I’ve been working on a new book that explores the rise of evasive entrepreneurialism and technological civil disobedience in our modern world. Following the publication of my last book, Permissionless Innovation: The Continuing Case for Comprehensive Technological Freedom, people started bringing examples of evasive entrepreneurialism and technological civil disobedience to my attention and asked how they were related to the concept of permissionless innovation. As I started exploring and cataloging these cases studies, I realized I could probably write an entire book about these developments and their consequences.

Hopefully that book will be wrapped up shortly. In the meantime, I am going to start rolling out some short essays based on content from the book. To begin, I will state the general purpose of the book and define the key concepts discussed therein. In coming weeks and months, I’ll build on these themes, explain why they are on the rise, explore the effect they are having on society and technological governance efforts, and more fully develop some relevant case studies.

Key Concepts Defined

• Evasive entrepreneurs – Innovators who don’t always conform to social or legal norms.
• Regulatory entrepreneurs – Innovators who “are in the business of trying to change or shape the law” and are “strategically operating in a zone of questionable legality or breaking the law until they can (hopefully) change it.” (Pollman & Barry)
• Technologies of freedom – Devices and platforms that let citizens openly defy (or perhaps just ignore) public policies that limit their liberty or freedom to innovate.
• The “pacing problem” – The gap between the ever-expanding frontier of technological possibilities and the ability of governments to keep up with the pace of those changes.
• Technological civil disobedience – The technologically-enabled refusal of individuals, groups, or businesses to obey certain laws or regulations because they find them offensive, confusing, time-consuming, expensive, or perhaps just annoying and irrelevant.
• Innovation arbitrage – The movement of ideas, innovations, or operations to those jurisdictions that provide a legal and regulatory environment more hospitable to entrepreneurial activity. It can also be thought of as a form of “jurisdictional shopping” and can be facilitated by “competitive federalism.”
• Permissionless innovation – As a general concept, it refers to Rear Admiral Grace Hopper’s notion that quite often, “It’s easier to ask forgiveness than it is to get permission.” As a policy vision, it refers to the idea that experimentation with new technologies and business models should generally be permitted by default. Permissionless innovation comes down to a general acceptance of change and risk-taking.

Themes of the Book

The book documents how evasive entrepreneurs are using new technological capabilities to circumvent traditional regulatory systems, or at least put pressure on public policymakers to reform or selectively enforce laws and regulation that are outmoded, inefficient, or illogical. Evasive entrepreneurs pursue a strategy of “permissionless innovation” in both the business world and the political arena.  In essence, they live out the adage that, “it is easier to ask forgiveness than it is to get permission” by creating new products and services without necessarily receiving the blessing of public officials before doing so.

Evasive entrepreneurs are taking advantage of the growth of various technologies of freedom and the corresponding “pacing problem” to create new goods and services or just decide how to live a life of their own choosing. We can think of this phenomenon as “technological civil disobedience.” The technologies of freedom that facilitate this sort of civil disobedience include common tools like smartphones, ubiquitous computing, and various new media platforms, as well as more specialized technologies like cryptocurrencies and blockchain-based services, private drones, immersive tech (like virtual reality), 3D printers, the “Internet of Things,” and sharing economy platforms and services. But that list just scratches the surface.

When innovators and consumers use new tools and technological capabilities to pursue a living, enjoy new experiences, or enhance their lives and the lives of others, they often disrupt legal or social norms in the process. While that can raise serious legal and ethical concerns, evasive entrepreneurialism and technological civil disobedience can have positive upsides for society by:

• expanding the range of life-enriching—and even life-saving—innovations available to society;
• helping citizens pursue a life of their own choosing—both as creators looking for the freedom to earn a living, and as consumers looking to discover and enjoy important new goods and services; and,
• providing a meaningful, ongoing check on government policies and programs that all too often have outlived their usefulness or simply defy common sense.

