Innovation & Entrepreneurship

I write about telecom and tech policy and have found that lawmakers and regulators are eager to learn about new technologies. That said, I find that good tech policies usually die of neglect as lawmakers and lobbyists get busy patching up or growing “legacy” policy areas, like public pensions, income taxes, Medicare, school financing, and so forth. So it was a pleasant surprise this spring to see Arizona lawmakers prioritize and pass several laws that anticipate and encourage brand-new technologies and industries.

Flying cars, autonomous vehicles, telehealth–legislating in any one of these novel legal areas is noteworthy. New laws in all of these areas, plus other tech areas, as Arizona did in 2021, is a huge achievement and an invitation to entrepreneurs and industry to build in Arizona.

Re: AVs and telehealth, Arizona was already a national leader in autonomous vehicles and Gov. Ducey in 2015 created the first (to my knowledge) statewide AV task force, something that was imitated nationwide. A new law codifies some of those executive orders and establishes safety rules for testing and commercializing AVs. Another law liberalizes and mainstreams telehealth as an alternative to in-person doctor visits. 

A few highlights about new Arizona laws on legal areas I’ve followed more closely:

  1. Urban air mobility and passenger drones

Arizona lawmakers passed a law (HB 2485) creating an Urban Air Mobility study committee. 26 members of public and private representatives are charged with evaluating current regulations that affect and impede the urban air mobility industry and making recommendations to lawmakers. “Urban air mobility” refers to the growing aviation industry devoted to new, small aircraft designs, including eVTOL and passenger drones, for the air taxi industry. Despite the name, urban air mobility includes intra-city (say, central business district to airport) aviation as well as regional aviation between small cities.

The law is well timed. The US Air Force is giving eVTOL aircraft companies access to military airspace and facilities this year, in part to jumpstart the US commercial eVTOL industry, and NASA recently released a new study (PDF) about regional aviation and technology. NASA and the FAA last year also endorsed the idea of urban air mobility corridors and it’s part of the national strategy for new aviation.

The federal government partnering with cities and state DOTs in the next few years to study air taxis and to test the corridor concept. This Arizona study committee might be to identify possible UAM aerial corridors in the state and cargo missions for experimental UAM flights. They could also identify the regulatory and zoning obstacles to, say, constructing or retrofitting a 2-story air taxi vertiport in downtown Phoenix or Tucson.

Several states have drone advisory committees but this law makes Arizona a trailblazer nationally when it comes to urban air mobility. Very few states have made this a legislative priority: In May 2020 Oklahoma law created a task force to examine autonomous vehicle and passenger drones. Texas joined Oklahoma and Arizona on this front–this week Gov. Abbot signed a similar law creating an urban air mobility committee.

  1. Smart corridor and broadband infrastructure construction

Infrastructure companies nationwide are begging state and local officials to allow them to build along roadways. These “smart road” projects include installing 5G antennas, fiber optics, lidar, GPS nodes, and other technologies for broadband or for connected and autonomous vehicles. To respond to that trend, Arizona passed a law (HB 2596) on May 10 that allows the state DOT–solely or via public-private partnership–to construct and lease out roadside passive infrastructure.

In particular, the new law allows the state DOT to construct, manage, and lease out passive “telecommunication facilities”–not simply conduit, which was allowed under existing law. “Telecommunication facilities” is defined broadly:

Any cable, line, fiber, wire, conduit, innerduct, access manhole, handhole, tower, hut, pedestal, pole, box, transmitting equipment, receiving equipment or power equipment or any other equipment, system or device that is used to transmit, receive, produce or distribute by wireless, wireline, electronic or optical signal for communication purposes.

The new Section 28-7383 also allows the state to enter into an agreement with a public or private entity “for the purpose of using, managing or operating” these state-owned assets. Access to all infrastructure must be non-exclusive, in order to promote competition between telecom and smart city providers. Access to the rights-of-way and infrastructure must also be non-discriminatory, which prevents a public-private partner from favoring its affiliated or favored providers. 

Leasing revenues from private companies using the roadside infrastructure are deposited into a new Smart Corridor Trust Fund, which is used to expand the smart corridor network infrastructure. The project also means it’s easier for multiple providers to access the rights-of-way and roadside infrastructure, making it easier to deploy 5G antennas and extend fiber backhaul and Internet connectivity to rural areas.

It’s the most ambitious smart corridor and telecom infrastructure deployment program I’ve seen. There have been some smaller projects involving the competitive leasing of roadside conduit and poles, like in Lincoln, Nebraska and a proposal in Michigan, but I don’t know of any state encouraging this statewide.

