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Writing last week in The Wall Street Journal, Matt Moffett noted how many European countries continue to struggle with chronic unemployment and general economic malaise.  (“New Entrepreneurs Find Pain in Spain“) It’s a dismal but highly instructive tale about how much policy incentives matter when it comes to innovation and job creation–especially the sort of entrepreneurial activity from small start-ups that is so essential for economic growth. Here’s the key takeaway:

Scarce capital, dense bureaucracy, a culture deeply averse to risk and a cratered consumer market all suppress startups in Europe. The Global Entrepreneurship Monitor, a survey of startup activity, found the percentage of the adult population involved in early stage entrepreneurial activity last year was just 5% in Germany, 4.6% in France and 3.4% in Italy. That compares with 12.7% in the U.S. Even once they are established, European businesses are, on average, smaller and slower growing than those in the U.S.  The problems of entrepreneurs are one reason Europe’s economy continues to struggle after six years of crisis. The European Union this month cut its growth forecasts for the region for this year and next, citing weaker than expected performance in the eurozone’s biggest economies, Germany, France and Italy. This week, the Organization for Economic Cooperation and Development delivered its own pessimistic appraisal, with chief economist Catherine Mann saying, “The eurozone is the locus of the weakness in the global economy.”

[…]
Europe’s unemployment crisis may be eroding a deeply ingrained fear of failure that is a bigger impediment to entrepreneurship on the Continent than in other regions, according to academic surveys. “Fear of failure is less of an issue because the whole country is a failure, and most of us are out of business or have a hard time paying our bills,” said Nick Drandakis of Athens, who in 2011 founded Taxibeat, an app that provides passenger ratings on taxi drivers.

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IoT paperThe Mercatus Center at George Mason University has just released my latest working paper, “The Internet of Things and Wearable Technology: Addressing Privacy and Security Concerns without Derailing Innovation.” The “Internet of Things” (IoT) generally refers to “smart” devices that are connected to both the Internet and other devices. Wearable technologies are IoT devices that are worn somewhere on the body and which gather data about us for various purposes. These technologies promise to usher in the next wave of Internet-enabled services and data-driven innovation. Basically, the Internet will be “baked in” to almost everything that consumers own and come into contact with.

Some critics are worried about the privacy and security implications of the Internet of Things and wearable technology, however, and are proposing regulation to address these concerns. In my new 93-page article, I explain why preemptive, top-down regulation would derail the many life-enriching innovations that could come from these new IoT technologies. Building on a recent book of mine, I argue that “permissionless innovation,” which allows new technology to flourish and develop in a relatively unabated fashion, is the superior approach to the Internet of Things.

As I note in the paper and my earlier book, if we spend all our time living in fear of the worst-case scenarios — and basing public policies on them — then best-case scenarios can never come about. As the old saying goes: nothing ventured, nothing gained. Precautionary principle-based regulation paralyzes progress and must be avoided.  We instead need to find constructive, “bottom-up” solutions to the privacy and security risks accompanying these new IoT technologies instead of top-down controls that would limit the development of life-enriching IoT innovations. Continue reading →

Robert-GraboyesI want to bring to everyone’s attention an important new white paper by Dr. Robert Graboyes, a colleague of mine at the Mercatus Center at George Mason University who specializes in the economics of health care. His new 67-page study, Fortress and Frontier in American Health Care, seeks to move away from the tired old dichotomies that drive health care policy discussions: Left versus Right, Democrat versus Republican, federal versus state, and public versus private, and so on. Instead, Graboyes seeks to reframe the debate over the future of health care innovation in terms of “Fortress versus Frontier” and to highlight what lessons we can learn from the Internet and the Information Revolution when considering health care policy.

What does Graboyes mean by “Fortress and Frontier”? Here’s how he explains this conflict of visions:

The Fortress is an institutional environment that aims to obviate risk and protect established producers (insiders) against competition from newcomers (outsiders). The Frontier, in contrast, tolerates risk and allows outsiders to compete against established insiders. . . .  The Fortress-Frontier divide does not correspond neatly with the more familiar partisan or ideological divides. Framing health care policy issues in this way opens the door for a more productive national health care discussion and for unconventional policy alliances. (p. 4)

He elaborates in more detail later in the paper: Continue reading →

Last week, I participated in a program co-sponsored by the Progressive Policy Institute, the Lisbon Council, and the Georgetown Center for Business and Public Policy on “Growing the Transatlantic Digital Economy.”