For those reasons, my book will argue that we should accept—and often even embrace—a certain amount of evasive entrepreneurialism and technological civil disobedience. I am particularly excited by the last point. In an age when many of the constitutional limitations on government power are being ignored or unenforced, innovation itself can act as a powerful check on the power of the state and help serve as a protector of important human liberties. Over the past century, both legislative and judicial “checks and balances” in the United States have been eroded to the point where they now exist mostly in name only. While we should never abandon efforts to use democratic and constitutional means of limiting state power—especially in the courts, where meaningful reforms are still possible—the ongoing evolution of technology can provide another way of keeping governments in line by forcing public officials to constrain their worse tendencies and undo past mistakes. If they fail to, they risk losing the allegiance of their more technologically-empowered citizenry.

But evasive entrepreneurialism and technological civil disobedience can have serious downsides, too. We should explore how to address the challenges associated with this more turbulent and sometimes dangerous world. In doing so, however, technological critics and public policymakers should also appreciate how once any particular innovation genie is out of its bottle, it will be increasingly difficult to stuff it back in. Worse yet, attempts to do so can often result in a “compliance paradox,” in which tighter rules lead to increased legal evasion and intractable enforcement challenges. Thus, more flexible and adaptive technological governance mechanisms will be needed.

In coming essays, I will discuss some prominent examples of these trends that are developed at length in my book, I will also do a deeper dive into some of the interesting ways governments are responding to these developments using what Phil Weiser refers to as “entrepreneurial administration,” or what others call “soft law” mechanisms. As Weiser notes, “[t]he traditional model of regulation is coming under strain in the face of increasing globalization and technological change,” and, therefore, governments must think and act differently than they did in the past. And they are already doing so. Even in an age of expanding evasive entrepreneurialism and technological civil disobedience, governments can shape the evolution of technology. But that cannot be done using the previous era’s technocratic, overly-bureaucratic, and top-down regulatory playbook. New policies and procedures will be needed for a new era.

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).

2) The Internet and information technology alleviates the need for top-down regulation & actually does a better job of serving consumers.

1. Ease of entry/innovation in online world means that new entrants can come in to provide better options and solve problems previously thought to be unsolvable in the absence of regulation.
2. Informational empowerment: The Internet and information technology solves old problem of lack of consumer access to information about products and services. This gives them monitoring tools to find more and better choices. (i.e., it lowers both search costs & transaction costs). (“To the extent that consumer protection regulation is based on the claim that consumers lack adequate information, the case for government intervention is weakened by the Internet’s powerful and unprecedented ability to provide timely and pointed consumer information.” – John C. Moorhouse)
3. Feedback mechanisms (product & service rating / review systems) create powerful reputational incentives for all parties involved in transactions to perform better.
4. Self-regulating markets: The combination of these three factors results in a powerful check on market power or abusive behavior. The result is reasonably well-functioning and self-regulating markets. Bad actors get weeded out.
5. Law should evolve: When circumstances change dramatically, regulation should as well. If traditional rationales for regulation evaporate, or new technology or competition alleviates need for it, then the law should adapt.

3) Sharing economy has demonstrably improved consumer welfare. It provides:

1. more choices / competition
2. more service innovation / differentiation
3. better prices
4. higher quality services  (safety & cleanliness /convenience / peace of mind)
5. Better options & conditions for workers

4) If we need to “level the (regulatory) playing field,” best way to do so is by “deregulating down” to put everyone on equal footing; not by “regulating up” to achieve parity.

1. Regulatory asymmetry is real: Incumbents are right that they are at disadvantage relative to new sharing economy start-ups.
2. Don’t punish new innovations for it: But solution is not to just roll the old regulatory regime onto the new innovators.
3. Parity through liberalization: Instead, policymakers should “deregulate down” to achieve regulatory parity. Loosen old rules on incumbents as new entrants challenge status quo.
4. “Permissionless innovation” should trump “precautionary principle” regulation: Preemptive, precautionary regulation does not improve consumer welfare. Competition and choice do better. Thus, our default position toward the sharing economy should be “innovation allowed” or permissionless innovation.
5. Alternative remedies exist: Accidents will always happen, of course. But insurance, contracts, product liability, and other legal remedies exist when things go wrong. The difference is that ex post remedies don’t discourage innovation and competition like ex ante regulation does. By trying to head off every hypothetical worst-case scenario, preemptive regulations actually discourage many best-case scenarios from ever coming about.