For more about this topic of public-private partnerships and open-access smart corridors, you can read my law review article with Prof. Korok Ray: Smart Cities, Dumb Infrastructure.

  1. Legal protections for residents to install broadband infrastructure on their property

Finally, in May, Gov. Ducey signed a law (HB 2711) sponsored by Rep. Nutt that protects that resembles and supplements the FCC’s “over-the-air-reception-device” rules that protect homeowner installations of wireless broadband antennas. Many renters and landowners–especially in rural areas where wireless home Internet makes more sense–want to install wireless broadband antennas on their property, and this Arizona law protects them from local zoning and permitting regulations that would “unreasonably” delay or raise the cost of installation of antennas. (This is sometimes called the “pizza box rule”–the antenna is protected if it’s smaller than 1 meter diameter.) Without this state law and the FCC rules, towns and counties could and would prohibit antennas or fine residents and broadband companies for installing small broadband and TV antennas on the grounds that the antennas are an unpermitted accessory structure or zoning violation.

The FCC’s new 2021 rules are broader and protect certain types of outdoor 5G and WiFi antennas that serve multiple households. The Arizona law doesn’t extend to these “one-to-many” antennas but its protections supplement those FCC rules and clearer than FCC rules, which can directly regulate antennas but not town and city officials. Between the FCC rules and the Arizona law, Arizona households and renters have new, substantial freedom to install 5G and other wireless antennas on their rooftops, balconies, and yard poles. In rural areas especially this will help get infrastructure and small broadband antennas installed quickly on private property.

Too often, policy debates by state lawmakers and agencies are dominated by incremental reforms of longstanding issues and established industries. Very few states plant the seeds–via policy and law–for promotion of new industries. Passenger drones, smart corridors, autonomous vehicles, and drone delivery are maturing as technologies. Preparing for those industries signals to companies and their investors that innovation, legal clarity, and investment is a priority for the state. Hopefully other states will take Arizona’s lead and look to encouraging the industries and services of the future.

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.

Continue reading →

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.

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“: Continue reading →

[Last updated 6/16/21]

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.

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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.

Over at Discourse magazine, Connor Haaland and I have an new essay (“Can European-Style Industrial Policies Create Tech Supremacy?”) examining Europe’s effort to develop national champion in a variety of tech sectors using highly targeted industrial policy efforts. The results have not been encouraging, we find.

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.

We examine case studies in internet access, search, GPS, video services, and the sharing economy. We then explore newly-proposed industrial policy efforts aimed at developing their domestic AI market. We note how:

no amount of centralized state planning or spending will be able to overcome Europe’s aversion to technological risk-taking and disruption. The EU’s innovation culture generally values stability—of existing laws, institutions and businesses—over disruptive technological change. […]

There are no European versions of Microsoft, Google or Apple, even though Europeans obviously demand and consume the sort of products and services those U.S.-based companies provide. It’s simply not possible given the EU’s current regulatory regime.

It seems unlikely that Europe will have much better luck developing home-grown champions in AI and robotics using this same playbook. “American academics and policymakers with an affinity for industrial policy might want to consider a model other than Europe’s misguided combination of fruitless state planning and heavy-handed regulatory edicts,” we conclude.

Head over to Discourse to read the entire essay.

After a slight delay, Jurimetrics has finally published my latest law review article, “Soft Law in U.S. ICT Sectors: Four Case Studies.” It is part of a major symposium that Arizona State University (ASU) Law School put together on “Governing Emerging Technologies Through Soft Law: Lessons For Artificial Intelligence” for the journal. I was 1 of 4 scholars invited to pen foundational essays for this symposium. Jurimetrics is a official publication of the American Bar Association’s Section of Science & Technology Law.

This report was a major undertaking that involved dozens of interviews, extensive historic research, several events and presentations, and then numerous revisions before the final product was released. The final PDF version of the journal article is attached.

Here is the abstract: Continue reading →

Time magazine recently declared 2020 “The Worst Year Ever.” By historical standards that may be a bit of hyperbole. For America’s digital technology sector, however, that headline rings true. After a remarkable 25-year run that saw an explosion of innovation and the rapid ascent of a group of U.S. companies that became household names across the globe, politicians and pundits in 2020 declared the party over.

“We now are on the cusp of a new era of tech policy, one in which the policy catches up with the technology,” says Darrell M. West of the Brookings Institution in a recent essay, “The End of Permissionless Innovation.” West cites the House Judiciary Antitrust Subcommittee’s October report on competition in digital markets—where it equates large tech firms with the “oil barons and railroad tycoons” of the Gilded Age—as the clearest sign that politicization of the internet and digital technology is accelerating.