The complete program, including keynote remarks from EU VP Neelie Kroes and U.S. Under Secretary of State Catherine A. Novelli, is available below.

My remarks reviewed worrying signs of old-style interventionist trade practices creeping into the digital economy in new guises, and urged traditional governments to stay the course (or correct it) on leaving the Internet ecosystem largely to its own organic forms of regulation and market correctives: Continue reading →

The sharing economy is growing faster than ever and becoming a hot policy topic these days. I’ve been fielding a lot of media calls lately about the nature of the sharing economy and how it should be regulated. (See latest clip below from the Stossel show on Fox Business Network.) Thus, I sketched out some general thoughts about the issue and thought I would share them here, along with some helpful additional reading I have come across while researching the issue. I’d welcome comments on this outline as well as suggestions for additional reading. (Note: I’ve also embedded some useful images from Jeremiah Owyang of Crowd Companies.)

1) Just because policymakers claim that regulation is meant to protect consumers does not mean it actually does so.

  1. Cronyism/ Rent-seeking: Regulation is often “captured” by powerful and politically well-connected incumbents and used to their own benefit. (+ Lobbying activity creates deadweight losses for society.)
  2. Innovation-killing: Regulations become a formidable barrier to new innovation, entry, and entrepreneurism.
  3. Unintended consequences: Instead of resulting in lower prices & better service, the opposite often happens: Higher prices & lower quality service. (Example: Painting all cabs same color destroying branding & ability to differentiate).

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On Thursday, it was my great pleasure to present a draft of my forthcoming paper, “The Internet of Things & Wearable Technology: Addressing Privacy & Security Concerns without Derailing Innovation,” at a conference that took place at the Federal Communications Commission on “Regulating the Evolving Broadband Ecosystem.” The 3-day event was co-sponsored by the American Enterprise Institute and the University of Nebraska College of Law.

The 65-page working paper I presented is still going through final peer review and copyediting, but I posted a very rough first draft on SSRN for conference participants. I expect the paper to be released as a Mercatus Center working paper in October and then I hope to find a home for it in a law review. I will post the final version once it is released. [UPDATE:The final version of this working paper was released on November 19, 2014.]

In the meantime, however, I thought I would post the 46 slides I presented at the conference, which offer an overview of the nature of the Internet of Things and wearable technology, the potential economic opportunities that exist in this space, and the various privacy and security challenges that could hold this technological revolution back. I also outlined some constructive solutions to those concerns. I plan to be very active on these issues in coming months.

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There’s a small but influential number of tech reporters and scholars who seem to delight in making the US sound like a broadband and technology backwater. A new Mercatus working paper by Roslyn Layton, a PhD fellow at a research center at Aalborg University, and Michael Horney a researcher at the Free State Foundation, counter that narrative and highlight data from several studies that show the US is at or near the top in important broadband categories.

For example, per Pew and ITU data, the vast majority of Americans use the Internet and the US is second in the world in data consumption per capita, trailing only South Korea. Pew reveals that for those who are not online the leading reasons are lack of usability and the Internet’s perceived lack of benefits. High cost, notably, is not the primary reason for infrequent use.

I’ve noted before some of the methodological problems in studies claiming the US has unusually high broadband prices. In what I consider their biggest contribution to the literature, Layton and Horney highlight another broadband cost frequently omitted in international comparisons: the mandatory media license fees many nations impose on broadband and television subscribers.

These fees can add as much as $44 to the monthly cost of broadband. When these fees are included in comparisons, American prices are frequently an even better value. In two-thirds of European countries and half of Asian countries, households pay a media license fee on top of the subscription fees to use devices such as connected computers and TVs.

…When calculating the real cost of international broadband prices, one needs to take into account media license fees, taxation, and subsidies. …[T]hese inputs can materially affect the cost of broadband, especially in countries where broadband is subject to value-added taxes as high as 27 percent, not to mention media license fees of hundreds of dollars per year.

US broadband providers, the authors point out, have priced broadband relatively efficiently for heterogenous uses–there are low-cost, low-bandwidth connections available as well as more expensive, higher-quality connections for intensive users.

