourse, June 28, 2021.
Adam Thierer & Connor Haaland, “Should the U.S. Copy China’s Industrial Policy?” Discourse, March 11, 2021.
Connor Haaland & Adam Thierer, “Can European-Style Industrial Policies Create Tech Supremacy?” Discourse, February 11, 2021.
Matthew D. Mitchell and Adam Thierer, “Industrial Policy is a Very Old, New Idea,” Discourse, April 6, 2021.
Adam Thierer, “Industrial Policy Advocates Should Learn from Don Lavoie,” Discourse, November 5, 2021.
Adam Thierer, “On Defining ‘Industrial Policy,'” Technology Liberation Front, September 3, 2020.
Adam Thierer, “Skeptical Takes on Expansive Industrial Policy Efforts,” Technology Liberation Front, March 15, 2021.

Other critical essays on industrial policy:

Mike Watson, “Industrial Policy in the Real World,” National Affairs, Summer 2021.
Scott Lincicome and Huan Zhu, “Questioning Industrial Policy: Why Government Manufacturing Plans Are Ineffective and Unnecessary,” Cato Institute Working Paper, June 16, 2021.
Samuel Gregg, “Industrial Policy Mythology Confronts Economic Reality,” Law & Liberty, September 3, 2021.
Chang-Tai Hsieh, “Countering Chinese Industrial Policy Is Counterproductive,” Project Syndicate, September 15, 2021.
Anne O. Krueger, “America’s Muddled Industrial Policy,” CGTN, June 25, 2021.
Tracy C. Miller, “The Case for Limiting Government Semiconductor Subsidies,” The Hill, June 26, 2021.
Scott Lincicome, “The ‘Endless Frontier’ and American Industrial Policy,” Cato Institute Blog, May 26, 2021.
Daniel W. Drezner, “Is the United States capable of industrial policy in 2021?” Washington Post, June 14, 2021.
Douglas Holtz-Eakin, “The Nicest Thing I Can Write About Supply Chain Policy,” The Daily Dish, June 10, 2021.
Lipton Matthews, “Industrial Policy—a.k.a. Central Planning—Won’t Make America Great,” Mises Wire, November 5, 2021.
Richard Beason, “Japanese Industrial Policy: An Economic Assessment,” National Foundation for American Policy, November 2021.
Douglas Irwin, “Memo to the Biden administration on how to rethink industrial policy,” Peterson Institute for International Economics, October 2020.
Jim Pethokoukis, “Will Biden’s embrace of industrial policy pay off?” AEI Blog, January 15, 2021.
Phil Levy & Christine McDaniel, “Does the U.S. Need a Vigorous Industrial Policy?” Discourse, February 16, 2021.
Veronique de Rugy, “Support for Industrial Policy is Growing,” AIER, January 18, 2020.
Ben Reinhardt on concerns about The Endless Frontier Act
Ryan Bourne, “Do Oren Cass’s Justifications for Industrial Policy Stack Up?” Cato Commentary, August 15, 2019.
Scott Lincicome, “Manufactured Crisis: ‘Deindustrialization, Free Markets, and National Security,” Cato Policy Analysis No. 907, January 27, 2021.
Judge Glock, “Semiconductors Don’t Need Subsidies,” City Journal, April 20, 2021.
Judge Glock, “Industrial Policy Hurts Industry,” Washington Examiner, April 20, 2021.

The Case for Innovation, Progress & Abundance: Some Readings

Adam Thierer — Tue, 25 Jan 2022 20:27:31 +0000

This is a compendium of readings on “ progress studies ,” or essays and books which generally make the case for technological innovation, dynamism, economic growth, and abundance. I will update this list as additional material of relevance is brought to my attention.

[Last update: 10/11/22]

Recent Essays

Marc Andreessen, “The Techno-Optimist Manifesto,” a16z.com, October 16, 2023.
Will Rinehart, “The Abundance Agenda,” The Exformation Newsletter, October 15, 2022.
Sarah Constantin, “Unblocking Abundance: A Model for Activism,” Rough Diamonds, October 10, 2022.
Derek Thompson, “The Forgotten Stage of Human Progress,” The Atlantic, May 11, 2022.
Adam Thierer, “Where is ‘Progress Studies’ Going?” Progress Forum, April 23, 2022.
Katherine Boyle, “The Case for American Seriousness,” Common Sense, April 18, 2022.
William Rinehart, “Vetocracy, the Costs of Vetos and Inaction,” Center for Growth & Opportunity at Utah State University, March 24, 2022.
James Pethokoukis, “Forget about Left Wing and Right Wing. How about an Up Wing America?” Faster Please, March 23, 2022.
John W. Lettieri & Kenan Fikri, “The Case for Economic Dynamism and Why it Matters for the American Worker,” Economic Innovation Group, March 2022.
Adam Kovacevich, “Saying YIMBY (Yes In My Back Yard) to “Civic Innovation,” Chamber of Progress, March 21, 2022.
Eli Dourado, “Remove Barriers to Productivity,” City Journal, March 18, 2022.
“A Case for Innovation and Optimism,” (A conversation with Jason Crawford), Discourse, March 2, 2022.
Noah Smith, “A New Industrialist Roundup,” Noahpinion, February 3, 2022.
James Pethokoukis, “When Will the Next Big Thing Arrive?” Faster Please, February 3, 2022.
Alec Stapp & Caleb Watney, “ Progress is a Policy Choice ,” Institute for Progress, January 20, 2022.
Adam Thierer, “ How to Get the Future We Were Promised ,” Discourse, January 18, 2022.
Katherine Boyle, “ Building American Dynamism ,” Future, January 14, 2022.
Derek Thompson, “ A Simple Plan to Solve All of America’s Problems ,” The Atlantic, January 12, 2022.
Jason Crawford, “Progress, Humanism, Agency: An Intellectual Core for the Progress Movement,” Roots of Progress, January 11, 2022.
Adam Thierer, “Defending Innovation Against Attacks from All Sides,” Discourse, November 9, 2021.
Matthew Yglesias, “The Case for More Energy,” October 7, 2021.
Jason Crawford, “ We need a new philosophy of progress ,” The Roots of Progress, August 23, 2021.
Gale Pooley & Marian L. Tupy, “The Simon Abundance Index 2021,” Human Progress, April 22, 2021.
Noah Smith, “ Techno-optimism for the 2020s ,” December 3, 2020.
Ezra Klein, “ Why We Can’t Build ,” Vox, April 22, 2020.
Marc Andreesen, “ It’s Time to Build ,” Future, April 18, 2020.
Eli Dourado, “ How do we move the needle on progress ?” September 26, 2019.
José Luis Ricón, “ About the ‘Progress’ in Progress Studies ” September 6, 2019.
Will Rinehart, “ Progress Studies: Some Initial Thoughts ,” August 30, 2019.
Adam Thierer, “ Is There a Science of Progress ?” AIER, August 8, 2019.
Patrick Collison and Tyler Cowen, “ We Need a New Science of Progress ,” The Atlantic, July 30, 2019.
Tyler Cowen, “ The Case for the Longer Term ,” Cato Unbound, January 9, 2019.
Vinod Khosla, “ We Need Large Innovations ,” Medium, January 1, 2018.
Adam Thierer, “ How Technology Expands the Horizons of Our Humanity ,” Medium, November 19, 2018.
Chelsea Follett, “Utopianism: One of the Biggest Obstacles to Progress,” Human Progress, August15, 2018.
Eli Dourado, “ How Technological Innovation Can Massively Reduce the Cost of Living ,” PlainText, January 29, 2016.

Books

J. Storrs Hall, Where Is My Flying Car ? (Stripe Press, 2021).
Matt Ridley, How Innovation Works: And Why It Flourishes in Freedom (New York: Harper, 2020).
Andrew McAfee, More from Less (New York: Simon & Schuster, 2020).
Ronald Bailey & Marian L. Tupy, Ten Global Trends Every Smart Person Should Know: And Many Others You Will Find Interesting (Cato Institute, 2020).
Arthur M. Diamond Jr., Openness to Creative Destruction: Sustaining Innovative Dynamism (Oxford: Oxford University Press, 2019).
Tyler Cowen, Stubborn Attachments: A Vision for a Society of Free, Prosperous, and Responsible Individuals (San Francisco, CA: Stripe Press, 2018).
Steven Pinker, Enlightenment Now: The Case for Reason, Science, Humanism, and Progress (New York: Viking, 2018).
Hans Rosling, Factfulness: Ten Reasons We’re Wrong about the World—and Why Things Are Better Than You Think (New York: Flatiron Books, 2018).
Tim Harford, 50 Things That Made the Modern Economy (New York: Riverhead Books, 2017).
Joel Mokyr, A Culture of Growth: The Origins of the Modern Economy (Princeton, NJ: Princeton University Press, 2017).
Adam Thierer, Permissionless Innovation: The Continuing Case for Comprehensive Technological Freedom , 2nd ed. (Arlington, VA: Mercatus Center at George Mason University, 2016).
Calestous Juma, Innovation and Its Enemies: Why People Resist New Technologies (New York: Oxford University Press, 2016).
Deirdre N. McCloskey, Bourgeois Equality: How Ideas, Not Capital or Institutions, Enriched the World (Chicago: University of Chicago Press, 2016).
Joe Carlen, A Brief History of Entrepreneurship: The Pioneers, Profiteers, and Racketeers Who Shaped Our World (New York: Columbia University Press, 2016).
Robert Bryce, Smaller Faster Lighter Denser Cheaper: How Innovation Keeps Proving the Catastrophists Wrong (New York: Public Affairs, 2014).
Matt Ridley, The Rational Optimist: How Prosperity Evolves (New York: Harper Collins, 2010).
Larry Downes, The Laws of Disruption: Harnessing the New Forces That Govern Life and Business in the Digital Age (New York: Basic Books, 2009).
Amar Bhidé, The Venturesome Economy: How Innovation Sustains Prosperity in a More Connected World (Princeton, NJ: Princeton University Press, 2008).
Robert Friedel, A Culture of Improvement: Technology and the Western Millennium (Cambridge, MA: The MIT Press, 2007).
Benjamin M. Friedman, The Moral Consequences of Economic Growth , (New York: Vintage Books, 2006).
Virginia Postrel, The Future and Its Enemies (New York: The Free Press, 1998).
David Landes, The Wealth and Poverty of Nations: Why Some Are So Rich and Some are So Poor (New York: W.W. Norton & Co, 1998).
Robert Nisbet, History of the Idea of Progress (New Brunswick, NJ: Transaction Publishers, 1994).
Joel Mokyr, Lever of Riches: Technological Creativity and Economic Progress (New York: Oxford University Press, 1990).
Nathan Rosenberg and L. E.. Birdzell, How the West Grew Rich: The Economic Transformation of the Industrial World (New York: Basic Books, 1986).
Samuel C. Florman, The Existential Pleasures of Engineering (New York: St. Martin’s Griffin, 1976, 1994).

New Mercatus Center Report on Industrial Policy

Adam Thierer — Wed, 17 Nov 2021 21:21:29 +0000

The Mercatus Center has just released a new special study that I co-authored with Connor Haaland entitled, “Does the United States Need a More Targeted Industrial Policy for High Tech?” With industrial policy reemerging as a major issue — and with Congress still debating a $250 billion, 2,400-page industrial policy bill — our report does a deep dive into the history various industrial policy efforts both here and abroad over the past half century. Our 64-page survey of the historical record leads us to conclude that, “targeted industrial policy programs cannot magically bring about innovation or economic growth, and government efforts to plan economies from the top down have never had an encouraging track record.”

We zero in on the distinction between general versus targeted economic development efforts and argue that:

whether we are referring to federal, state, or local planning efforts—the more highly targeted development efforts typically involve many tradeoffs that are often not taken into consideration by industrial policy advocates. Downsides include government steering of public resources into unproductive endeavors, as well as more serious problems, such as cronyism and even corruption.

We also stress the need to more tightly define the term “industrial policy” to ensure rational evaluation is even possible. We argue that, “industrial policy has intentionality and directionality, which distinguishes it from science policy, innovation policy, and economic policy more generally.” We like the focus definition used by economist Nathaniel Lane, who defines industrial policy as “intentional political action meant to shift the industrial structure of an economy.”

Our report examines the so-called “Japan model” of industrial policy that was all the rage in intellectual circles a generation ago and then compares it to the Chinese and European industrial policy efforts of today, which many pundits claim that the US needs to mimic. We find problems with those models and argue that:

America’s goal should not be to “imitate China” or “copy its playbook” when it comes to targeted industrial policy and technological governance of AI and other high-tech sectors. Europe’s approach, although not as heavy-handed, is also not a good model. Not only would the Chinese and European approaches potentially undermine the permissionless innovation ethos that made America’s tech companies become global powerhouses, but expanded industrial policy efforts would entail massive state bets on risky ventures using taxpayer resources.

We discuss the public choice dynamics surrounding many industrial development efforts and note that, “what is often described as “industrial policy” is in reality nothing more than industrial politics.” We highlight how many of the largest industrial policy programs have been prone to highly inefficient contracting procedures and massive cost overruns. Sometimes outright corruption even becomes a problem with some of the largest programs. But that’s not the only cost. Sometimes, in their effort to promote specific industrial outputs or outcomes, government undermines the very innovation they hope to spur.

When governments repress the entrepreneurial spirit of their most innovative creators and companies, this is bound to have negative ramifications for long-term competitiveness and economic growth. Heavy-handed industrial policy schemes can contribute to this sort of repression as the state gains more levers of control over private companies.

We note how that has certainly been the case in the European Union, where “countries have adopted a highly precautionary regulatory model for new digital sectors that shuns risk-taking and focuses on maximizing other values at the expense of disruptive change. This approach has resulted in fewer national champions, and it has cost Europe in terms of global competitive advantage,” we note. We also highlight the long string of failed European industrial policy programs.

Ours is not a doctrinaire analysis; we take a pragmatic approach to the evaluation of industrial policy programs and proposals. Some of them may succeed based simply on the reality that “if government officials roll the proverbial industrial policy dice enough times, some bets are bound to pay off, at least indirectly.” But any serious analysis of these efforts, we argue, must fully weigh the trade-offs associated with the potential tax and compliance burdens associated with funding them to begin with.

But we admit that, “industrial policy will always be with us to some extent, given the sheer size of government and the many existing programs already devoted to economic development or high-tech initiatives.” Toward that end, we wrap up the paper with a variety of high-level recommendations about industrial policy. We highlight how:

The priority should be generalized economic development over targeted development efforts. The most important thing that policymakers can do to boost economic opportunities is to create a legal and regulatory environment that is conducive to entrepreneurship, investment, innovation, and free trade. [. . . ] government should focus on setting the table for entrepreneurial activity instead of trying to determine everything on the plate. To put this differently, policymakers need to avoid the “fun stuff” and focus on “boring” issues that often get neglected.

We apply these insights to the ongoing debate over regional economic development and the specific effort currently underway at the federal level to encourage “regional innovation hubs,” as federal and state lawmakers look to create “the next Silicon Valley” elsewhere.