It is hardly the only indication that America is set to abandon permissionless innovation and revisit the era of heavy-handed regulation for information and communication technology (ICT) markets. Equally significant is the growing bipartisan crusade against Section 230, the provision of the 1996 Telecommunications Act that shields “interactive computer services” from liability for information posted or published on their systems by users. No single policy has been more important to the flourishing of online speech or commerce than Sec. 230 because, without it, online platforms would be overwhelmed by regulation and lawsuits.

But now, long knives are coming out for the law, with plenty of politicians and academics calling for it to be gutted. Calls to reform or repeal Sec. 230 were once exclusively the province of left-leaning academics or policymakers, but this year it was conservatives in the White Houseon Capitol Hill and at the Federal Communications Commission (FCC) who became the leading cheerleaders for scaling back or eliminating the law. President Trump railed against Sec. 230 repeatedly on Twitter, and most recently vetoed the annual National Defense Authorization Act in part because Congress did not include a repeal of the law in the measure.

Meanwhile, conservative lawmakers in Congress such as Sens. Josh Hawley and Ted Cruz have used subpoenasangry letters and heated hearings to hammer digital tech executives about their content moderation practices. Allegations of anti-conservative bias have motivated many of these efforts. Even Supreme Court Justice Clarence Thomas questioned the law in a recent opinion.

Other proposed regulatory interventions include calls for new national privacy laws, an “Algorithmic Accountability Act” to regulate artificial intelligence technologies, and a growing variety of industrial policy measures that would open the door to widespread meddling with various tech sectors. Some officials in the Trump administration even pushed for a nationalized 5G communications network in the name of competing with China.

This growing “techlash” signals a bipartisan “Back to the Future” moment, with the possibility of the U.S. reviving a regulatory playbook that many believed had been discarded in history’s dustbin. Although plenty of politicians and pundits are taking victory laps and giving each other high-fives over the impending end of the permissionless innovation era, it is worth considering what America will be losing if we once again apply old top-down, permission slip-oriented policies to the technology sector. Continue reading →

In a five-part series at the American Action Forum, I presented prior to the 2020 presidential election the candidates’ positions on a range of tech policy topics including: the race to 5GSection 230antitrust, and the sharing economy. Now that the election is over, it is time to examine what topics in tech policy will gain more attention and how the debate around various tech policy issues may change. In no particular order, here are five key tech policy issues to be aware of heading into a new administration and a new Congress. 

The Use of Soft Law for Tech Policy 

In 2021, it is likely America will still have a divided government with Democrats controlling the White House and House of Representatives and Republicans expected to narrowly control the Senate. The result of a divided government, particularly between the two houses of Congress, will likely be that many tech policy proposals face logjams. The result will likely be that many of the questions of tech policy lack the legislation or hard law framework that might be desired. As a result, we are likely to continue to see “soft law”—regulation by various sub-regulatory means such as guidance documents, workshops, and industry consultations—rather than formal action. While it appears we will see more formal regulatory action from the administrative state as well in a Biden Administration, these actions require quite a process through comments and formal or informal rulemaking. As technology continues to accelerate, many agencies turn to soft law to avoid “pacing problems” where policy cannot react as quickly as technology and rules may be outdated by the time they go into effect. 

A soft law approach can be preferable to a hard law approach as it is often able to better adapt to rapidly changing technologies. Policymakers in this new administration, however, should work to ensure that they are using this tool in a way that enables innovation and that appropriate safeguards ensure that these actions do not become a crushing regulatory burden. 

Return of the Net Neutrality Debate 

One key difference between President Trump and President-elect Biden’s stances on tech policy concerns whether the Federal Communication Commission (FCC) should categorize internet service providers (ISPs) as Title II “common carrier services,” thereby enabling regulations such as “net neutrality” that places additional requirements on how these service providers can prioritize data. President-elect Biden has been clear in the past that he favors reinstating net neutrality. 

The imposition of this classification and regulations occurred during the Obama Administration and the FCC removed both the classification under Title II and the additional regulations for “net neutrality” during the Trump Administration. Critics of these changes made many hyperbolic claims at the time such as that Netflix would be interrupted or that ISPs would use the freedom in a world without net neutrality to block abortion resources or pro-feminist groups. These concerns have proven to be misguided. If anything, the COVID-19 pandemic has shown the benefits to building a robust internet infrastructure and expanded investment that a light-touch approach has yielded. 