Further, the US is well-positioned for future broadband use. Unlike many wealthy countries, Americans typically have access, at least, to broadband from telephone companies (like AT&T DSL or UVerse) as well as from a local cable provider. Competition between ISPs has meant steady investment in network upgrades, despite the 2008 global recession. The story is very different in much of Europe, where broadband investment, as a percentage of the global total, has fallen noticeably in recent years. US wireless broadband is also a bright spot: 97% of Americans can subscribe to 4G LTE while only 26% in the EU have access (which partially explains, by the way, why Europeans often pay less for mobile subscriptions–they’re using an inferior product).

There’s a lot to praise in the study and it’s necessary reading for anyone looking to understand how US broadband policy compares to other nations’. The fashionable arguments that the US is at risk of falling behind technologically were never convincing–the US is THE place to be if you’re a tech company or startup, for one–but Layton and Horney show the vulnerability of that narrative with data and rigor.

My latest law review article is entitled, “Privacy Law’s Precautionary Principle Problem,” and it appears in Vol. 66, No. 2 of the Maine Law Review. You can download the article on my Mercatus Center page, on the Maine Law Review website, or via SSRN. Here’s the abstract for the article:

Privacy law today faces two interrelated problems. The first is an information control problem. Like so many other fields of modern cyberlaw—intellectual property, online safety, cybersecurity, etc.—privacy law is being challenged by intractable Information Age realities. Specifically, it is easier than ever before for information to circulate freely and harder than ever to bottle it up once it is released.

This has not slowed efforts to fashion new rules aimed at bottling up those information flows. If anything, the pace of privacy-related regulatory proposals has been steadily increasing in recent years even as these information control challenges multiply.

This has led to privacy law’s second major problem: the precautionary principle problem. The precautionary principle generally holds that new innovations should be curbed or even forbidden until they are proven safe. Fashioning privacy rules based on precautionary principle reasoning necessitates prophylactic regulation that makes new forms of digital innovation guilty until proven innocent.

This puts privacy law on a collision course with the general freedom to innovate that has thus far powered the Internet revolution, and privacy law threatens to limit innovations consumers have come to expect or even raise prices for services consumers currently receive free of charge. As a result, even if new regulations are pursued or imposed, there will likely be formidable push-back not just from affected industries but also from their consumers.

In light of both these information control and precautionary principle problems, new approaches to privacy protection are necessary. Continue reading →

I recently did a presentation for Capitol Hill staffers about emerging technology policy issues (driverless cars, the “Internet of Things,” wearable tech, private drones, “biohacking,” etc) and the various policy issues they would give rise to (privacy, safety, security, economic disruptions, etc.). The talk is derived from my new little book on “Permissionless Innovation,” but in coming months I will be releasing big papers on each of the topics discussed here.

Additional Reading:

Few people have been more tireless in their defense of the notion of “permissionless innovation” than Wall Street Journal columnist L. Gordon Crovitz. In his weekly “Information Age” column for the Journal (which appears each Monday), Crovitz has consistently sounded the alarm regarding new threats to Internet freedom, technological freedom, and individual liberties. It was, therefore, a great honor for me to wake up Monday morning and read his latest post, “The End of the Permissionless Web,” which discussed my new book “Permissionless Innovation: The Continuing Case for Comprehensive Technological Freedom.”

“The first generation of the Internet did not go well for regulators,” Crovitz begins his column. “Despite early proposals to register websites and require government approval for business practices, the Internet in the U.S. developed largely without bureaucratic control and became an unstoppable engine of innovation and economic growth.” Unfortunately, he correctly notes:

Regulators don’t plan to make the same mistake with the next generation of innovations. Bureaucrats and prosecutors are moving in to undermine services that use the Internet in new ways to offer everything from getting a taxi to using self-driving cars to finding a place to stay.

This is exactly why I penned my little manifesto. As Crovitz continues on to note in his essay, new regulatory threats to both existing and emerging technologies are popping up on almost a daily basis. He highlights currently battles over Uber, Airbnb, 23andme, commercial drones, and more. And his previous columns have discussed many other efforts to “permission” innovation and force heavy-handed top-down regulatory schemes on fast-paced and rapidly-evolving sectors and technologies. Continue reading →