In terms of our nation’s overall investment in R&D, we note that “[t]he United States has the most vibrant venture capital (VC) market in the world, and this market helps support risky ventures without gambling with taxpayer dollars.” While some bemoan the fact that private enterprise provides the bulk of R&D expenditures in the US – and that amount is increasing relative to governmental sources – this is actually something that should be celebrated. The strength of private-funded R&D helps set the US apart and make investment markets nimbler and more responsive to real-world needs. Moreover, global unicorn growth in the US continues at a healthy clip. From 2010 to mid-2021, the US created 53 percent of global unicorns, compared with 20 percent for China. These facts are often overlook in industrial policy debates.

While our paper is comprehensive, admittedly, there are some things we leave out of the analysis or do not spend as much time discussing. For example, there is a never-ending debate about the relationship between national security and industrial policy that raises many hard questions. A nation needs military hardware to defend itself, and almost every program to provide weapons and military equipment in the US involve private contracting to get them. These are the biggest industrial policy programs at all, but we don’t spend a lot of time focus on them in our paper because that would have taken us far afield.

We have a short section on these issues that notes how “defense-related programs have also been prone to highly inefficient contracting procedures and massive cost overruns.” Many of these programs remain vital, however, and must find a way to make them more efficient and cost-effective. But there are still other issues related to national security and industrial policy that raise hard questions, including: export or import controls, trade restrictions, and more. These continue to be challenging issues and I personally hope to revisit some of them in upcoming essays.

With Congress still trying to finalize its mega industrial policy bill, our paper is relevant to the short-term debate over these issues. But our hope is that this paper offers a big-picture, long-term framework for thinking through the challenges associated with industrial policy issues both here and abroad.

Here is the outline of the paper and, again, you can find it at this link. (The report can also be found on SSRN & Research Gate).

Introduction: Definitional Challenges 5
Calls for Expanding Industrial Policy to Boost High-Tech Innovation 8
Some (Quickly Forgotten) Recent History 11
The Romantic View of Industrial Policy vs. Reality 15
The Challenge of Creating “National Champions”: Europe’s Failures 20
Adverse Effects of State-Led Promotion: The China Model Examined 23
Where Does Real Competitive Advantage Come From? 27
Industrial Policy Did Not Give Us the Internet and the iPhone 33
Evaluating Other Industrial Policy Efforts 39
Using Competitions and Prizes to Encourage Innovation More Efficiently 46
Conclusion: Generality Is Better Than Targeting

Additional Reading:

Adam Thierer, “Industrial Policy Advocates Should Learn from Don Lavoie,” Discourse, November 5, 2021.
Adam Thierer, “Government Planning and Spending Won’t Replicate Silicon Valley,” Discourse, August 18, 2021.
Adam Thierer, “To Promote Tech Hubs Across the Country, Governments Should Focus on Improving the General Business Environment,” Discourse, September 9, 2021.
Adam Thierer, “‘Japan Inc.’ and Other Tales of Industrial Policy Apocalypse,” Discourse, June 28, 2021.
Adam Thierer, “Industrial Policy as ‘Casino Economics‘,” The Hill, July 12, 2021.
Adam Thierer & Connor Haaland, “Should the U.S. Copy China’s Industrial Policy?” Discourse, March 11, 2021.
Connor Haaland & Adam Thierer, “Can European-Style Industrial Policies Create Tech Supremacy?” Discourse, February 11, 2021.
Matthew D. Mitchell and Adam Thierer, “Industrial Policy is a Very Old, New Idea,” Discourse, April 6, 2021.
Adam Thierer, “On Defining ‘Industrial Policy,’” Technology Liberation Front, September 3, 2020.
Adam Thierer, “Skeptical Takes on Expansive Industrial Policy Efforts,” Technology Liberation Front, ongoing series.

Lavoie’s Lessons for Industrial Policy Planners

Adam Thierer — Tue, 09 Nov 2021 15:55:23 +0000

Discourse magazine recently published my essay on what “Industrial Policy Advocates Should Learn from Don Lavoie.” With industrial policy enjoying a major revival in the the U.S. — with several major federal proposals are pending or already set to go into effect — I argue that Lavoie’s work is worth revisiting, especially as this weekend was the 20th anniversary of his untimely passing. Jump over to Discourse to read the entire thing.

But one thing I wanted to just briefly highlight here is the useful tool Lavoie created that helped us think about the “planning spectrum,” or the range of different industrial policy planning motivations and proposals. On one axis, he plotted “futurist” versus “preservationist” advocates and proposals, with the futurists wanting to invest in new skills and technologies, while the preservationists seek to prop up existing sectors. On the other axis, he contrasted “left-wing or pro-labor” and “right-wing or pro-business” advocates and proposals.

Lavoie used this tool to help highlight the remarkable intellectual schizophrenia among industrial policy planners, who all claimed to have the One Big Plan to save the economy. The problem was, Lavoie noted, all their plans differed greatly. For example, he did a deep dive into the work of Robert Reich and Felix Rohatyn, who were both outspoken industrial policy advocates during the 80s. Reich as affiliated with the Harvard School of Government at that time, and Rohatyn was a well-known Wall Street financier. The industrial policy proposals set forth by Reich and Rohatyn received enormous media and academic attention at the time, yet no one except Lavoie seriously explored the many ways in which their proposals differed so fundamentally. Rohatyn was slotted on the lower right quadrant because of his desire to prop up old sectors and ensure the health of various private businesses. Reich fell into the upper quadrant of being more of futurist in his desire to have the government promote newer skills, sectors, and technologies.

After identifying the many inconsistencies among these planners and their proposed schemes, Lavoie pointed out that these differences raised some obvious questions: Whose plan are we supposed to follow when proposed plans conflict? And how much stock should we place in the wisdom of industrial policy when the leading advocates cannot even agree on what sectors and technologies are worth preserving or promoting? It was a simply but powerful insight that should led us to calling into question anyone who tries to pretend that they have all the answers when it comes to industrial policy planning. And, as I argue in my new essay, this insight helps us identify the continuing intellectual schizophrenia among industrial policy planners and schemes today. If you jump over to my longer piece, you’ll see my breakdown of all this, but it’s plotted here:

In the end, I conclude that:

The limitations of industrial policy exist regardless of the policymaker’s intentions. There are no “good guys” versus “bad guys” when it comes to industrial policy efforts; there are just many people with many different technocratic plans, all of which are constrained by limited knowledge and resources.

Moreover, Lavoie most important piece of relevant advice is the simple adage that, if you find yourself in a hole, it is wise to stop digging. Constantly doubling down on planning efforts is not going to help governments escape the problems created by their earlier interventions. Unfortunately, this is exactly what many industrial policy advocates do: They insist that America already has an industrial policy, but that it lacks the sort of conscious design or coherent form or direction they desire. But that is the typical sort of hubris and folly we’ve always heard from planners. They always think there’s a proverbial “better path” out there and want us to imagine that they can lead us down it with wiser planning that avoids all the problems of all those past failed planning efforts.

As Lavoie taught us long ago, we’d be wise to reject their various schemes and recommendations. “In light of the inherent deficiencies of central planning, it might be argued that the U.S. should instead try to reduce current government interference with the competitive process to the absolute minimum consistent with other political goals,” he concluded. It remains wise advice for today’s policymakers.

Additional Reading:

Adam Thierer & Connor Haaland, “Does the US Need a More Targeted Industrial Policy for AI & High-Tech?” Presentation for IHS Papers Workshop: Does America Need a New Industrial Policy?, 2021.
Adam Thierer, “Government Planning and Spending Won’t Replicate Silicon Valley,” Discourse, August 18, 2021.
Adam Thierer, “To Promote Tech Hubs Across the Country, Governments Should Focus on Improving the General Business Environment,” Discourse, September 9, 2021.
Adam Thierer, “‘Japan Inc.’ and Other Tales of Industrial Policy Apocalypse,” Discourse, June 28, 2021.
Adam Thierer, “Industrial Policy as ‘Casino Economics‘,” The Hill, July 12, 2021.
Adam Thierer & Connor Haaland, “Should the U.S. Copy China’s Industrial Policy?” Discourse, March 11, 2021.
Connor Haaland & Adam Thierer, “Can European-Style Industrial Policies Create Tech Supremacy?” Discourse, February 11, 2021.
Matthew D. Mitchell and Adam Thierer, “Industrial Policy is a Very Old, New Idea,” Discourse, April 6, 2021.
Adam Thierer, “On Defining ‘Industrial Policy,’” Technology Liberation Front, September 3, 2020.
Adam Thierer, “Skeptical Takes on Expansive Industrial Policy Efforts,” Technology Liberation Front, ongoing series.

Can Government Reproduce Silicon Valley Everywhere?

Adam Thierer — Sun, 12 Sep 2021 17:36:07 +0000

Wishful thinking is a dangerous drug. Some pundits and policymakers believe that, if your intentions are pure and you have the “right” people in power, all government needs to do is sprinkle a little pixie dust (in the form of billions of taxpayer dollars) and magical things will happen.

Of course, reality has a funny way of throwing a wrench into the best-laid plans. Which brings me to the question I raise in a new 2-part series for Discourse magazine: Can governments replicate Silicon Valley everywhere?

In the first installment, I explore the track record of federal and state attempts to build tech clusters, science parks & “regional innovation hubs” using state subsidies and industrial policy. This is highly relevant today because of the huge new industrial policy push at the federal level is building on top of growing state and local efforts to create tech hubs, science parks, or various other types of industrial “clusters.

At the federal level, this summer, the Senate passed a 2,300-page industrial policy bill, the “United States Innovation and Competition Act of 2021,” that included almost $10 billion over four years for a Department of Commerce-led effort to fund 20 new regional technology hubs, “in a manner that ensures geographic diversity and representation from communities of differing populations.” A similar proposal that is moving in the House, the “Regional Innovation Act of 2021,” proposes almost $7 billion over five years for 10 regional tech hubs. Meanwhile, the Biden administration also is pitching ideas for new high-tech hubs. In late July, the Commerce Department’s Economic Development Administration announced plans to allocate $1 billion in pandemic recovery funds to create or expand “regional industry clusters” as part of the administration’s new Build Back Better Regional Challenge. Among the possible ideas the agency said might win funding are an “artificial intelligence corridor,” an “agriculture-technology cluster” in rural coal counties, a “blue economy cluster” in coastal regions, and a “climate-friendly electric vehicle cluster.”

In my essay, I note that the economic literature on these efforts has been fairly negative, to put it mildly. There is no precise recipe for growing tech clusters, as most economists and business analysts note.

“Despite several attempts, Silicon Valley has not been successfully copied elsewhere,” notes Mark Zachary Taylor, author of “The Politics of Innovation: Why Some Countries Are Better Than Others at Science and Technology.” Judge Glock, a senior policy adviser with the Cicero Institute, offers a more blistering assessment of such efforts: “Almost every American state has tried to fund the creation of biotech clusters, projects that almost inevitably end with weeds growing through the parking-lot pavement and a trail of corrupt bargains.”

I then highlight the key findings from several major studies of these efforts, all of which make it clear that, as cluster scholars by Aaron Chatterji, Edward Glaeser and William Kerr noted in 2014 after gathering all the research conducted on the topic: existing evidence “suggests that the regional foundation for growth-enabling innovation is complex and that we should be cautious of single policy solutions that claim to fit all needs.” Furthermore, “even if clusters of entrepreneurship are good for local growth, it is less clear that cities or states have the ability to generate those clusters.”

I also highlight research from my Mercatus Center colleagues on “The Economics of a Targeted Economic Development Subsidy” documenting costs of state-level planning & case study of Foxconn fiasco. They summarize the fairly miserable track record of state and local mini-industrial policy efforts. As they note, the extensive economic literature on this matter finds that “the net effect of targeted economic development subsidies is likely to be negative” because “the taxes funding the subsidies will discourage more economic activity than will be encouraged by the subsidies themselves.” Similarly, Harvard Business School economist Josh Lerner evaluated dozens of similar targeted development efforts from around the globe in his 2009 book Boulevard of Broken Dreams: Why Public Efforts to Boost Entrepreneurship and Venture Capital Have Failed—and What to Do About It. He concluded that “for each effective government intervention, there have been dozens, even hundreds, of failures, where substantial public expenditures bore no fruit.”

In my essay, I also discuss the astonishing array of federal efforts to promote the geographic spread of high-tech sectors and jobs since 2000. Throughout Bush, Obama, Trump & Biden admins, there’s been a lot of spending, but not a lot of success. Just lots of new laws and bureaucracies:

In 2012, the Obama administration launched the multiagency Rural Jobs and Innovation Accelerator Challenge and Advanced Manufacturing Jobs and Innovation Accelerator Challenge. This occurred at roughly the same time President Obama was launching his Startup America initiative. He also signed the JOBS Act (Jump-start Our Business Startups) in 2012. All these efforts included various measures to support the spread of advanced manufacturing and high-tech startups across the U.S. But none of these efforts have borne much fruit so far.

In the second installment of this series, I explore better ways to encourage regional tech innovation and economic development without doubling down on failed programs of the past. Specifically, I explain why, when it comes to economic development efforts, policymakers would be wise to avoid the costly, ineffective “fun stuff” and refocus on time-tested “boring” strategies:

The boring approach to economic development seeks to promote an open innovation culture that is conducive to risk-taking, investment and growth without the need to extend targeted privileges to particular firms or industries. Such a culture comes down to a classic mix of simplified and equally applied taxes, streamlined permitting processes and sensible regulations, limits on frivolous lawsuits, and clear protection of contracts and property rights. As Matt Mitchell and I argued previously, policymakers need to resist the urge to go for broke with splashy policies and programs. They need to appreciate the benefits of generalized economic development policy (a.k.a. the boring approach) as opposed to far riskier targeted development efforts.

I also highlight recent research explaining how perhaps the simplest way to strengthen existing clusters, or give rise to new ones, is to make sure America’s immigration policies are hospitable to the best and brightest minds from across the globe.

And I note how, due to the problems associated with many other forms of government-sponsored R&D assistance, many scholars and policymakers are increasingly turning to the idea of government-sponsored competitions and prizes as a superior way to distribute R&D assistance.

With competitions, governments can set broad goals to help facilitate the search for important societal needs. The prizes then create a powerful incentive for innovators to pursue those goals, not only to win money, but also to gain recognition from peers and the public. Another alternative is just using lotteries to distribute R&D money instead of having agencies target grants. That at least avoids political shenanigans and paperwork delays, although it may not be a particularly effective approach.

There is also some good news is overlooked in today’s rush to make big industrial policy gambles: Venture capitalists and new startups are already spreading out naturally.

A 2021 study on “The State of the Startup Ecosystem” by Engine, a research and advocacy organization supporting startups, revealed that “as Series A funding grew over the last fifteen years, more of that growth has started to shift to areas located outside of the largest ecosystems.” Series A funding refers to the initial round of outside venture capitalist investment in startups. The report looked at Series A deals from 2003 to 2018 and found that “Series A rounds outside of the top five ecosystems grew nearly 900 percent, while the number of rounds outside of the top nine grew nearly tenfold.” Whereas Series A fundings outside of the top five ecosystems stood at 38% in 2003, they had jumped up to 43% in 2018. “The increase in deal location diversity over this period reflects an increasing spread in venture capital investment across the country and less centralization of investment in areas like Silicon Valley,” the report concluded.