5) Bottom line = Good intentions only get you so far in this world.

1. Just because a law was put on the books for noble purposes, it does not mean it really accomplished those goals, or still does so today.
2. Markets, competition, and ongoing innovation typically solve problems better than law when we give them a chance to do so.

[P.S. On 9/30, my Mercatus Center colleague Matt Mitchell posted this excellent follow-up essay building on my outline and improving it greatly.]

Additional Reading

• Randolph J. May & Michael J. Horney, “The Sharing Economy: A Positive Shared Vision for the Future,” Free State Foundation, Perspectives from FSF Scholars, Vol. 9, No. 26, July 30, 2014.
• R.J. Lehmann, “The Sharing Economy Will Thrive Only If Government Doesn’t Strangle It,” Reason, August 2, 2014.
• Andrew Moylan and R.J. Lehmann, “Five Principles for Regulating the Sharing Economy,” R Street, Policy Study No. 26, July 2014.
• Eli Lehrer & Andrew Moylan, “Embracing the Peer-Production Economy,” National Affairs, 2014, p. 51-63.
• Arun Sundararajan, “Why the Government Doesn’t Need to Regulate the Sharing Economy,” Wired, October 22, 2012.
• Matthew Mitchell and Michael Farren, “If you Like Uber, You Would’ve Loved the Jitney,” LA Times, July 12, 2014.
• Daniel M. Rothschild, “How Uber and Airbnb Resurrect ‘Dead Capital,’” The Umlaut, April 9, 2014.
• Daniel M. Rothschild, “Renters and Rent-Seeking in San Francisco,” Technology Liberation Front, April 15, 2014.
• [podcast] Michael Munger on the Sharing Economy, EconTalk, July 7, 2014.
• video of Michael Munger talk on the Sharing Economy, September 25, 2014.
• John C. Moorhouse, “Consumer Protection Regulation and Information on the Internet,” in Fred E. Foldvary & Daniel B. Klein (eds), The Half-Life of Policy Rationales: How New Technology Affects Old Policy Issues (Cato Institute, 2003).
• Rachel Bostman, What’s Mine is Yours: The Rise of Collaborative Consumption (2010).
• Jeremiah Owyang, A Glossary of Emerging Terms in the Collaborative Economy, August 29, 2014

The leading trade associations in the online advertising industry have just released their new self-regulatory principles—the first comprehensive self-regulatory principles industry has produced, which track closely with the suggested guidelines released by the FTC in February.

I commend the industry for setting a new standard in transparency, consumer control and data security. These Principles do much to empower Americans to make their own decisions about privacy, but I fear that many critics of so-called “targeted advertising” will never be satisfied, no matter how high industry raises the bar.

These critics have insisted that ordinary users can’t be trusted to make the “right decisions” about privacy and have insisted on imposing restrictive default “opt-in” rules for the online data collection that makes online advertising valuable to websites that rely on ad revenue.  Such pre-emptive privacy regulation would stunt the growth of revenue for the “Free” online content and services we’ve all come to take for granted.  During a time of economic recession, and as traditional media like newspapers struggle to make the transition from print to the Internet, it’s more important than ever that policymakers allow self-regulation to evolve.  Only by doing so can we expect continued innovation and creativity online. We must all remember:  There is no free lunch!

I’ll lead a panel discussion on July 10 on Capitol Hill about “Regulating Online Advertising: What Will it Mean for Consumers, Culture & Journalism?”  Please RSVP here.

Adam Thierer and I have been trying to drive home a simple message in the ongoing debate about targeted online advertising and privacy:  “There is no Free Lunch!”  We don’t have a lot of friends in this debate, since nearly everyone else seems to assume that online content and services will just continue to fall like manna from heaven if politicians strangle advertising online.  So I was particularly heartened to read the following from Shelly Palmer:

This is the most serious question facing content producers today. Content costs money to produce. Third-party advertising/sponsor support is one model, promoting your own products is another, subscription is a third. At the end of the day, there are only three ways it works: I pay, you pay or someone else pays. Unfortunately, there is no business model called “no one pays.” In the case of MediaBytes, the model is “I pay.” It works for me as stated above. But, apparently, a fairly large number of people in my audience are uninterested in seeing even relevant product offerings. Is advertising over? If so, what’s next?