It is likely that net neutrality will once again be debated. Beyond just the imposition of these restrictions, a repeated change in such a key classification could create additional regulatory uncertainty and deter or delay investment and innovation in this valuable infrastructure. To overcome such concerns, congressional action could help fashion certainty in a bipartisan and balanced way to avoid a back-and-forth of such a dramatic nature. 

Debates Regarding Sharing Economy Providers Classification as Independent Contractors 

California voters passed Proposition 22 undoing the misguided reclassification of app-based service drivers as employees rather than independent contractors under AB5; during the campaign, however, President-elect Biden stated that he supports AB5 and called for a similar approach nationwide. Such an approach would make it more difficult on new sharing economy platforms and a wide range of independent workers (such as freelance journalists) at a time when the country is trying to recover economically.  

Changing classifications to make it more difficult to consider service providers as independent contractors makes it less likely that platforms such as Fiverr or TaskRabbit could provide platforms for individuals to offer their skills. This reclassification as employees also misunderstands the ways in which many people choose to engage in gig economy work and the advantages that flexibility has. As my AAF colleague Isabel Soto notes, the national costs of a similar approach found in the Protecting the Right to Organize (PRO) Act “could see between $3.6 billion and $12.1 billion in additional costs to businesses” at a time when many are seeking to recover during the recession. Instead, both parties should look for solutions that continue to allow the benefits of the flexible arrangements that many seek in such work, while allowing for creative solutions and opportunities for businesses that wish to provide additional benefits to workers without risking reclassification. 

Shifting Conversations and Debates Around Section 230 

Section 230 has recently faced most of its criticism from Republicans regarding allegations of anti-conservative bias. President-elect Biden, however, has also called to revoke Section 230 and to set up a taskforce regarding “Online Harassment and Abuse.” While this may seem like a positive step to resolving concerns about online content, it could also open the door to government intervention in speech that is not widely agreed upon and chip away at the liability protection for content moderation. 

For example, even though the Stop Enabling Sex Trafficking Act was targeting the heinous crime of sex trafficking (which was already not subject to Section 230 protection) was aimed at companies such as Backpage where it was known such illegal activity was being conducted, it has resulted in legitimate speech such as Craigslist personal ads being removed  and companies such as Salesforce being subjected to lawsuits for what third parties used their product for. A carveout for hate speech or misinformation would only pose more difficulties for many businesses. These terms to do not have clearly agreed-upon meanings and often require far more nuanced understanding for content moderation decisions. To enforce changes that limit online speech even on distasteful and hateful language in the United States would dramatically change the interpretation of the First Amendment that has ruled such speech is still protected and would result in significant intrusion by the government for it to be truly enforced. For example, in the UK, an average of nine people a day were questioned or arrested over offensive or harassing “trolling” in online posts, messages, or forums under a law targeting online harassment and abuse such as what the taskforce would be expected to consider. 

Online speech has provided new ways to connect, and Section 230 keeps the barriers to entry low. It is fair to be concerned about the impact of negative behavior, but policymakers should also recognize the impact that online spaces have had on allowing marginalized communities to connect and be concerned about the unintended consequences changes to Section 230 could have. 

Continued Antitrust Scrutiny of “Big Tech” 

One part of the “techlash” that shows no sign of diminishing in the new administration or new Congress is using antitrust to go after “Big Tech.” While it remains to be seen if the Biden Department of Justice will continue the current case against Google, there are indications that they and congressional Democrats will continue to go after these successful companies with creative theories of harm that do not reflect the current standards in antitrust. 

Instead of assuming a large and popular company automatically merits competition scrutiny  or attempting to utilize antitrust to achieve policy changes for which it is an ill-fitted tool, the next administration should return to the principled approach of the consumer welfare standard. Under such an approach, antitrust is focused on consumers and not competitors. In this regard, companies would need to be shown to be dominant in their market, abusing that dominance in some ways, and harming consumers. This approach also provides an objective standard that lets companies and consumers know how actions will be considered under competition law. With what is publicly known, the proposed cases against the large tech companies fail at least one element of this test. 

There will likely be a shift in some of the claimed harms, but unfortunately scrutiny of large tech companies and calls to change antitrust laws to go after these companies are likely to continue. 

Conclusion 

There are many other technology and innovation issues the next administration and Congress will see. These include not only the issues mentioned above, but emerging technologies like 5G, the Internet of Things, and autonomous vehicles. Other issues such as the digital divide provide an opportunity for policymakers on both sides of the aisle to come together and have a beneficial impact and think of creative and adaptable solutions. Hopefully, the Biden Administration and the new Congress will continue a light-touch approach that allows entrepreneurs to engage with innovative ideas and continues American leadership in the technology sector.