Meanwhile, tech innovators and investors are increasingly engaging in innovation arbitrage as they move to cities and states across the nation that are more hospitable to entrepreneurial activities. Firms and investors are voting with their feet (and dollars) by flocking to areas where tech clusters can more naturally sprout because the general policy environment is sound.

But government efforts to artificially try to create regional innovation hubs in a top-down, technocratic fashion will almost certainly persist. As they do, some will argue that this time will be different! Perhaps, but it is more likely that the past is prologue; these new hubs will likely cause federal politicians to jockey for position to have their regions named one of the winners and get a big cut of all the new high-tech pork being served up by Washington. We can do better.

Jump over to Discourse to read both installments here and here.

Also, down below I list several other things I have written recently on industrial policy efforts more generally.

Adam Thierer & Connor Haaland, “Does the US Need a More Targeted Industrial Policy for AI & High-Tech?” Presentation for IHS Papers Workshop: Does America Need a New Industrial Policy?, 2021.
Adam Thierer, “Government Planning and Spending Won’t Replicate Silicon Valley,” Discourse, August 18, 2021.
Adam Thierer, “To Promote Tech Hubs Across the Country, Governments Should Focus on Improving the General Business Environment,” Discourse, September 9, 2021.
Adam Thierer, “‘Japan Inc.’ and Other Tales of Industrial Policy Apocalypse,” Discourse, June 28, 2021.
Adam Thierer, “Industrial Policy as ‘Casino Economics‘,” The Hill, July 12, 2021.
Adam Thierer & Connor Haaland, “Should the U.S. Copy China’s Industrial Policy?” Discourse, March 11, 2021.
Connor Haaland & Adam Thierer, “Can European-Style Industrial Policies Create Tech Supremacy?” Discourse, February 11, 2021.
Matthew D. Mitchell and Adam Thierer, “Industrial Policy is a Very Old, New Idea,” Discourse, April 6, 2021.
Adam Thierer, “On Defining ‘Industrial Policy,’” Technology Liberation Front, September 3, 2020.
Adam Thierer, “Skeptical Takes on Expansive Industrial Policy Efforts,” Technology Liberation Front, ongoing series.

Keeping Uncle Sam out of the Industrial Policy Casino

Adam Thierer — Fri, 16 Jul 2021 19:01:32 +0000

In my latest column for The Hill, I consider that dangers of government gambling our tax dollars on risky industrial policy programs. I begin by noting:

Roll the dice at a casino enough times, and you are bound to win a few games. But knowing the odds are not in your favor, how much are you willing to risk losing by continuing to gamble? This is the same issue governments confront when they gamble taxpayer dollars on industrial policy efforts, which can best be described as targeted and directed efforts to plan for specific future industrial outputs and outcomes. Throwing enough money at risky ventures might net a few wins, but at what cost? Could those resources have been better spent? And do bureaucrats really make better bets than private investors?

I continue on to note that, while the US is embarking on a major new industrial policy push, history does not provide us with a lot of hope regarding Uncle Sam’s betting record when he starts rolling those industrial policy dice. “How much tolerance should the public have for government industrial policy gambling?” I ask. I continue on:

Generally speaking, “basic” support (broad-based funding for universities and research labs) is wiser than “applied” (targeted subsidies for specific firms or sectors). With basic R&D funding, the chances of wasting resources on risky investments can be contained, at least as compared to highly targeted investments in unproven technologies and firms.

I also argue that “The riskiest bets on new technologies and sectors are better left to private investors,” and note how, “America’s venture capital industry remains the envy of the world because it continues to power world-beating advanced technology.” Accordingly, I conclude:

While some government investments will always be necessary, policymakers engaging in casino economics means bad industrial policy bets and taxpayer money squandered on risky ventures best made by private actors. We need to keep Uncle Sam’s gambling habits in check.

Read the whole thing here. And here’s a list of more of my recent writing on industrial policy:

Adam Thierer & Connor Haaland, “Does the US Need a More Targeted Industrial Policy for AI & High-Tech?” Presentation for IHS Papers Workshop: Does America Need a New Industrial Policy?, forthcoming, July 23, 2021.
Adam Thierer, “‘Japan Inc.’ and Other Tales of Industrial Policy Apocalypse,” Discourse, June 28, 2021.
Adam Thierer & Connor Haaland, “Should the U.S. Copy China’s Industrial Policy?” Discourse, March 11, 2021.
Connor Haaland & Adam Thierer, “Can European-Style Industrial Policies Create Tech Supremacy?” Discourse, February 11, 2021.
Matthew D. Mitchell and Adam Thierer, “Industrial Policy is a Very Old, New Idea,” Discourse, April 6, 2021.
Adam Thierer, “On Defining ‘Industrial Policy,’” Technology Liberation Front, September 3, 2020.
“Skeptical Takes on Expansive Industrial Policy Efforts,” Technology Liberation Front, ongoing series.

Remembering the ‘Japan Inc.’ Industrial Policy Scare of the 1980s & 1990s

Adam Thierer — Tue, 29 Jun 2021 16:12:22 +0000

Discourse magazine has just published my latest essay, “‘Japan Inc.’ and Other Tales of Industrial Policy Apocalypse.” It is a short history of the hysteria surrounding the growth of Japan in the 1980s and early 1990s and its various industrial policy efforts. I begin by noting that, “American pundits and policymakers are today raising a litany of complaints about Chinese industrial policies, trade practices, industrial espionage and military expansion. Some of these concerns have merit. In each case, however, it is easy to find identical fears that were raised about Japan a generation ago.” I then walk through many of the leading books, opeds, movies, and other things from that past era to show how that was the case.

“Hysteria” is not too strong a word to use in this case. Many pundits and politicians were panicking about the rise of Japan economically and more specifically about the way Japan’s Ministry of International Trade and Industry (MITI) was formulating industrial policy schemes for industrial sectors in which they hoped to make advances. This resulted in veritable “MITI mania” here in America. “U.S. officials and market analysts came to view MITI with a combination of reverence and revulsion, believing that it had concocted an industrial policy cocktail that was fueling Japan’s success at the expense of American companies and interests,” I note. Countless books and essays were being published with breathless titles and predictions. I go through dozens of them in my essay. Meanwhile, the debate in policy circles and Capitol Hill even took on an ugly racial tinge, with some lawmakers calling the the Japanese “leeches.” and suggesting the U.S. should have dropped more atomic bombs on Japan during World War II. At one point, several members of Congress gathered on the lawn of the U.S. Capitol in 1987 to smash Japanese electronics with sledgehammers.

All this hysteria about Japan and MITI bore little semblance to reality. In fact, as I note in the essay, the MITI industrial planning model fell apart after it made a host of horrible bad bets and the stock market tanked in the late 1980s. Corruption also became a huge problem within many state-led efforts. A 2000 report by the Policy Research Institute within Japan’s Ministry of Finance concluded that “the Japanese model was not the source of Japanese competitiveness but the cause of our failure.” MITI was renamed the Ministry of Economy, Trade and Industry at about the same time, and its mission shifted more toward market-oriented reforms.

Industrial policy came to be viewed as a bit of a joke in America after that, but now it is back with a vengeance, thanks largely to the rise of Chinese economic power. Thus, because “we hear echoes from the Japan Inc. era debates in today’s policy discussions about China and industrial policy planning,” I end my essay with some lessons from the ‘Japan Inc.’ era for today’s industrial policy debates:

This similarity demonstrates the first lesson we can learn from the previous era: It is important to separate serious geopolitical and economic analysis from breathless fear-mongering and borderline xenophobia. The former has a serious place in policy discussions; the latter needs to be called out and shunned. After all, there are many legitimate worries about rising Chinese power, particularly when it involves Chinese Communist Party efforts to squash human rights domestically or to engage in industrial espionage, trade mercantilism and military adventurism abroad. Separating serious matters from trivial or imaginary ones is crucial, especially to help keep peace between nations. Avoiding hysteria is especially pertinent today with a wave of anti-Asian sentiment and attacks on the rise in the U.S. A second lesson from the Japan Inc. experience relates to today’s renewed interest in industrial policy: Forecasting the future of nations and economies—and trying to plan for it—is a tricky business. A huge range of variables affects global competitiveness and technological advancement. A nonexhaustive list of some of the most important factors would include legal and political stability, physical and intellectual property rights, tax burdens, competition policy, trade and investment laws, monetary policy, research and development efforts, and even demographic factors and access to certain natural resources. Understanding how these and other factors all work together is an inexact science. When targeted industrial policy mechanisms are added to the mix, it becomes even harder to untangle which variables are making the most difference. Both in the past and today, a less visible group of scholars has suggested that an embrace of entrepreneurialism and free trade was the fundamental factor driving Japanese economic expansion in the past and China’s amazing growth today. Openness to markets, they say, drove the enormous economic expansions—which also happened during times of much-needed catch-up modernization in both countries. But these perspectives have usually been shouted out of the room by louder voices, who either bombastically blast or praise industrial policy mechanisms as the prime mover in the economic rejuvenation of both nations. We need to tamp down on the magical thinking that governments can easily achieve technological innovation and economic growth by simply spinning a few industrial policy gauges. A few big bets may pay off, but that doesn’t justify governments engaging in casino economics regularly. History more often shows that grandiose industrial policy schemes simply result in cost overruns, cronyism and even corruption.

I also conclude by noting that:

Perhaps the most ironic indictment of industrial policy punditry lies in the way all the earlier books and essays about Japanese planning not only failed to forecast the many flops associated with it, but also did not foresee China as a potential future economic juggernaut. Korea, Singapore and Taiwan were mentioned as potential Asian challengers, but no one gave China much consideration. What might that tell us about the ability of experts to predict the future course of countries and economies? It is a reminder of the wisdom of another great Yogi Berra quote: “It’s tough to make predictions, especially about the future.”

You can read the entire piece, as well as several others listed below, over at Discourse.

Recent writing on industrial policy:

Adam Thierer & Connor Haaland, “Does the US Need a More Targeted Industrial Policy for AI & High-Tech?” Presentation for IHS Papers Workshop: Does America Need a New Industrial Policy?, forthcoming, July 23, 2021.
Adam Thierer, “‘Japan Inc.’ and Other Tales of Industrial Policy Apocalypse,” Discourse, June 28, 2021.
Adam Thierer & Connor Haaland, “Should the U.S. Copy China’s Industrial Policy?” Discourse, March 11, 2021.
Connor Haaland & Adam Thierer, “Can European-Style Industrial Policies Create Tech Supremacy?” Discourse, February 11, 2021.
Matthew D. Mitchell and Adam Thierer, “Industrial Policy is a Very Old, New Idea,” Discourse, April 6, 2021.
Adam Thierer, “On Defining ‘Industrial Policy,'” Technology Liberation Front, September 3, 2020.
“Skeptical Takes on Expansive Industrial Policy Efforts,” Technology Liberation Front, ongoing series.

Podcast on Economic Liberty & the Right to Earn a Living

Adam Thierer — Thu, 03 Jun 2021 19:37:00 +0000

I was my pleasure to appear on the latest episode of the Dissed podcast to discuss economic liberty and the right to earn a living. The show was hosted by Anastasia Boden and Elizabeth Slattery of the Pacific Legal Foundation and it included legal scholars Hadley Arkes, Timothy Sandefur, and Clark Neily. I appear in the second half of the program.

I’ve spent many years writing about the relationship between innovation, entrepreneurialism, economic liberty, and the right to earn a living. My latest book (Evasive Entrepreneurs) and previous one (Permissionless Innovation) devoted considerable attention to this. But I tried to bring it all down to just a few hundred words in my 2018 essay, “The Right to Pursue Happiness, Earn a Living, and Innovate.”

I’ve reprinted that down below, but please make sure to click over to the Dissed page and listen to that excellent podcast.

____

The Right to Pursue Happiness, Earn a Living, and Innovate by Adam Thierer

[originally appeared on The Bridge, September 20, 2018]

“ We hold these truths to be self-evident, that all men are created equal, that they are endowed by their Creator with certain unalienable Rights, that among these are Life, Liberty and the pursuit of Happiness.”

That memorable line from America’s Declaration of Independence makes it clear that we are at liberty to pursue lives of our own choosing. Our path in this world is ours to make. It is not predestined by government.

It is time to think more expansively about the right to pursue happiness. Specifically, it is time we acknowledge that our freedom to pursue happiness is the basis of many other corresponding rights, including the right to innovate and the right to earn a living.

Our right to pursue happiness aligns with our corresponding rights to speak, learn, and move about the world. Our constitutional heritage secured these rights and made it clear that we possess them simply by nature of being human beings. So long as we do not bring harm to others, we are generally free to act as we wish. These rights also serve as the basis of more specific freedoms: the freedom to tinker and try, or to innovate more generally.

Knowledge isn’t a mere collection of words that have existed since the dawn of time, and growth isn’t merely a matter of luck or destiny. Knowledge comes from acts of trial-and-error experimentation, and growth comes from innovation.

Repressing innovation has profound consequences. When critics decry a particular innovation or propose limiting entrepreneurial acts, they are challenging our freedom to know and learn more about the world and pursue a better future. By challenging our freedom to experiment with new and better ways of doing things, critics are essentially condemning us to the status quo.

Worse yet, denying people the freedom to innovate deprives society of the wisdom and prosperity that accompanies innovation, which is the foundation of human flourishing.

In sum, if you are not free to innovate, you are not free to pursue happiness.

So, let us resolve to clearly establish that the freedom to pursue happiness and the freedom to innovate are, in reality, the exact same right. Our freedom to try, to tinker, to learn, and to know are all just the same as our “freedom to innovate” and our freedom to pursue happiness however we see fit to pursue it.

Fostering a social and political culture that protects entrepreneurialism, the freedom to innovate, and the right earn a living is a moral imperative because it has enormous consequences for the well-being of current and future generations. To the extent this freedom is denied, the burden of proof—and the consequences for this denial—lies with those critics who would wish it so.

Targeting vs. Generality in Economic Development & Industrial Policy

Adam Thierer — Thu, 08 Apr 2021 17:43:39 +0000

Over at Discourse magazine, my Mercatus Center colleague Matt Mitchell and I have a new essay on, “Industrial Policy is a Very Old, New Idea.” We argue that, despite having a long history of disappointments and failures, that isn’t stopping many policymakers from proposing it industrial policies again. We compare national industrial policy efforts alongside state-based economic development policies, noting their many similarities. In both cases, the crucial issue comes down to targeting versus generality in terms of how policymakers go about encouraging innovation and economic growth. We note how:

The building blocks of the general approach—a mix of broadly applicable tax, spending, regulatory and legal rules—are often rejected because they seem less exciting than targeting specific companies or industries for help. Pundits and policymakers are fond of using machine-like metaphors to suggest they can “fine-tune” innovation or “dial-in” economic development according to a precise formula they believe they have concocted. They also savor the attention that goes along with ribbon-cutting ceremonies and the big headlines often generated by political targeting efforts.