Amen! Shelly hosts a daily Internet talk show on technology and media called MediaBytes.  He  recently tried inserting a short ad at the beginning of the show to cover the significant costs of production:

The show is produced every business day and requires a research staff, a writer (me), an editor, an encoding/distribution manager and an affiliate relations staff. The reason for the production overview is that, this particular two-minutes may look like a talking head combined with some graphics and clips, but the work flow for any given show takes approximately 6 hour and all of the people involved in the production are on salary here at Advanced Media Ventures Group. And, for the record, MediaBytes, and the associated production materials, takes up approximately 25% of my day.

Unfortunately, Shelly’s audience seemed to feel entitled to receive the fruit of his hard work for free—without suffering the  agony of watching… horror of horrors: advertising!.

To my absolute astonishment, I have received dozens of emails, several txt messages and a couple of direct tweets telling me that the :11 seconds of commercial messaging “cheapens” MediaBytes. Several of my core viewers told me that putting a commercial for my own stuff in MediaBytes takes away from my credibility and makes me a huckster, etc. All of the writings were thoughtful and all were vicious in their certitude that MediaBytes should contain no advertising. Now every bit of data I have ever seen on the subject says that a short, well-scripted pre-roll is the best form of message management for online content. My core audience obviously disagrees. So, I’ll put it to you. I want to sell my training courses to my audience as a way to offset/subsidize the cost of creating MediaBytes. I don’t want to charge a subscription fee, I don’t want to expose my audience to third party advertising that may be extremely irrelevant to them. I want to sell the online training, DVD’s, books, etc. that I create and produce. You know how many different deliverables we create each day, the advertising has to work as video and audio, so it must be written like “radio with pictures.” What would you do? How would you offer these products? And,  if you really don’t want to see any advertising in the body of MediaBytes, how do you suggest paying for the creation, production and distribution of the content?

Well, what say ye, o wise and noble “consumer advocates” who yearn to save us from the indignity of having “Free!” ad-supported content and services foisted on us?  Why should Shelly have to choose between slaving away for free, and just deciding to “take his ball and go home?”  Why should Shelly’s viewers get something for nothing?

Adam Thierer & I have just released a detailed examination (PDF) of brewing efforts to expand the Children’s Online Privacy Protection Act of 1998 to cover adolescents and potentially all social networking sites—an approach we call “COPPA 2.0.”

As Adam explained on Larry Magid’s CNET podcast, COPPA mandates certain online privacy protections for children under 13, most importantly that websites obtain the “verifiable consent” of a child’s parent before collecting personal information about that child or giving that child access to interactive functionality that might allow the child to share their personal information with others. The law was intended primarily to “enhance parental involvement in a child’s online activities” as a means of protecting the online privacy and safety of children.

Yet advocates of expanding COPPA—or “COPPA 2.0″—see COPPA’s verifiable parental consent framework as a means for imposing broad regulatory mandates in the name of online child safety and concerns about social networking, cyber-harassment, etc. Two COPPA 2.0 bills are currently pending in New Jersey and Illinois. The accelerated review of COPPA to be conducted by the FTC next year (five years ahead of schedule) is likely to bring to Washington serious talk of expanding COPPA—even though Congress clearly rejected covering adolescents age 13-16 when COPPA was first proposed back in 1998.

We’ll discuss some of the key points of our paper in a series of blog posts, but here are the top nine reasons for rejecting COPPA 2.0, in that such an approach would:

• Burden the free speech rights of adults by imposing age verification mandates on many sites used by adults, thus restricting anonymous speech and essentially converging—in terms of practical consequences—with the unconstitutional Children’s Online Protection Act (COPA), another 1998 law sometimes confused with COPPA;
• Burden the free speech rights of adolescents to speak freely on—or gather information from—legal and socially beneficial websites;
• Hamper routine and socially beneficial communication between adolescents and adults;
• Reduce, rather than enhance, the privacy of adolescents, parents and other adults because of the massive volume of personal information that would have to be collected about users for authentication purposes (likely including credit card data);

