Finding Freedom in the Permission Society
2021-06-07 · Guest: Adam Thierer (Mercatus Center Senior Research Fellow) · 52:27
Evasive entrepreneurs and the future of governance
Bob Zadek and Adam Thierer discuss how government regulations often stifle innovation and why entrepreneurs must sometimes act “evasively” to bring beneficial technologies to market. They explore the concept of “permissionless innovation” and propose policy reforms like sunsetting laws and the “Innovator’s Presumption” to foster a more dynamic economy.
Topics: Entrepreneurship, Innovation, Regulation, Evasive Entrepreneurs, Permissionless Innovation, Public Policy, COVID-19, Telehealth, Nightscout Project, Sunsetting Laws
Speakers:
- Bob Zadek - Host
- Adam Thierer - Senior Research Fellow at the Mercatus Center at George Mason University
Introduction to Innovation and the Permission Society [00:17]
Bob Zadek: Good morning, everyone. Welcome to The Bob Zadek Show, the longest-running live libertarian talk radio show on all of radio. The show of ideas, never once the show of attitude. Thank you so much for listening this Sunday morning.
This morning’s topic could not—underline not—be more timely. It is the right topic for the right time in our nation’s history, indeed in the world’s history. We are going to discuss this morning entrepreneurship, innovation, specifically the role of innovation in making us more free, improving our quality of our lives, all making the world a better place.
Now, that seems to be the obvious. Why waste valuable radio time on something as obvious as that? Well, because one would like to think—and one would be wrong if one did think so—one would like to think that something as apparently benign as innovation, as another newest and best product or service to make our lives healthier, happier, and longer, one would think nobody can be opposed to that, and therefore we live in a world that just invites and rewards entrepreneurship. One would like to think that, and one would be wrong.
In many subtle and not-so-subtle ways, our own government and other governments in other countries are active in stifling, in discouraging, in eliminating the benefits of innovation. In effect, our own governments are working and have policies that are directly contrary to our best interest. It’s not always intentional, although sometimes it is, but often it is not, but it is there nevertheless.
To help us understand this environment in which our government works directly against our self-interest, I’m delighted to welcome Adam Thierer to the show. Adam has written a book entitled—and the title says a lot—Evasive Entrepreneurs and the Future of Governance. It is subtitled How Innovation Improves Economies and Governments. It improves governments as well as us. But to help us understand this important but, as I said, subtle dynamic, I’m delighted to welcome Adam Thierer to the show this morning. Adam, thank you so much for your book.
COVID-19 as a Case Study for Evasive Entrepreneurship [01:22]
Bob Zadek: Before we get into the book, Adam, we’re going to spend some time discussing the principles of the book and what we have just learned from our experience with COVID and the government’s behavior during COVID and the innovators’ behavior during COVID. Your book, which really uses and should use COVID as proof positive that everything you’ve written about is correct—you wrote the book, it was published in May of 2020, a couple of months into the COVID crisis of last year. The book seems to have… you couldn’t have started the book two months earlier. How did you know COVID was coming, and how did you know how to time this book so perfectly? Just an aside, Adam, just curious about that, because your timing was impeccable. Then we will get into the book itself.
Adam Thierer: Well, thanks for that, Bob. It’s a pleasure to be on your show. Yeah, it was very unique timing, for better or for worse, when the pandemic and the lockdowns hit, because obviously I had a big book tour planned and I had about a dozen cities I was going to visit, so unfortunately that was all derailed and that was the downside.
On the upside, the story that I was telling in the book about how entrepreneurs find a way to make a difference and fight for positive change for society and our culture was proven positive by all the activities undertaken by average individuals and institutions across America following COVID and the lockdowns. And so luckily my publisher, the Cato Institute, allowed me to very quickly, right before the book went to press, add a new postscript at the end of the book pointing out that everything you just read in these pages is now coming true in real time as we see average people take steps to try to make the world a better place or to make life a little bit easier, utilizing new forms of technology in particular to do so.
And the important additional note that I make in the book and that I made in this postscript is that oftentimes those small actions have a big world of difference in terms of changing government institutions or policies for the better. I argue in the book that in many ways we can think about entrepreneurialism as almost sort of like mini-revolts or mini-marginal revolutions, if you will, without violence. They’re peaceful. They’re basically efforts by people to go and shake up the status quo. And that status quo can include a lot of broken, inefficient, backwards, archaic government regulations and policies.