We discuss the spectrum of economic development options (depicted in chart below) in more detail and explain the many pitfalls associated with some of the most highly targeted efforts. “The predicament for policymakers is that, while it is wiser to focus on the generalized approaches, the temptation will remain strong to jump to targeted gambles that may grab headlines but are far more risky and costly,” we argue. Head over to Discourse to read the entire thing.

Video: Lessons from the “Hall of Fallen Giants”

Adam Thierer — Wed, 17 Mar 2021 13:47:10 +0000

Here’s a new animated explainer video that I narrated for the Federalist Society’s Regulatory Transparency Project. The 3-minute video discusses how earlier “tech giants” rose and fell as technological innovation and new competition sent them off to what the New York Times once appropriately called “The Hall of Fallen Giants.” It’s a continuing testament to the power of “creative destruction” to upend and reorder markets, even as many pundits insist that there’s no possibility change can happen.

This is an important lesson for us to remember today, as I noted in the recent editorial for The Hill about why, “Open-ended antitrust is an innovation killer“:

Those who worry about today’s largest tech giants becoming supposedly unassailable monopolies should consider how similar fears were expressed not so long ago about other tech titans, many of which we laugh about today. Just 14 years ago, headlines proclaimed that “MySpace Is a Natural Monopoly,” and asked, “Will MySpace Ever Lose Its Monopoly?” We all know how that “monopoly” ceased to exist. At the same time, pundits insisted “Apple should pull the plug on the iPhone,” since “there is no likelihood that Apple can be successful in a business this competitive.” The smartphone market of that era was viewed as completely under the control of BlackBerry, Palm, Motorola and Nokia. A few years prior to that, critics lambasted the merger of AOL and TimeWarner as a new corporate “Big Brother” that would decimate digital diversity and online competition.

Accordingly, policymakers should be humble and recognize that, “it’s better to let rivalry and innovation emerge organically,” and only bring in the wrecking ball of heavy-handed antitrust regulation as a last resort, I argued. Technological change and entrepreneurialism has a way of upending and reordering markets when we least expect it. Just ask all those members of the Hall of Fallen Giants.

Skeptical Takes on Expansive Industrial Policy Efforts

Adam Thierer — Mon, 15 Mar 2021 17:09:11 +0000

[Last updated 3/25/22]

Industrial Policy is a red-hot topic once again with many policymakers and pundits of different ideological leanings lining up to support ambitious new state planning for various sectors — especially 5G, artificial intelligence, and semiconductors. A remarkably bipartisan array of people and organizations are advocating for government to flex its muscle and begin directing more spending and decision-making in various technological areas. They all suggest some sort of big plan is needed, and it is not uncommon for these industrial policy advocates to suggest that hundreds of billions will need to be spent in pursuit of those plans.

Others disagree, however, and I’ll be using this post to catalog some of their concerns on an ongoing basis. Some of the criticisms listed here are portions of longer essays, many of which highlight other types of steps that governments can take to spur innovative activities. Industrial policy is an amorphous term with many definitions of a broad spectrum of possible proposals. Almost everyone believes in some form of industrial policy if you define the term broadly enough. But, as I argued in a September 2020 essay “On Defining ‘Industrial Policy‘,” I believe it is important to narrow the focus of the term such that we can continue to use the term in a rational way. Toward that end, I believe a proper understanding of industrial policy refers to targeted and directed efforts to plan for specific future industrial outputs and outcomes.

The collection of essays below is merely an attempt to highlight some of the general concerns about the most ambitious calls for expansive industrial policy, many of which harken back to debates I was covering in the late 1980s and early 1990s, when I first started a career in policy analysis. During that time, Japan and South Korea were the primary countries of concern cited by industrial policy advocates. Today, it is China’s growing economic standing that is fueling calls for ambitious state-led targeted investments in “strategic” sectors and technologies. To a lesser extent, grandiose European industrial policy proposals are also prompting new US counter-proposals.

All this activity is what has given rise to many of the critiques listed below. If you have suggestions for other essays I might add to this list, please feel free to pass them along. FYI: There’s no particular order here.

Scott Lincicome and Huan Zhu, “Questioning Industrial Policy: Why Government Manufacturing Plans Are Ineffective and Unnecessary,” Cato Institute Working Paper, June 16, 2021.

[I]ndustrial policy – properly defined – has an extensive and underwhelming history in the United States, featuring high costs (seen and unseen), failed objectives, and political manipulation. Surely, not every U.S. industrial policy effort has ended in disaster, but facts here and abroad argue strongly against new government efforts to boost “critical” industries and workers and thereby fix alleged market failures. Such efforts warrant intense skepticism – skepticism that today is unfortunately in short supply.

Adam Thierer, “Industrial Policy as Casino Economics,” The Hill, July 12, 2021.

While some government investments will always be necessary, policymakers engaging in casino economics means bad industrial policy bets and taxpayer money squandered on risky ventures best made by private actors. We need to keep Uncle Sam’s gambling habits in check.

Adam Thierer, “Thoughts on the America COMPETES Act: The Most Corporatist & Wasteful Industrial Policy Ever,” Technology Liberation Front, January 26, 2022.

As far as industrial policy measures go, the COMPETES Act is one of the most ambitious and expensive central planning efforts in American history. It represents the triumph of top-down, corporatist, techno-mercantilist thinking over a more sensible innovation policy rooted in bottom-up competition, entrepreneurialism, private investment, and free trade.

Adam Thierer & Connor Haaland, “Does the US Need a More Targeted Industrial Policy for AI & High-Tech?” Mercatus Center at George Mason University, Special Study, November 2021.

This paper considers how both the recent history of high-tech industrial policy efforts at the national and international level—as well as some state and local economic development efforts in the United States—might better inform the wisdom of proposed efforts for AI or other high-tech sectors. That history is spotted with some limited successes alongside a long string of costly failures. We explore the reasons for those failures and recommend that the US refocus on the policy prerequisites that helped give rise to the computing and internet revolutions: a more generalized approach to economic development rooted in light-touch regulation and taxation of emerging technology.

Samuel Gregg, “Can America Build A Broad-Based Economy?” Law & Liberty, March 1, 2022

Of course, if a government decides to put enough money and resources behind a given industrial policy, it will likely produce some results. Yet the same is true of the gambler. If she stays in the casino long enough and spends enough money, she will win a few hands of cards. But the odds are that she will also lose a great deal of money, especially if she is as inept a gambler as the government is maladroit at identifying industry trends or entrepreneurial opportunities. Moreover, just as a compulsive gambler’s behavior will have numerous negative effects on her family’s well-being, so too does industrial policy risk inflicting wider damage upon a nation’s economy and political system. The harms range from gross misallocations of resources to the rampant cronyism and rent-seeking that seems inseparable from industrial policy (which, I again note, its advocates studiously avoid discussing), to name just a few.

Phil Gramm & Mike Solon, “Peace Through Strength Requires Economic Freedom,” Wall Street Journal, March 1, 2022.

The America Competes Act is the House’s effort to outdo the Chinese Communist Party’s latest five-year plan. The 2,900-page bill would make an old Soviet commissar blush. [. . . ] America’s success in the world economy has never depended on industrial policy or government subsidies. It has come from the relative absence of government planning and subsidies. This is hardly news. The U.S. government provided support for the efforts of Samuel Langley, the greatest aviation expert of the 1890s, in his effort to make America first in powered flight. His manned Aerodrome flopped into the Potomac River. It was the Wright brothers, two unsubsidized but determined bicycle makers from Dayton, Ohio, who flew at Kitty Hawk, N.C., and changed the world.

Scott Lincicome, “Moving Fast and Breaking Things,” Capitolism, February 2, 2022.

Adam Thierer, “The Coming Industrial Policy Hangover,” The Hill, February 16, 2022.

In the rush to pass legislation, we’ve barely heard a peep about the $250-$350 billion price tag. This follows a massive splurge of recent government borrowing, which led to the U.S. national debt hitting another lamentable new record: $30 trillion. China already owns over $1 trillion of that debt, making one wonder if we’re really countering China by adopting a massive, new and unfunded industrial policy that they will end up financing indirectly.

Podcast: “What’s Wrong with Industrial Policy,” Hold These Truths with Rep. Dan Crenshaw, February 16, 2022.

Tad DeHaven and Adam Thierer, “ The Military-Industrial Complex Offers a Cautionary Tale for Industrial Policy Planning,” Discourse, March 25, 2022.

Wayne Crews, “What To Do Instead Of The America COMPETES Act,” Forbes, February 2, 2022.

All this spending and expansion of the federal government, atop which our leaders would lay the America COMPETES Act and doubtless its own accompanying guidebook, has massive, ignored regulatory effects. Trillions in government spending (”investment”) have altered and will alter the entire trajectory and competitive environment of industries engaged in large-scale enterprises and transactions. This removes vast swaths of business activity from free competitive enterprise altogether, and creates displacements and distortions such that the restoration of free enterprise becomes a near-impossible disentanglement. The result is, after 100 years of big government and seduction of and fusion with big business, the greatest endeavors—from infrastructure to artificial intelligence, from smart cities to space—now consist of “partnerships” with governments rather than free enterprise, at scales and at costs so gigantic they can only be ignored.

Adam Thierer, “‘Japan Inc.’ and Other Tales of Industrial Policy Apocalypse,” Discourse, June 28, 2021.

Perhaps the most ironic indictment of industrial policy punditry lies in the way all the earlier books and essays about Japanese planning not only failed to forecast the many flops associated with it, but also did not foresee China as a potential future economic juggernaut. [. . .] What might that tell us about the ability of experts to predict the future course of countries and economies?

Adam Thierer, “Can Government Reproduce Silicon Valley Everywhere?” Technology Liberation Front, September 12, 2021.

government efforts to artificially try to create regional innovation hubs in a top-down, technocratic fashion will almost certainly persist. As they do, some will argue that this time will be different! Perhaps, but it is more likely that the past is prologue; these new hubs will likely cause federal politicians to jockey for position to have their regions named one of the winners and get a big cut of all the new high-tech pork being served up by Washington.

Weifeng Zhong, “Beijing Can’t Make Sense of Biden’s China Strategy. Can Biden?” Washington Examiner, July 01, 2021.

America is not China, and it would be a fatal mistake to equate competing with China with imitating what China does. Doing so would risk the advantageous U.S. position as the world’s chief innovator, whose ideas are turned into products by vibrant private sectors both domestically and internationally.

Mike Watson, “Industrial Policy in the Real World,” National Affairs, Summer 2021.

Given the nature of industrial policymaking in the United States, there’s little reason to believe future attempts at industrial planning will result in a more coherent, rational, or strategic allocation of resources than they have in the past. [. . .] In short, industrial policy in the United States cannot be steered by a small group of enlightened individuals, because a small group of enlightened individuals will never be at the helm. Indeed, in some sense, there is no single “helm” to speak of.

Samuel Gregg, “Industrial Policy Mythology Confronts Economic Reality,” Law & Liberty, September 3, 2021.

If prizes in policy debates were given out for persistence, those advocating for more widespread use of industrial policy in America would be first in line. No matter how many times it is pointed out that they don’t understand the nature and workings of comparative advantage; or avoid acknowledging how industrial policy fosters rampant cronyism and corruption; or highlight what they consider examples of countries in which industrial policy has been employed successfully (only to have it demonstrated that it didn’t quite work out the way they suggested), they don’t give up.

Elizabeth Nolan Brown, “If This Is How America COMPETES, We’re Going to Lose,” Reason, January 26, 2022.

the bill can’t simply address one main issue or a few critical needs. Instead, it tries to insert the government into every aspect of all sorts of industries and markets and pretend that bureaucrats can solve complex social and cultural issues.

Chang-Tai Hsieh, “Countering Chinese Industrial Policy Is Counterproductive,” Project Syndicate, September 15, 2021.

US political leaders have long tried to counter Chinese industrial policy. And now they seem to have decided that the best way to do that is to emulate it. But their agenda betrays a profound lack of understanding of the unique challenge posed by China’s coupling of an authoritarian political regime with a dynamic market economy.

Adam Thierer, “Industrial Policy Advocates Should Learn from Don Lavoie,” Discourse, November 5, 2021.

“In light of the inherent deficiencies of central planning,” Lavoie said, “it might be argued that the U.S. should instead try to reduce current government interference with the competitive process to the absolute minimum consistent with other political goals.” It remains wise advice for today’s policymakers.

Anne O. Krueger, “America’s Muddled Industrial Policy,” CGTN, June 25, 2021.

Governments have a poor track record of identifying “winners” – be it a company or a category of technology – whereas private companies have proved better at transforming new discoveries into new products or cost savings. That is why the U.S. state traditionally has stuck to funding basic research.

Eric Boehm, “Massive Subsidies Won’t Solve the Semiconductor Supply Chain Crisis,” Reason, January 28, 2022.

Tracy C. Miller, “The Case for Limiting Government Semiconductor Subsidies,” The Hill, June 26, 2021.

Without the subsidies, firms would be more cautious about building or expanding foundries. If long-term production capacity is truly insufficient, high prices and anticipated profits give firms the right incentives to build or expand and satisfy demand at cost-covering prices.

Scott Lincicome, “The ‘Endless Frontier’ and American Industrial Policy,” Cato Institute Blog, May 26, 2021.

U.S. industrial policy has a long history of struggling to overcome political pressures, just as public choice predicts, and the EFA is no different. None of this means that all legislating is bad, or that politicians don’t at least occasionally vote in the national interest. Instead, the public choice framework simply adds another hurdle—along with things like the “knowledge problem,” seen and unseen costs, and misaligned incentives—to designing and implementing commercial policies specifically intended to beat the admittedly messy and imperfect situation that the market generates. It’s imperative that we understand these risks before supporting policies that, while they might look good on paper, could easily morph into a counterproductive boondoggle—one we’ve seen countless times with respect to U.S. industrial policy.

Daniel W. Drezner, “Is the United States capable of industrial policy in 2021?” Washington Post, June 14, 2021.

To believe that the United States can pursue a high-caliber industrial policy, however, requires assuming a more competent state than I have seen in the past decade.

Douglas Holtz-Eakin, “The Nicest Thing I Can Write About Supply Chain Policy,” The Daily Dish, June 10, 2021.

Nevertheless, the Senate just passed a provision for $50 billion to subsidize chip fabrication – something the president had requested – and the House will doubtlessly concur. That might seem like an industry victory, but wait until it realizes that the administration will assume it gives it the right to insist on union jobs, micromanage the design of chips, and dictate the pricing and distribution of the products. Good luck with that. As the definitive volume on policy analysis (Benjamin Franklin’s Poor Richard’s Almanack) put it, “He that lieth down with dogs shall rise up with fleas.”

Lipton Matthews, “Industrial Policy—a.k.a. Central Planning—Won’t Make America Great,” Mises Wire, November 5, 2021.