• Would likely be the subject of massive fraud or evasion since it is not always possible to definitively verify the parent-child relationship, or because the system could be “gamed” in other ways by determined adolescents;
• Do nothing to prevent offshore sites and services from operating outside these rules;
• Present major practical challenges for law enforcement officials in the face of such evasion by both domestic users and offshore sites;
• Could destroy opportunities for new or smaller website operators to break into the market and offer competing services and innovations, thus contributing to consolidation of online content and services by erecting barriers to entry; and
• Violate the Commerce Clause of the U.S. Constitution, since Internet activity clearly represents interstate commerce that states have no authority to regulate.

I was reading this Sun Magazine interview with the always-interesting Nick Carr and I liked what he had to say here about the public’s inconsistent views on privacy:

If you ask people whether they’re concerned about the ability of the government or corporations to gather information about them online, they’ll say yes. But if you look at how they behave online, they don’t display much fear of exposing themselves. What that says about people — and it’s true for most of us — is that we will readily forgo our privacy in exchange for convenient and useful services, particularly if they’re free. That’s a trade-off you make all the time on the Internet. Even if people were more conscious of how this information might be exploited, I doubt most would change their behavior.

This reminds me of the classic “hamburgers for DNA” quip from security expert Bruce Schneier who once famously noted that:

If McDonalds in the United States would give away a free hamburger for an DNA sample they would be handing out free lunches around the clock. So people care about their privacy, but they don’t care to pay for it. In the United States we have frequent shopper cards, which will track down people’s purchases for a 5 cents discount on a can of tuna fish. I don’t think you can convince the public to care about it.

The key point here, as Berin Szoka and I noted in our recent paper on targeted online advertising, consumers vary widely in their attitudes towards the inherently nebulous concept of privacy. As our TLF colleague Jim Harper has demonstrated:

Privacy is a state of affairs or condition having to do with the amount of personal information about individuals that is known to others. People maintain privacy by controlling who receives information about them and on what terms. Privacy is the subjective condition that people experience when they have power to control information about themselves and when they exercise that power consistent with their interests and values. […] An important conclusion flows from the observation that privacy is a subjective condition: government regulation in the name of privacy is based only on politicians’ and bureaucrats’ guesses about what ‘privacy’ should look like.

In a nutshell, ask anyone if they care about their privacy and almost 100% of them will say, yes, absolutely. But then ask them about what they do both online and offline on a daily basis and most of them will reveal a very different set of preferences or values when it comes to what “protecting privacy” would mean in practice. That’s because privacy is, as Harper notes, a highly subjective condition, and that’s true even in a micro sense. We’re constantly making privacy trade-offs on the fly. Every time we enter a contest, sign up for a shopper discount card, enter absurd amounts of personal info on social networking sites, and so on, we are making privacy trade-offs. Sometimes we think them through carefully; other times we don’t. But most of the time people will trade away their supposed “privacy rights” in for even the most trivial things. A Big Mac, 5 cents off a can of tuna fish, or whatever else.

The WSJ reports that a study will be released tomorrow noting an 8% drop in total “paid search” revenues in 2008.  Google’s Fourth Quarter results will be released Thursday.  While this is clearly bad news for Google, Yahoo!, Microsoft and other companies that sell ads next to the results of their search engines, it’s also terrible news for the Internet users who have come to take for granted not just these free search engines, but the other free services and content cross-subsidized by search ad revenue.  A quick look at the offerings pages of Google,  Yahoo! and Microsoft (downloads and some services) should remind you of a few of these ad-supported offerings.

What’s even worse for users is that search ad spending may be the “canary in the coalmine” for online advertising overall:  A drop in search ad spending may suggest that display ad revenue for 2008 may have fared even worse.  While search ad revenue funds offerings from search engine providers, display ad revenue is the bread & butter of millions of websites, from the “short head” (big websites like ESPN.com) to through the “long tail” (small websites).   As advertisers cut back on buying web ads, there will be less funding available for “Free!” culture—and we’ll all suffer from the resulting decline in creativity and innovation.  

Let’s hope 2009 is a better year for advertising—both search and display—than 2008.