Although industrial policy is in vogue, the evidence suggests that it is not necessary for long-term development. Moreover, despite the popularity of industrial policy in China, America remains the world’s economic power, and by following China, it may lose this vaunted position.

Richard Beason, “Japanese Industrial Policy: An Economic Assessment,” National Foundation for American Policy, November 2021.

There is no evidence to support the claim that Japanese industrial policy during the 1955-1990 period enhanced growth rates by sector, industries with economies of scale (greater efficiency when produced in increased amounts), productivity growth or “competitiveness.” The reality of the political process and government spending priorities makes it very difficult for such policies to be effective. Furthermore, even if political pressures had not intervened, it seems questionable to suggest that government policymakers would be better than actual market participants in determining the most efficient allocation of resources to produce the best economic outcomes.

Douglas Irwin, “ Memo to the Biden administration on how to rethink industrial policy,” Peterson Institute for International Economics, October 2020.

The challenge for policymakers is to identify such industries without succumbing to the notion that every industry is vital to some public objective. For example, the goal of “economic security” is so broadly defined and open-ended that virtually every domestic producer could claim the need for government support on that basis. The risk is that ill-conceived government programs will encourage corrupt behavior in which industries benefit themselves without contributing to national welfare.

Jim Pethokoukis, “Will Biden’s embrace of industrial policy pay off?” AEI Blog, January 15, 2021.

The history of such efforts in advanced capitalist economies gives ample reason for skepticism about the effectiveness of such top-down government planning, from Japanese economic stagnation to the now-mothballed Concorde supersonic jet to France’s failed attempt to create a thriving tech sector. The Internet might seem like the exception that negates the rule, but what turned out to be a successful partnership of government and entrepreneurs didn’t arise out of some master plan from Washington. And what do even the smartest plans look like when filtered through the dodgy quality of American governance? Maybe as an excuse for cronyism and protectionism.

Adam Thierer & Connor Haaland, “Should the U.S. Copy China’s Industrial Policy?” Discourse, March 11, 2021.

America needs to embrace its already vibrant venture capital market, the benefits of basic science and prize competitions, and a light-touch regulatory approach instead of gambling taxpayer dollars on grandiose industrial policy schemes that would likely become boondoggles.

Connor Haaland & Adam Thierer, “Can European-Style Industrial Policies Create Tech Supremacy?” Discourse, February 11, 2021.

Thus far, however, the Europeans don’t have much to show for their attempts to produce home-grown tech champions. Despite highly targeted and expensive efforts to foster a domestic tech base, the EU has instead generated a string of industrial policy failures that should serve as a cautionary tale for U.S. pundits and policymakers, who seem increasingly open to more government-steered innovation efforts.

Phil Levy & Christine McDaniel, “ Does the U.S. Need a Vigorous Industrial Policy?” Discourse, February 16, 2021.

we are certainly hearing new enthusiasm these days about industrial policy. It seems to have proponents or converts on both sides of the aisle. This either means that a new consensus has emerged, or it means that the term is being used so loosely that it has lost its original meaning. I’ll go with the latter; it now means different things to different people.

Wall Street Journal columnist Greg Ip discussing why “ The traditional skepticism toward industrial policy is well deserved.”

The traditional skepticism toward industrial policy is well deserved. Once Washington starts writing checks for semiconductors, other industries may get in line with the outcome determined more by political clout than economic merit. As in shipbuilding, the targeted companies may end up in perpetual need of federal protection and unable to compete internationally

David Ignatius, “The U.S. is quietly mobilizing its economy against China,” Washington Post, March 4, 2021.

The industrial policy the AI commission recommends could unlock talent and innovation. But if officials aren’t careful, government intervention could also afflict our best companies with the dead weight and dysfunction of our broken political system. We need government to spawn brainpower, not bureaucracy.

Veronique de Rugy, “Support for Industrial Policy is Growing,” AIER, January 18, 2020.

Looking at the federal government today tells me that the problems surrounding R&D programs in the past continue today, and will continue tomorrow, because they are simply a consequence of the normal functioning of government. It is hard to wish these problems away, even in the face of the private sector’s “imperfections.” Those arguing for more funding in R&D should proceed with caution.

Ben Reinhardt on concerns about The Endless Frontier Act

This bill is proposing to give money with risk-averse restrictions to a risk-averse organization (the NSF) to be dispersed among other risk-averse organizations (Universities) into a system with increasingly risk-averse incentives. Note that I’m not saying “it’s all fubar’d lets burn it to the ground!” but I am suggesting that instead of slamming on the accelerator, we should be asking “what would a tune-up and an oil change look like instead?”

Ryan Bourne, “Do Oren Cass’s Justifications for Industrial Policy Stack Up?” Cato Commentary, August 15, 2019.

Oren Cass asserts that markets cannot generally allocate resources efficiently by industry. Yet he provides no meaningful metrics to show this is the case, nor shows why his policies would deliver better outcomes. His two main claims about the benefits of a manufacturing sector — “stable employment” and “strong productivity growth” — are directly contradictory. A plethora of evidence suggests as countries’ get richer due to automation and technological improvements, they demand relatively more services, and so the industrial sector declines in employment terms.

Scott Lincicome, “ Manufactured Crisis: ‘Deindustrialization, Free Markets, and National Security,” Cato Policy Analysis No. 907, January 27, 2021.

This skepticism—mostly absent from Washington—is indeed warranted: analyses of the U.S. manufacturing sector and the relationship between trade and national security, as well as the United States’ long and checkered history of security‐related protectionism, undermine the theoretical justifications for imposing protectionism and industrial policy in the name of national defense. Instead, open trade, freer markets, and global interdependence will in almost all cases produce better outcomes in terms of national security and, most importantly, preventing wars and other forms of armed conflict.

Matthew Lau, “Trudeau government’s ‘industrial policy’ creates all the wrong incentives,” Toronto Sun, March 16, 2021.

Should the US Follow China’s Lead on Industrial Policy?

Adam Thierer — Mon, 15 Mar 2021 14:02:34 +0000

In our latest feature for Discourse magazine, Connor Haaland and I explore the question, “Should the U.S. Copy China’s Industrial Policy?” We begin by noting that:

Calls for revitalizing American industrial policy have multiplied in recent years, with many pundits and policymakers suggesting that the U.S. should consider taking on Europe and China by emulating their approaches to technological development. The goal would be to have Washington formulate a set of strategic innovation goals and mobilize government planning and spending around them.

We continue on to argue that what most of these advocates miss is that:

China’s targeting efforts are often antithetical to both innovation and liberty, and involve plenty of red tape and bureaucracy. China has become a remarkably innovative country for many reasons, including its greater tolerance for risk-taking, even as the Chinese Communist Party continues to pump resources into strategic sectors. But most Chinese innovation is permissible only insomuch as it furthers the party’s objectives, a strategy the U.S. obviously wouldn’t want to copy.

We discuss the problems associated with some of those Chinese efforts as well as proposed US responses, like the recently released 756 page report from the National Security Commission on Artificial Intelligence. The report takes an everything-and-the-kitchen-sink approach to state direction for new AI-related efforts and spending. While that report says the government now must “drive change through top-down leadership” in order to “win the AI competition that is intensifying strategic competition with China,” we argue that there could be some serious pitfalls with top-down, high price tag approaches.

Jump over to the Discourse site to read the full essay, as well as our previous essay, which asked, “Can European-Style Industrial Policies Create Tech Supremacy?” These two essay build on the research Connor and I have been doing on global artificial intelligence policies in the US, China, and the EU. In a much longer forthcoming white paper, we explore both the regulatory and industrial policy approaches for AI being adopted in the US, China, and the EU. Stay tuned for more.

On Defining “Industrial Policy”

Adam Thierer — Thu, 03 Sep 2020 16:26:20 +0000

In his debut essay for the new Agglomerations blog, my former colleague Caleb Watney, now Director of Innovation Policy for the Progressive Policy Institute, seeks to better define a few important terms, including: technology policy, innovation policy, and industrial policy. In the end, however, he decides to basically dispense with the term “industry policy” because, when it comes to defining these terms, “it is useful to have a limiting principle and it’s unclear what the limiting principle is for industrial policy.”

I sympathize. Debates about industrial policy are frustrating and unproductive when people cannot even agree to the parameters of sensible discussion. But I don’t think we need to dispense with the term altogether. We just need to define it somewhat more narrowly to make sure it remains useful. First, let’s consider how this exact same issue played out three decades ago. In the 1980s, many articles and books featured raging debates about the proper scope of industrial policy. I spent my early years as a policy analyst devouring all these books and essays because I originally wanted to be a trade policy analyst. And in the late 1980s and early 1990s, you could not be a trade policy analyst without confronting industrial policy arguments.

This was the era of what some called “Japan, Inc.” and Japan-bashing. South Korea and Taiwan were also part of that discussion, but the primary focus was “the Japan Model” and whether it represented the optimal industrial policy for the modern economy. That “Japan Model” sounds much like what is heard today when pundits reference China and its industrial policy model: Generous (and highly targeted) R&D investments, government-led public-private consortia, industrial trade policies (a combination of export assistance plus restrictions on imports and foreign investment), and other forms of targeted government support for specific sectors or technological developments. In the 1980s Japan’s economy started expanding rapidly and many Japanese multinationals began making major investments in US businesses and properties. The Japanese government played an active role in facilitating much of this. Suddenly, lots of people in the US were debating the wisdom of America falling in line and adopting its own industrial policy to counter Japan. Panic was in the air in academic and legislative circles. Lawmakers were literally smashing Japanese electronics with sledgehammers on the stairs of the US Capitol. Meanwhile, pundits were publishing a steady steam of pessimistic books with titles asking, Can America Compete?, while others suggested that the US was Trading Places with Japan.

Japan-loathing probably reached its apex around 1991 or ’92 with the publication of the non-fiction book, The Coming War with Japan, and then Michael Crichton’s fictional book (and then adapted movie), Rising Sun. Japan’s new economic model was going to steamroll US innovators and allow them to dominate the global economy for decades to come. Three decades later, we know how all this played out. The US never went to war again with Japan. We just kept trading peacefully with them, thankfully. Meanwhile, the “Japan, Inc.” industrial policy model didn’t quite pan out the way they hoped (or that US pundits feared). In a 2007 report, Marcus Noland of the Peterson Institute for International Economics summarized Japan’s industrial policy results in bleak terms:

Japan faces significant challenges in encouraging innovation and entrepreneurship. Attempts to formally model past industrial policy interventions uniformly uncover little, if any, positive impact on productivity, growth, or welfare. The evidence indicates that most resource flows went to large, politically influential “backward” sectors, suggesting that political economy considerations may be central to the apparent ineffectiveness of Japanese industrial policy.

But I don’t want to get diverted into the specifics of why Japan’s industrial policy didn’t work. Rather, I just want to make the simple point that Japan definitely had an industrial policy that we can still evaluate today. We should not abandon all use of the term industrial policy because, once defined in a more focused fashion, it remains a useful concept worthy of serious academic study and deliberation.

Jump back to the mid-80s and flip through the individual contributions to this AEI book on The Politics of Industrial Policy. It features hot debates over the exact issue we’ve still trying to figure out today. Essays by Aaron Wildavsky, Thomas McCraw, and James Fallows generally argued for a broad conception of what industrial policy should include. Others such as economist Herbert Stein insisted upon a much narrower reading of the term. Into that debate stepped economic historian Ellis W. Hawley with a wonderful essay on industrial policy efforts in the pre-New Deal era. Hawley began his essay with what I still regard as the best understanding of what “industry policy” really means in practice. Here is Hawley’s definition:

By industrial policy I mean a national policy aimed at developing or retrenching selected industries to achieve national economic goals. In this usage, I follow those who distinguish such a policy, both from policies aimed at making the macroeconomic environment more conducive to industrial development in general and from the totality of microeconomic interventions aimed at particular industries. To have an industrial policy, a nation must not only be intervening at the microeconomic level but also have a planning and coordinating mechanism through which the intervention is rationally related to national goals, a general pattern of microeconomic targets is decided upon, and particular industrial programs are worked out and implemented.

I think Hawley’s conception of industrial policy gets it just right. Crucially, he clearly distinguished industrial policy from “policy” more generally. And he also specifies the requirement that “a planning and coordinating mechanism” is necessary and that targets are established.

On Doctorow’s “Adversarial Interoperability”

Adam Thierer — Sat, 29 Aug 2020 19:15:25 +0000

Interoperability is a topic that has long been of interest to me. How networks, platforms, and devices work with each other–or sometimes fail to–is an important engineering, business, and policy issue. Back in 2012, I spilled out over 5,000 words on the topic when reviewing John Palfrey and Urs Gasser’s excellent book, Interop: The Promise and Perils of Highly Interconnected Systems.

I’ve always struggled with the interoperability issues, however, and often avoided them became of the sheer complexity of it all. Some interesting recent essays by sci-fi author and digital activist Cory Doctorow remind me that I need to get back on top of the issue. His latest essay is a call-to-arms in favor of what he calls “adversarial interoperability.” “[T]hat’s when you create a new product or service that plugs into the existing ones without the permission of the companies that make them,” he says. “Think of third-party printer ink, alternative app stores, or independent repair shops that use compatible parts from rival manufacturers to fix your car or your phone or your tractor.”

Doctorow is a vociferous defender of expanded digital access rights of many flavors and his latest essays on interoperability expand upon his previous advocacy for open access and a general freedom to tinker. He does much of this work with the Electronic Frontier Foundation (EFF), which shares his commitment to expanded digital access and interoperability rights in various contexts.

I’m in league with Doctorow and EFF on some of these things, but also find myself thinking they go much too far in other ways. At root, their work and advocacy raise a profound question: should there be any general right to exclude on digital platforms? Although he doesn’t always come right out and say it, Doctorow’s work often seems like an outright rejection of any sort of property rights in networks or platforms. Generally speaking, he does not want the law to recognize any right for tech platforms to exclude using digital fences of any sort.

Where to Draw the Lines?

As someone who has authored a book about the importance of permissionless innovation, I need to be able to answer questions about where these lines between open versus closed systems are drawn. Definitions and framing matter, however. I use “permissionless innovation” as a descriptor for one possible policy disposition when considering where legal and regulatory defaults should be set. Another conception of permissionless innovation is more of an engineering ideal; a general freedom to connect, tinker, modify, etc. (I speak more about these conceptions in my latest book, Evasive Entrepreneurs.) Of course, someone advocating permissionless innovation as a policy default will sometimes be confronted with the question of what the law should say when someone behaves in an “evasive” fashion in the latter conception of permissionless innovation.

Doctorow would generally answer that question by saying that law should not be rigged to favor exclusion through laws like the DMCA (and specifically the law’s anti- circumvention provisions), Computer Fraud and Abuse Act, patent law, and various other rules and laws. “[T]he current crop of Big Tech companies has secured laws, regulations, and court decisions that have dramatically restricted adversarial interoperability.”

Generally speaking, I agree. I’m not a fan of technocratic laws or regulations that seek to micro-manage interoperability and which stack the deck in favor of exclusionary conduct with steep penalties for evasion. But does that mean adversarial interoperability should be permitted in all cases? Should there exist any sort of common law presumption one way or the other when a user or competitor seeks access to an existing private platform or device?

Specifics matter here and I don’t have time to get into all the case studies that Doctorow goes through. Some are no-brainers, like the infamous Lexmark case involving refillable printer ink cartridges. Other cases are far more complicated, at least for me. Does Epic, creator of Fortnite, have a right of adversarial interoperability that it can exercise against Apple and their AppStore? As Dirk Auer suggests in a new essay, this episode looks more like a straightforward pricing dispute. Epic is making it out to be much more than that, suggesting Apple is guilty of unfair and exclusionary practices that require a legal remedy.

Why not take that logic further and just say Apple’s App Store us tantamount to a natural monopoly or digital essential facility that Epic and everyone else is entitled to on whatever terms they want? For that matter, why not apply the same logic to Epic’s Fortnite platform or even its Unreal Engine? Does every other gaming developer have a right to piggyback on the juggernaut that Epic has built?

This gets to the core question about Doctorow’s concept of adversarial interoperability: Exactly what should common law and the courts say platform owners make access rights a simple pricing matter and say: “You pay or you are out.” Like Doctorow and EFF, I don’t want Apple to benefit from any special favors from laws like DMCA. Where we differ is that I would still leave the door open for Apple to exercise various other common law contractual rights or property rights in court.

I suspect Doctorow would deny any such claims by Apple or anyone else. If so, I would like to see him spell out in more precise terms exactly what Apple’s property rights and contractual rights are in this instance. Or, again, should we just treat the App Store as a digital commons with unfettered open access rights for developers? If so, would Apple be required to still manage the resource once it is a quasi-commons?

I think that would end miserably, but would like to hear Doctorow’s preferred approach before saying more. I suspect a lot rides on the distinction between “open” verses “proprietary” standards, but compared to Doctorow and EFF, I am willing to embrace a world of both open and proprietary systems, and many hybrids in between. I don’t want the law favoring one type over the other, but that means I need to endorse a generalized property right for digital operators such that they can still exclude others (even in the absence of artificial regulatory rights like DMCA creates). Again, I suspect Doctorow would reject that standard, preferring a generalized right of access, even if that means the platforms become de facto commons.

More Radical Steps

Elsewhere, Doctorow has said is that some of these questions would be better addressed through more aggressive antitrust regulation. Mere data portability or mandatory interoperability isn’t enough for him. “Data portability is important,” Doctorow says, “but it is no substitute for the ability to have ongoing access to a service that you’re in the process of migrating away from.”

In his latest online book on “How to Destroy Surveillance Capitalism,” Doctorow suggests that it is time to “make Big Tech small again” through an “anti-monopoly ecology movement.” That “means bans on mergers between large companies, on big companies acquiring nascent competitors, and on platform companies competing directly with the companies that rely on the platforms.” And he desires a host of other remedies.

So, here we have the convergence of interoperability policy and antitrust policy, with a layer of property confiscation layered on top apparently. “Now it’s up to us to seize the means of computation, putting that electronic nervous system under democratic, accountable control,” he insists in his latest manifesto.

What’s funny about this is that Doctorow begins most of his essays by pointing out all the ways that politics is the problem when it comes to access issues, only to end by suggesting that a lot more political meddling is the required solution. He repeatedly laments how large tech players have so often been able to convince lawmakers and regulators to pass special laws or regulations that work to their favor. Yet, in his We-Can-Build-A-Better-Bureaucrat model of things, all those old problems will apparently disappear when we get the right people in power and get rid of those nefarious capitalist schemers.

Thus, what really animates Doctorow’s advocacy for adversarial interoperability is a deep suspicion of free market capitalism and property rights in particular. In this worldview, interoperability really just becomes a Trojan Horse meant to help bring down the entire capitalist order. Am I exaggerating? “As to why things are so screwed up? Capitalism.” Those are his exact words from the conclusion of his latest book.

Adversarial Innovation & Evolutionary Interop

Still, Doctorow raises many legitimate issues about interconnection and digital access rights. But we need a better approach to work though these questions than the one he suggests.

In my lengthy review of the Palfrey and Gasser Interop book, I tried to sketch out an alternative framework for thinking seriously about these issues. I referred to my preferred approach as “experimental interoperability” or “evolutionary interoperability.” I described this as the theory that ongoing marketplace experimentation with technical standards, modes of information production and dissemination, and interoperable information systems, is almost always preferable to the artificial foreclosure of this dynamic process through state action. The former allows for better learning and coping mechanisms to develop while also incentivizing the spontaneous, natural evolution of the market and market responses.

Adversarial interoperability is important, but not nearly as important as adversarial innovation and facilities-based competition. Stated differently, access rights to existing systems is an important value, but the incentives we have in place to encourage entirely new systems is what really matters most. At some point, a generalized right of access to existing systems discourages the sort of platform-building that could help give rise to the sort of creative destruction we have seen at work repeatedly in the past and that we still need today. Taken too far, adversarial interoperability threatens to undermine this goal. Why seek to build a better alternative platform if you can just endlessly free ride off someone else’s by force of law?

Thus, I prefer to work at the margins and think through how to balance these competing claims of access / interoperability rights versus contractual / property rights. My take will be too utilitarian for not only Doctorow but also for some libertarians, who want clear answers to all these questions based upon their preferred natural law-oriented constructions of rights. The problem with that approach is that it leads to all-or-nothing extremes (complete digital property rights, or virtually none) and that approach is fundamentally unworkable and destructive. We need to work harder about how to balance these rights and values in pro-competitive, pro-innovation fashion.

There is No Such Thing as Optimal Interoperability

In sum, there is no such thing as “optimal interoperablity.” Sometimes proprietary or “closed” systems will offer the public features and options that they will find preferable to “open” ones. “There are many reasons why consumers might prefer ‘closed’ systems – even when they have to pay a premium for them,” argues Dirk Auer in a separate essay. It could be greater convenience, security, or other things. Palfrey and Gasser correctly noted in their book that, “the state is rarely in a position to call a winner among competing technologies” (p. 174). Moreover, they concluded:

“Lawmakers need to keep in view the limits of their own effectiveness when it comes to accomplishing optimal levels of interoperability. Case studies of government intervention, especially where complex information technologies are involved, show that states tend to be ill suited to determine on their own what specific technology will be the best option for the future (p. 175)

A thousand amens to that! The law should not artificially foreclose experimentation with many different types of platforms, standards, devices and the interoperability that exists among them.

Idaho Shows How to Clean Up Outdated Regs that Hold Back Progress

Adam Thierer — Tue, 30 Jun 2020 13:42:42 +0000

Why can’t governments ever clean up their messes? Occasional spring cleanings are essential not only for keeping our own homes tidy and in good working order, but also for keeping our government systems functioning effectively. What can be done? In a new essay with my Mercatus Center colleagues Patrick McLaughlin and Matthew Mitchell, we note that Idaho Governor Brad Little has just issued a smart Executive Order that aims to clean house by bringing state rules in line with common sense. Specifically, the governor’s order addresses what to do with the 150-plus regulations that Idaho state agencies waived in response to the COVID-19 outbreak. This is a great model for other states, and it tracks a proposal that Patrick, Matt, and I floated in a white paper just a few months ago. The entire essay, which originally ran on The Bridge, is reprinted below.

Idaho “Spring Cleaning” Order a Model for Other States

by Patrick McLaughlin, Matthew D. Mitchell & Adam Thierer

Regulations tend to accumulate endlessly. Today there are over 1 million restrictive words (think “shall” or “must”) in the Code of Federal Regulations. Some states, like California and New York, layer on hundreds of thousands of additional regulatory restrictions. Fewer than 1 percent of these rules have been subjected to rigorous cost-benefit analyses. And once regulations are on the books, it is fairly rare to see them subjected to any sort of retrospective review to see how they have performed.

Regulatory restrictions are not just cumbersome. They throttle innovation, favor established firms, and limit economic growth. Research suggests that if federal regulatory restrictions had been held to their 1980 levels, the US economy today would be 25 percent larger than it is. If governments are to become more responsive to the needs of their citizens, they should conduct occasional “spring cleanings” of archaic rules and regulations that no longer make sense or are holding back economic and other progress. Unfortunately, these cleanups rarely happen.

Some states, however, appear poised to change that, and Idaho is taking the lead. This week, Idaho Gov. Brad Little signed a new executive order on “Regulatory Relief to Support Economic Recovery.” It is “focused on reducing barriers to economic recovery, waiving licensing provisions, increasing telehealth access, and augmenting healthcare capacity.”

Specifically, the governor’s order addresses what to do with the 150-plus regulations that Idaho state agencies waived in response to the COVID-19 outbreak. Perhaps most importantly, it eliminates the presumption that the affected rules are in the public interest. It states that “if waiving these regulations was deemed necessary to improve public health and welfare during the declared emergency, there is a rebuttable presumption that the regulations are unnecessary or counterproductive outside of the declared emergency.” In other words, if government officials viewed an existing rule as such a hindrance to response efforts during a serious public health emergency that they waived it, then the rule may not be right for normal conditions either.

This is consistent with a proposal we set forth in a recent Mercatus Center white paper, “ A Fresh Start: How to Address Regulations Suspended during the Coronavirus Crisis.” In that paper, we note that the COVID-19 crisis was a major stress test for American institutions and that it “has laid bare the outdated, overlapping, and often contradictory morass of rules that make it difficult for public and private organizations to respond to changing circumstances.” Accordingly, we recommend that federal and state lawmakers consider forming “Fresh Start Initiatives,” and we suggest five steps:

Any rule suspended or modified during the pandemic should remain off the books until further study.
Congress or the state legislature should form an independent and bipartisan commission to study these rules.
The commission should identify and study all the rules revised or suspended during the crisis.
The commission should then formulate a set of recommended regulatory reforms for each of those rules and craft a plan and timetable for automatically sunsetting or comprehensively revising those policies or programs as part of a single reform package.
All recommendations should take effect automatically unless both houses of Congress or the state legislature and the executive take affirmative action to countermand the commission’s experts.

Fresh Start Initiatives build on the successful experience of the Base Realignment and Closure (BRAC) commissions. For years, defense officials had attempted to close obsolete and unnecessary military facilities. And for years Congress resisted. While these bases served little or no public purpose, they were financially lucrative to the communities that hosted them and these communities (and their congressional representatives) were always able to block reform efforts. Under five rounds of BRAC commissions, however, 350 obsolete military bases were closed.

There were four key elements to the success of the BRAC approach. First, legislators were able to cast conspicuous votes for the general interest goal of reducing unnecessary spending, by supporting the closure of bases that no longer held strategic value in a post-Cold War environment. Second, a separate institution —namely, the commission itself, with expert and impartial members—decided which particular bases had to go. This allowed members of Congress to blame a decision to close any particular base on “those eggheads on the commission.” Third, it was difficult for the legislators to countermand the recommendations of the experts. All of the BRAC commissions’ recommendations took effect unless both chambers of Congress and the president took affirmative action to countermand them. And finally, the institution’s progress toward the end goal was measured and regularly reported to the public.

These same principles can clear away obsolete and counterproductive regulations—especially those that, like obsolete military bases, benefit special interests at the expense of the general public. Fresh Start Initiatives and other spring cleaning efforts are just one of many approaches to addressing regulatory accumulation and regulatory quality. Other reforms are also needed and, once again, Idaho has paved the way.

The state was already a leader on regulatory reform and has been taking steps to address ineffective and outdated regulations through efforts such as the earlier “Red Tape Reduction Act” and the “Zero-Based Regulation” executive orders. A year ago Idaho actually sunset its entire regulatory code in an effort to clean up its 8,200 pages of regulations containing 736 chapters of state rules.

Our Mercatus Center colleague James Broughel has written extensively on these and other state-based reforms. And along with co-author, Krista Chavez, he has shown that “the Idaho experience demonstrates that state governments can significantly reduce regulations without much fanfare or controversy.” They argue, “The state’s recent experience shows that it’s not inevitable that a state’s regulatory code grows ever larger and more complicated year after year. Indeed, major cuts in regulations are possible and need not be controversial.”

Now that Idaho has added the new “spring cleaning” executive order, it offers other states an even better roadmap for common sense regulatory reform.

Biased AI is More Than a Technical Problem: Building a Process-oriented Policy Approach to AI Governance

Anne Hobson — Wed, 06 May 2020 14:18:17 +0000

[Co-authored with Walter Stover]

Artificial Intelligence (AI) systems have grown more prominent in both their use and their unintended effects. Just last month, LAPD announced that they would end their use of a predicting policing system known as PredPol, which had sustained criticism for reinforcing policing practices that disproportionately affect minorities. Such incidents of machine learning algorithms producing unintentionally biased outcomes have prompted calls for ‘ethical AI’. However, this approach focuses on technical fixes to AI, and ignores two crucial components of undesired outcomes: the subjectivity of data fed into and out of AI systems, and the interaction between actors who must interpret that data. When considering regulation on artificial intelligence, policymakers, companies, and other organizations using AI should therefore focus less on the algorithms and more on data and how it flows between actors to reduce risk of misdiagnosing AI systems. To be sure, applying an ethical AI framework is better than discounting ethics all together, but an approach that focuses on the interaction between human and data processes is a better foundation for AI policy.

The fundamental mistake underlying the ethical AI framework is that it treats biased outcomes as a purely technical problem. If this was true, then fixing the algorithm is an effective solution, because the outcome is purely defined by the tools applied. In the case of landing a man on the moon, for instance, we can tweak the telemetry of the rocket with well-defined physical principles until the man is on the moon. In the case of biased social outcomes, the problem is not well-defined. Who decides what an appropriate level of policing is for minorities? What sentence lengths are appropriate for which groups of individuals? What is an acceptable level of bias? An AI is simply a tool that transforms input data into output data, but it’s people that give meaning to data at both steps in context of their understanding of these questions and what appropriate measures of such outcomes are.

The Austrian school of economics is well-suited to helping us grapple with these kinds of less well-defined problems. Austrian economists levied a similar critique against mainstream economics, which treated economic outcomes as a technical problem to be solved with specific technical decisions. The Austrians stressed a principle of methodological individualism, which holds that socioeconomic outcomes are ultimately the products of individual decisions, and cannot be acted on directly by technocratic policymakers. Methodological individualism involves the recognition that individuals drive outcomes in two primary aspects: subjective interpretation of their environment, and through interaction with each other and that same environment. We can sum up application of these two aspects to AI systems in two questions: who gets the data, and where does the data go?

It matters who gets the data because the necessity of subjective interpretation will lead different people to reach separate conclusions about the same data. As an example, a set of data on financial variables such as defaults and debt repayment frequency combined with personal characteristics such as race and geographic locations may lead one person to label African-Americans as larger credit risks. Other individuals reading the same data, however, may arrive at a different conclusion: the patterns in this data stem from structural racism that has suppressed income of African American households compared to other households, and do not indicate that they are inherently riskier. The first interpretation would result in biased outcomes from an AI system used to generate predictions of credit risk based on that data, whereas the second interpretation might actually result in beneficial outcomes; for instance, an agency might offer with more lenient terms to these individuals.

The second question of where data goes depends on the interaction of individuals with each other and their environment, which drives the flow of data and also determines how that data is acted upon. In her book Weapons of Math Destruction, Cathy O’Neil offers a perfect example of this when analyzing what went wrong with the LAPD’s use of PredPol, which took in data on past crimes and used it to predict the geographic location of new crimes. Police forces took this data and increased their presence in hot spots of predicted crime, which resulted in a positive feedback loop of more crime data originating in that area (because of increased interaction between police officers and residents of that neighborhood in the form of increased arrests) generating more predictions of crime, leading to over-policing of minority groups. Ultimately, the data went to a police department that unintentionally increased arrests of minority groups.

Together, the subjectivity of data and the importance of interaction get at a core insight of Austrian economics that directly follows the principle of methodological individualism: context matters. If how data is interpreted and used differs from person to person, then the flows of data matter in who gets the data first and how they use it, potentially transforming the data before sending it on. Thinking along these lines shifts us away from focusing on building better, more ethical AI, and more towards trying to better understand the dynamics of data within a system: who is selecting which data to feed into an AI, what data the AI then generates, and most importantly, how that data is then acted upon and by whom. If we don’t take these matters into consideration, we risk myopically focusing on fixes to the AI that will not change outcomes. In the case of PredPol, for example, the AI could have been completely transparent, but the outcome would have been the same because of how police officers were acting on the output data according to their institutional context.

Some experts are already calling for more process-oriented AI governance approaches, including the EU’s High-Level Expert Group on AI and professional services network KPMG. Carolyn Herzog, general counsel and chair of an ethics working group, comes close to the approach we are advocating in stressing that “…data is the lifeblood of AI,” and that we must pay attention to “…issues of how that data is being collected, how it is being used, and how it is being safeguarded.” However, at present, this data-oriented approach is not represented clearly in U.S. policy. Recent AI policy movements, including ethical principles released by the Department of Defense and the Office of Management and Budget’s AI Guidelines, are a good first step but still emphasize the technology more than the data flows, and are limited to the government’s use of AI. Principle 9 of the guidelines, for instance, notes the importance of having controls to ensure “…confidentiality, integrity, and availability of the information stored, processed, and transmitted by AI systems,” but does not extend this to explicitly consider how the data is used after being transmitted.

Moreover, these proposals do not coherently lay out the relationship between data and AI outcomes because they do not give enough emphasis on where data goes and how it is used in context after being transmitted from the AI system. Returning to our earlier point, interactions matter. Take PredPol as an example. Even if we know how data was being collected, stored, and used by PredPol, and by the police department, these two pieces in isolation are not enough to understand the emergent outcome that results from the interaction between these two organizations. The critical driver is the feedback loop that emerges because of the data flows back and forth between PredPol and the police department. Current policy proposals risk overlooking this class of emergent AI outcomes by narrowly focusing on the AI and data practices of just one organization, rather than explicitly drawing our attention to how data circulates in the wider data ecosystem.

What’s needed is a process-oriented, systemic policy approach focused not just on AI, but how data is interpreted and used in context by individuals and organizations on the ground, and how these parties interact with each other. The NTIA would be a good convener for drafting this framework given their success in leading a multi-stakeholder process to build a framework for enhancing cybersecurity. NTIA can use the AI Now Institute’s algorithmic impact assessment as a blueprint. By building a voluntary framework for AI outcomes, the NTIA can serve a dual purpose. First, it can help ease worries over how to stay compliant with best practices; Second, it can help organizations safeguard against unwanted outcomes of AI systems, and more effectively identify and correct problems that do arise instead of depending on outside forensic data analysis after the fact. NTIA can help establish a common language of AI systems between public and private entities that gives concrete steps organizations can take to avoid these outcomes.

Barriers to a Builder’s Movement: Thoughts on Andreessen’s Manifesto

Adam Thierer — Tue, 21 Apr 2020 16:48:50 +0000

[First published by AIER on April 20, 2020 as “Innovation and the Trouble with the Precautionary Principle.”]

In a much-circulated new essay (“It’s Time to Build”), Marc Andreessen has penned a powerful paean to the importance of building. He says the COVID crisis has awakened us to the reality that America is no longer the bastion of entrepreneurial creativity it once was. “Part of the problem is clearlyforesight, a failure of imagination,” he argues. “But the other part of the problem is what we didn’t do in advance, and what we’re failing to do now. And that is a failure of action, and specifically our widespread inability to build.”

Andreessen suggests that, somewhere along the line, something changed in the DNA of the American people and they essentially stopped having the desire to build as they once did. “You don’t just see this smug complacency, this satisfaction with the status quo and the unwillingness to build, in the pandemic, or in healthcare generally,” he says. “You see it throughout Western life, and specifically throughout American life.” He continues:

“The problem is desire. We need to want these things. The problem is inertia. We need to want these things more than we want to prevent these things. The problem is regulatory capture. We need to want new companies to build these things, even if incumbents don’t like it, even if only to force the incumbents to build these things.”

Accordingly, Andreessen continues on to make the case to both the political right and left to change their thinking about building more generally. “It’s time for full-throated, unapologetic, uncompromised political support from the right for aggressive investment in new products, in new industries, in new factories, in new science, in big leaps forward.”

What’s missing in Andreessen’s manifesto is a concrete connection between America’s apparent dwindling desire to build these things and the political realities on the ground that contribute to that problem. Put simply, policy influences attitudes. More specifically, policies that frown upon entrepreneurial risk-taking actively disincentivize the building of new and better things. Thus, to correct the problem Andreessen identifies, it is essential that we must first remove political barriers to productive entrepreneurialism or else we will never get back to being the builders we once were.

Attitudes about Progress Matter

The economic historian Joel Mokyr has noted how, “technological progress requires above all tolerance toward the unfamiliar and the eccentric” and that the innovation that undergirds economic growth is best viewed as “a fragile and vulnerable plant” that “is highly sensitive to the social and economic environment and can easily be arrested by relatively small external changes.” Specifically, societal and political attitudes toward growth, risk-taking, and entrepreneurial activities (and failures) are important to the competitive standing of nations and the possibility of long-term prosperity. “How the citizens of any country think about economic growth, and what actions they take in consequence, are,” Benjamin Friedman observes, “a matter of far broader importance than we conventionally assume.”

Former Federal Reserve chairman Alan Greenspan and co-author Adrian Wooldridge have observed that “[t]he key to America’s success lies in its unique toleration for ‘creative destruction,’” and an “enduring preference for change over stability.” This is consistent with the findings of Deirdre McCloskey’s recent 3-volume trilogy about the history of modern economic growth. McCloskey meticulously documents how an embrace of “bourgeois virtues” (i.e., positive attitudes about markets and innovation) was the crucial factor propelling the invention and economic growth that resulted in the Industrial Revolution.The importance of positive attitudes toward innovation and risk-taking were equally important for the Information Revolution more recently. In turn, that also helps explain why so many US-based tech innovators became global powerhouses, while firms from other countries tend to flounder because their innovation culture was more precautionary in orientation.

There are limits to how much policymakers can do to influence the attitudes among citizens toward innovation, entrepreneurialism, and economic growth. When policymakers set the right tone with a positive attitude toward innovation, however, it inevitably infuses various institutions and creates powerful incentives for entrepreneurial efforts to be undertaken. This, in turn, influences broader societal attitudes and institutions toward innovation and creates a positive feedback loop. “If we learn anything from the history of economic development,” argued David Landes in his magisterial The Wealth and Poverty of Nations: Why Some Are So Rich and Some Are So Poor, “it is that culture makes all the difference.” Research by other scholars finds that, “existing cultural conditions determine whether, when, how and in what form a new innovation will be adopted.”

Economists like Mancur Olson speak of the importance of a “structure of incentives” that helps explain why “the great differences in the wealth of nations are mainly due to differences in the quality of their institutions and economic policies.”In this sense, “institutions” include what Elhanan Helpman defines as “systems of rules, beliefs, and organizations,”including the rule of law and court systems,property rights,contracts, free trade policies and institutions, light-touch regulations and regulatory regimes, freedom to travel, and various other incentives to invest.

It is the freedom to invest, the freedom to work, and the freedom to build that particularly concerns Marc Andreessen. But he needs to draw the connection with the specific public policies that hold back our ability to exercise those freedoms.

Policy Defaults toward Innovation Matter Even More

Unfortunately, a great many barriers exist to entrepreneurial efforts. Those barriers to building include inflexible health and safety regulation, occupational licensing rules, cronyist industrial protectionist schemes, inefficient (industry-rigged) tax schemes, rigid zoning ordinances, and many other layers of regulatory red tape at the federal, state, and local level.

What unifies all these policies is risk aversion and the precautionary principle. As I argued in my last book, we have a choice when it comes to setting defaults for innovation policy. We can choose to set innovation defaults closer to the green light of “permissionless innovation,” generally allowing entrepreneurial acts unless a compelling case can be made not to. Alternatively, we can set our default closer to the red light of the precautionary principle, which disallows risk-taking or entrepreneurialism until some authority gives us permission to proceed.

My book made the case for permissionless innovation as the superior default regime. My argument for rejecting the precautionary principle as the default came down to belief that, “living in constant fear of worst-case scenarios—and premising public policy on them—means that best-case scenarios will never come about. When public policy is shaped by precautionary principle reasoning,” I argued, “it poses a serious threat to technological progress, economic entrepreneurialism, social adaptation, and long-run prosperity.”

Heavy-handed preemptive restraints on innovative acts have such deleterious effects because they raise barriers to entry, increase compliance costs, and create more risk and uncertainty for entrepreneurs and investors. Progress is impossible without constant trial-and-error experimentation and entrepreneurial risk-taking. Thus, it is the unseen costs of forgone innovation opportunities that make the precautionary principle so troubling as a policy default. Without risk, there can be no reward. Scientist Martin Rees refers to this truism about the precautionary principle as “the hidden cost of saying no.”

More generally, risk analysts have noted that the precautionary principle “lacks a firm logical foundation” and is “literally incoherent” because it fails to specify a clear standard by which to judge which risks are most serious and worthy of preemptive control. Moreover, regulatory policy experts have criticized the fact that the precautionary principle, “may be misused for protectionist ends; it tends to undermine international regulatory cooperation; and it may have highly undesirable distributive consequences.” Specifically, large incumbent firms are almost always more likely able to deal with rigid, expensive regulatory regimes or, worse yet, can game those systems by “capturing” policymakers and using regulatory regimes to exclude new rivals.

Precaution Suffocates Productive Entrepreneurialism

The problem today is that a massive volume of precautionary policies exist that discourage “productive entrepreneurship” (i.e., building) and instead actively encourage “unproductive entrepreneurship” (i.e., preservation of the status quo). Andreessen identifies this problem when he speaks of “smug complacency, this satisfaction with the status quo and the unwillingness to build.” But he doesn’t fully connect the dots between how the attitudes came about and the public policy incentives that actively encourage such thinking.

Why try to build when all the incentives are aligned against you? Andreessen wants to know “Where are the supersonic aircraft? Where are the millions of delivery drones? Where are the high speed trains, the soaring monorails, the hyperloops, and yes, the flying cars?” Well, I’ll tell you where they are at. They are trapped in the minds of inventive people who cannot bring them to fruition so long as an endless string of barriers makes it costly or impossible for them to realize those dreams.

Read Eli Dourado’s important essay on “How Do We Move the Needle on Progress?” to get a more concrete feel for the specific barriers to building in the fields where productive entrepreneurialism is most needed: health, housing, energy, and transportation.

The bottom line, as Dustin Chambers and Jonathan Munemo noted in a 2017 Mercatus Center report on the impact of regulation on entrepreneurial activity, is that “If a nation wishes to promote higher levels of domestic entrepreneurship in both the short and long run, top priority should be given to reducing barriers to entry for new firms and to improving overall institutional quality (especially political stability, regulatory quality, and voice and accountability).”

This doesn’t mean there is no role for government in helping to promote “building” and entrepreneurialism. A healthy debate continues to rage about “state capacity” as it pertains to government investments in research and development, for example. While I am skeptical, there may very well be some steps governments can take to encourage more and better investments in the sectors and technologies we desperately need. But all the “state capacity” in the world isn’t going to help until we first clear away the barriers that hold back the productive spirit of the people.

Oiling the Wheels of Novelty

My new book, which is due out next week, discusses how innovation improves economies and government institutions. It builds on the fundamental insight of Calestous Juma, who concluded his masterwork Innovation and Its Enemies by reminding us of the continued importance of “oiling the wheels of novelty,” to constantly replenish the well of important ideas and innovations. “The biggest risk that society faces by adopting approaches that suppress innovation,” Juma said, “is that they amplify the activities of those who want to preserve the status quo by silencing those arguing for a more open future.”

The openness Juma had in mind represents a tolerance of new ideas, inventions, and unknown futures. It can and should also represent an openness to new, more flexible methods of governance. For, if it doesn’t, the builder movement that Andreessen and others long for will remain just a distant dream, incapable of ever being realized so long as the wheels of novelty are gummed up by decades of inefficient, archaic, counterproductive public policies.

_________

P.S. I highly recommend this excellent essay by Jerry Brito, “We don’t want to build? Maybe we should build anyway.” It touches on many of the same themes I discuss in my response essay as well as in my new book, Evasive Entrepreneurs and the Future of Governance: How Innovation Improves Economies and Governments.

Hand Sanitizers, Face Masks and Common Sense Regulation

Adam Thierer — Tue, 21 Apr 2020 14:01:10 +0000

[Co-authored with Trace Mitchell and first published on The Bridge on April 21, 2020.]

Which seems like a more pressing concern at the moment: Ensuring that we get hand sanitizer onto shelves or making sure that children don’t drink it once we do? Getting face masks out to the public quickly, or waiting until they can be manufactured to precise federal regulatory specifications?

These questions are currently being raised by the Food and Drug Administration (FDA). The agency’s rules have been making it hard for distilleries to address the hand sanitizer shortage. Companies looking to supply more face masks to the nation as quickly as possible have been similarly stymied.

Sometimes government regulation is so out of touch with reality and common sense that it should force us to rethink the way business is done in Washington. As our Mercatus Center colleague Scott Sumner concludes, the past month has witnessed “a torrent of governmental incompetence that is breathtaking in scale” and “regulations so bizarre that if put in a novel no one would believe them.” Sadly, he’s right, and the strange world of FDA hand sanitizer and face mask regulation provides us with two teachable moments.

As we write, the FDA has repealed or at least examined many of the immediate barriers to the production of face masks and hand sanitizers. Still, precious time was lost waiting for the agency to clear out unneeded regulations. Going forward, regulators should be sure to review and prune their cache of rules before calamity strikes, perhaps in the form of an independent regulatory review commission or a regulatory budget.

Distilling the meaning of regulation: no innovation without permission

Hard sanitizers have been hard to find for weeks now. Who better to respond to the need for alcohol-based hand sanitizers than the nation’s many distilleries? After all, they have the equipment and means to easily churn out oceans of the stuff. Hearing news of the shortages, hundreds of entrepreneurial distillers rose to the challenge and began cranking out homemade sanitizers, only to learn that their noble efforts were of questionable legality.

That’s because distilleries must navigate a confusing maze of federal, state, and local taxes and regulations. Nominally, these rules are supposed to protect public health. In practice, however, governments often use these rules to extract as much tax revenue as possible.

Setting aside the questions of whether distilleries and their customers should bear these hefty taxes during regular times, these tax rules limited distillers’ efforts to respond to the sanitizer shortage.

The problem is in how these tax rules interact with other rules about how hand sanitizer can be made. The FDA’s rules required that hand sanitizers be made with a bitter-tasting denaturing agent to prevent people from drinking it. But denatured alcohol has become scarce during the pandemic. Yet if distilleries did not use denatured alcohol in their homebrew hand sanitizer, their concoctions would be taxed as an alcoholic beverage!

In theory, taxing undenatured alcohol at a much higher rate also helps the government diminish alcohol use, or keep it out of the hands of minors. That logic is questionable, but it should not even be an issue when we are talking about how to make hand sanitizer. Again, what is the fear here? Are children really going to consume hand sanitizer with drinkable alcohol in it? Seems like there are probably many easier ways to skirt drinking laws than chugging small vials of hand sanitizer.

Moreover, there is an easy fix to all this. The FDA recently issued two guidance documents that temporarily cease actions against pharmacists and firms that produce hand sanitizers with certain non-traditional compositions, so long as they do not intentionally make the mixture more pleasant tasting.

That’s a good start. But the FDA has not updated its guidance to permit distillers to use undenatured alcohol, which is what most of them have on hand. Undenatured alcohol-based hand sanitizers are just as effective as those that are natured alcohol-based. The FDA should explicitly allow this kind of hand sanitizer to be produced so that more people have access to this needed supply.

Face masks: covered in red tape

And it’s not just hand sanitizer.

Face masks have become essential during this pandemic. Doctors, nurses, and other medical professionals are in desperate need of these important, potentially life-saving, items to limit their risk of infection. In addition, the CDC announced last week that everyone should begin wearing cloth face coverings “fashioned from household items or made at home from common materials” when going out in public or interacting with others to help lower the risk of transmission and slow the spread of the coronavirus.

However, the CDC does not recommend that people use surgical masks or N95 respirators, as these are “critical supplies” that need to be reserved for “healthcare workers and other medical first responders.” So why would the CDC want people to create their own homemade cloth masks? Because there is a massive shortage of the higher quality variety used by medical personnel.

Department of Health and Human Services officials have estimated that the United States will need roughly 3.5 billion medical-grade masks to deal with the COVID-19 pandemic. How many did the United States actually have on hand at the beginning of this crisis? About 35 million. That is just one percent of the overall need. This has led some hospitals to begin reusing disposable masks or creating their own out of everyday office supplies. With such a significant mismatch between the overall demand and the current supply, it is completely understandable that the CDC would want people to make their own masks and refrain from tapping into the limited supply of medical-grade masks.

But the question remains, why is there such a massive shortage to begin with? Why haven’t businesses and entrepreneurs noticed the incredible demand for face masks and flooded the market with new devices? Why haven’t healthcare facilities started importing face masks from trading partners like China to meet their current needs? The answer is fairly simple. Up until recently, they weren’t allowed.

The FDA considers face masks to be medical devices and subjects them to cumbersome red tape and hyper-formalistic procedures. If a business wants to begin producing face masks and distributing them to the public, it must first go through the FDA’s approval process. This process often takes months and requires numerous tests, extensive records, and a detailed application subject to approval.

In addition, until recently, the FDA made it illegal to import certain devices—like China’s KN95 face mask—irrespective of how well they may work. While these burdensome restrictions are often justified based on a desire to promote public safety, it is clear they do the exact opposite during a pandemic. Instead of protecting the public, these controls actively prevent people from getting the life-saving items they need. In fact, the mismatch created by these regulations is so large that a gray market has emerged for imported face masks.

Luckily, policymakers are beginning to recognize the harm these policies cause. On March 26, the FDA announced that it will not enforce these cumbersome manufacturing requirements for the duration of this crisis. Earlier this month, the agency decided to allow the importation of China’s KN95 face masks.

While these decisions are steps in the right direction, quite a bit of harm has resulted from the delay caused by these overly restrictive regulations. It shouldn’t take a crisis of this magnitude for decision-makers to question policies that raise barriers to supplying people with the resources they need.

The death of common sense

What is going on here? As our colleague Martin Gurri notes, agencies like the FDA and the CDC seem to be “mesmerized by proceduralism” and “tied up in bureaucratic knots.” This is by design, however. These agencies tend to be highly risk-averse and rely on strict, centralized, top-down modes of organization and decision-making. Precaution and preservation of the status quo triumph over experimentation and chance. Their rules are heavy-handed, inflexible, and slow to adapt to new circumstances. Rules quickly become ossified, and agencies eventually fall into a “build-and-freeze” model of regulation that sets rules in stone. These rules may address relevant issues at the time but the agencies either fail to eliminate them when they become obsolete or to bring them in line with new social, economic, and technical realities.

What is left is a series of one-size-fits-all mandates, prohibitions, and penalties that are ill-equipped to deal with a crisis and that can actually undermine the very goals they were put in place to achieve. Practical efforts to protect public health get rejected because proceduralism is valued more highly. “Going by the book” becomes a greater virtue than being innovative.

That is how we get to the point that something as simple as hand sanitizers and face masks can become trapped in a surreal regulatory maze that can only be escaped by petitioning bureaucrats for the freedom to innovate.

Cleaning up this mess

How do we clean up this mess? First, we begin by acknowledging that we face a serious problem. The COVID-19 crisis has revealed just how dysfunctional America’s “permission society” has become, which has profound consequences for public welfare. “Society can’t function when stuck in a heap of accumulated mandates of past generations,” notes Philip K. Howard, author of The Death of Common Sense: How Law Is Suffocating America.

While many government rules are put on the books with the best of intentions, regulatory flexibility and humility should guide enforcement efforts. Rote compliance shouldn’t trump common sense. At some point, periodic house-cleaning becomes essential.

Alas, policymakers seem incapable of regularly pruning regulations, and this year’s spring cleaning for the regulatory state only came about because the COVID-19 crisis forced their hand. Governments at the federal, state, and local levels are now temporarily suspending many regulations that have clearly limited innovative responses to the crisis. A better approach is to get ahead of the problem and begin rolling back outdated, overly cumbersome regulations before a situation like this one arises.

One way of doing this would be to establish a BRAC-style commission to periodically review the regulatory code and clear outdated, unnecessary, or overly burdensome restrictions. Independent regulatory reform committees allow legislatures and agencies to focus on their current needs while still ensuring that some entity is assessing the efficacy of previously enacted laws and regulations. In addition, because this would be an independent commission outside of any particular agency or governmental body, it may be more objective in gauging whether past restrictions really are serving a significant interest and more willing to strike down those that are not. The practice of regulatory budgeting could similarly help to beat back our out-of-control regulatory state.

Whatever the path chosen, it is imperative that governments get their regulatory houses in order. COVID-19 has shown some of the social fault lines that rigid regulation has created in healthcare and technology. We should not wait for the next crisis to show us where vulnerabilities lie in other domains.

Needed: A ‘Fresh Start Initiative’ to Address Rules Suspended during the Crisis

Adam Thierer — Thu, 16 Apr 2020 20:52:23 +0000

The Mercatus Center at George Mason University has just released a new paper by Patrick A. McLaughlin, Matthew D. Mitchell, and me entitled, “A Fresh Start: How to Address Regulations Suspended during the Coronavirus Crisis.” Here’s a quick summary.

As the COVID-19 crisis intensified, policymakers at the federal, state, and local levels started suspending or rescinding laws and regulations that hindered sensible, speedy responses to the pandemic. These “rule departures” raised many questions. Were the paused rules undermining public health and welfare even before the crisis? Even if the rules were well intentioned or once possibly served a compelling interest, had they grown unnecessary or counterproductive? If so, why did they persist? How will the suspended rules be dealt with after the crisis? Are there other rules on the books that might transform from merely unnecessary to actively harmful in future crises?

Once the COVID-19 crisis subsides, there is likely to be considerable momentum to review the rules that have slowed down the response. If policymakers felt the need to abandon these rules during the current crisis, those same rules should probably be permanently repealed or at least comprehensively reformed to allow for more flexible responses in the future.

Accordingly, when the pandemic subsides, policymakers at the federal and state levels should create “Fresh Start Initiatives” that would comprehensively review all suspended rules and then outline sunsetting or reform options for them. To this end, we propose an approach based on the successful experience of the Base Realignment and Closure (BRAC) Commission.

Read the entire paper here to see how it would work. This is our chance to finally do some much-needed spring cleaning for the regulatory state.

Reforming Licensing Rules to Help Fight the Pandemic

Adam Thierer — Mon, 23 Mar 2020 13:19:12 +0000

In a new essay in The Dallas Morning News (“Licensing restrictions for health care workers need to be flexible to fight coronavirus“), Trace Mitchell and I discuss recent efforts to reform occupational licensing restrictions for health care workers to help fight the coronavirus. Trace and I have written extensively about the need for licensing flexibility over the past couple of years, but it is needed now more than ever. Luckily, some positive reforms are now underway.

We highlight efforts in states like Massachusetts and Texas to reform their occupational licensing rules in response to the crisis, as well as federal reforms aimed at allowing reciprocity across state lines. We conclude by noting that:

It should not take a crisis of this magnitude for policymakers to reconsider the way we prevent fully qualified medical professionals from going where they are most needed. But that moment is now upon us. More leaders would be wise to conduct a comprehensive review of regulatory burdens that hinder sensible, speedy responses to the coronavirus crisis.

If nothing else, the relaxation of these rules should give us a better feel for how necessary strict licensing requirements truly are. Chances are, we will learn just how costly the regulations have been all along.

Vocational Programs Won’t Hit the Mark in an Ever-changing Job Market

Anne Hobson — Tue, 04 Feb 2020 13:48:28 +0000

–Coauthored with Mercatus MA Fellow Jessie McBirney

Flat standardized test scores, low college completion rates, and rising student debt has led many to question the bachelor’s degree as the universal ticket to the middle class. Now, bureaucrats are turning to the job market for new ideas. The result is a renewed enthusiasm for Career and Technical Education (CTE), which aims to “prepare students for success in the workforce.” Every high school student stands to benefit from a fun, rigorous, skills-based class, but the latest reauthorization of the Carl D. Perkins Act, which governs CTE at the federal level, betrays a faulty economic theory behind the initiative.

Modern CTE is more than a rebranding of yesterday’s vocational programs, which earned a reputation as “dumping grounds” for struggling students and, unfortunately, minorities. Today, CTE classes aim to be academically rigorous and cover career pathways ranging from manufacturing to Information Technology and STEM (science, technology, engineering, and mathematics). Most high school CTE occurs at traditional public schools, where students take a few career-specific classes alongside their core requirements.

In addition to building skepticism toward “college for everyone,” researchers have identified a “skills gap” between what employers want and the skills job-seekers offer. STEM training is a particularly trendy solution. Trump recently signed a presidential memo expanding the National Science Foundation’s STEM education initiatives and Virginia established a STEM Education Commission last year. With its many pathways, local customizability, and promise of immediate income upon graduation, CTE feels like a practical answer for young people and the economy.

As recent changes to the Perkins Act suggest, “alignment” between CTE courses and labor markets is a growing concern. Now, programs applying for federal funds must conduct a “local needs assessment” to ensure their course offerings align with local labor markets. One recent study attempted an early measure of this alignment in several metropolitan areas. Findings are mixed, but the quest for alignment itself shows how hope in career training programs has exceeded good economic sense.

Consider some of the phrases found in states’ CTE mission statements:

“…to prepare students for in-demand, high-skilled, and high-waged jobs.” (MD)

“…relevant experiences leading to purposeful and economically viable careers.” (AZ)

“…meeting the commonwealth’s need for well-trained workers.” (VA)

The desire to parse out an economy and plan accordingly is not new, but there are limits to predicting in-demand skills and future jobs. Friedrich Hayek conceives of the market not as a math problem to deconstruct but as a “discovery procedure.” The market changes, rapidly and unexpectedly, based on information identified only along the way. It is the cumulative and dynamic result of thousands of individual plans coordinating through prices and wages. Thus, a central authority could never collect enough information to make accurate predictions about market outcomes. Aiming at a particular social or economic goal—such as fixing a list of gaps in the labor market—will likely fall short of another outcome we didn’t even consider.

For this reason, Hayek explains in his Constitution of Liberty, flourishing societies must be economically and politically free, and public education should be offered to the extent that it nurtures the independent citizens that a free society requires. Education oriented toward a particular vocational end shortchanges the student. Hayek explains:

“We are not educating people for a free society if we train technicians who expect to be ‘used,’ who are incapable of finding their proper niche themselves … All that a free society has to offer is an opportunity of searching for a suitable position, with all the attendant risk and uncertainty which such a search for a market for one’s gifts must involve.”
(Hayek 1960, 144-45).

Picking training goals for a student body is no guarantee of long term success, and may block even better outcomes. It is no accident that Hayek does not count increased earning potential or national economic strength among the reasons to publicly subsidize education. Instead, he favors general education and literacy for social cohesion and democratic participation. Rising wages for high-demand skills should entice students into sparse job markets without extra encouragement from school programs.

Hayek is not alone in his insistence that individuals are in the best position to choose and experiment with their professions. In The Wealth of Nations, Adam Smith recognizes,

“In a society where things were left to follow their natural course, where there was perfect liberty, and where every man was perfectly free both to choose what occupation he thought proper, and to change it as often as he thought proper […] every man’s interest would prompt him to seek the advantageous, and to shun the disadvantageous employment.”
(Smith 1776, 151)

Rather than encourage programs to narrowly direct CTE training towards local “needs,” the federal government should focus on clearing barriers to entry into those professions. It can preempt state occupational licensing laws for opticians and interior designers, among other professions. States can follow the lead of Arizona and recognize out-of-state occupational licenses.

It is worth noting that CTE advocates are not attempting to plan the American economy one web-design class at a time. High schoolers earn only 12 percent of their credits from CTE, and some of the most prominent proponents recognize the challenges a changing economy poses. But the language we use will shape our goals over time. Requiring districts to consider “labor market alignment” in their annual CTE budgets is exactly the choosing between different kinds of education Hayek cautions against. Today’s alignment can be tomorrow’s stagnation.

This is not to deny the academic and personal benefits of taking CTE classes. Teenagers who do are more likely to graduate high school, to get a job, and to earn higher wages right away. Other studies suggest non-academic benefits like increased attendance. It makes intuitive sense that students would welcome non-traditional learning opportunities to break up their daily studies, and that their high school experience would be better for it. But by insisting CTE programs be training for certain job categories, we may be selling students short.