And that’s exactly what happened. People rose up and started making their own face masks, and distillers and brewers were making hand sanitizer for people. There were people bringing 3D printers to hospitals to help print ventilator parts. There were people coding their own new types of online informational solutions about tracking COVID in their communities. The interesting thing about all those efforts is that they were technically against the law. And yet the law had to change. And what happened following COVID and the outbreak is that policymakers in one state after the next started relaxing rules, if not abandoning them entirely, because they knew the rules were counterproductive. Now, you would think that during a crisis, those rules and regulations, if they were put on the books with good intentions, they should have been more important than ever. But it was the very people that put them on the books that said, “Yes, indeed, these are not serving our goals and intentions, and they are counterproductive.” And so it was a great teachable moment, as economists and political scientists like to use this term, “teachable moment,” real-time teachable moment where we saw how public policy undermines the innovative spirit of the American people, and it had to change and it did. The real question now: will it stay that way and can we continue to change these archaic, outdated, inefficient laws and institutions, or is it back to the status quo?
Innovation and Its Enemies [03:32]
Bob Zadek: In my introduction to this morning’s show, I mentioned that innovation, per se—it almost doesn’t need stating—improves everybody’s life. It makes it happier, longer, healthier, and less expensive to enjoy. So nobody in the abstract can argue against innovation. It’s a universal public good, if you will. So if we start with the obvious premise that innovation per se, of course it’s good, there is no discussion there, then why does an entrepreneur which is innovating, why does that innovative entrepreneur have to evade anything? Why isn’t it operating in a petri dish of innovation rather than in a hostile environment? What exactly are they evading in your phrase “evasive entrepreneurs”? And why? Why is government creating the necessity that entrepreneurs, some of them, to succeed must evade government itself? What’s the dynamic at work here?
Adam Thierer: That’s a great question, Bob. And I think it comes down to the status quo. There is always a group or a set of individuals or institutions who defend a given status quo. And what entrepreneurialism and innovation do is they unsettle somebody’s settled status quo. Some industry, some organization, some individual likes the way certain things work right now. What entrepreneurs do is come along and say, “Well, we’ve got a new and better way of doing things.” And it’s true, sometimes it’s not always new and better, but most of the time it’s worth trying. It’s worth going through that trial-and-error experiment to see if we can move the needle forward on progress. That’s what entrepreneurs do by their nature.
But when they do it, they encounter the defenders of the status quo. One of my favorite recent books, and really one of my favorite books of all time, is a book by a late professor named Calestous Juma, who was a Kenyan professor who used to work at the UN and encountered the forces that opposed innovation across the globe, and he pushed back against them. He summarized his life’s work in an amazing book called Innovation and Its Enemies: Why People Resist New Technologies. And he begins with this wonderful line. He says, quote, “The quickest way to find out who your enemies are is to try doing something new.” And that really nails it. That’s why entrepreneurs sometimes have to behave evasively, because as soon as they do anything to shake up a status quo, the enemies come out of the woodwork and say, “Whoa, what are you doing there, partner? You know, we like the way this law works. It makes our industry perfectly happy and gives us nice profits.” Or the government says, “Whoa, we’ve got rules and regulations that have always been on the books, therefore they must be good. Leave them alone. You have to get a permission slip to innovate.” And more and more types of other individuals and institutions come out and oppose change for those reasons. Even though in the abstract, exactly as you said, Bob, they would all agree with the statement that innovation is good. But it’s innovation outside of their own context or world that they’re okay with. Anything that affects them and their status quo, it’s “hell no, we won’t go.”
Status Quo Bias and Loss Aversion [05:00]
Bob Zadek: So it’s just plain “we don’t do things that way around here,” that mentality, which creates comfort for those who are behaving in the old way with the old rules. It is just comfortable, and people don’t choose to be uncomfortable by nature, and therefore that’s the way we do things, period. And it’s narrow-mindedness. But one would think that regulators, elected officials, would become darlings of their constituency if they took the position, “I will always, or my policy and I will support, anything that makes life better.” Why isn’t that a winning approach, whether you are a regulator with no direct constituency except those who have captured you, and legislators who have to go to the public every two or six or four years to be reelected? Why isn’t that the default when you get a book on how to be successful in politics? Why isn’t the first chapter “give the people what makes their life better”? So I’m surprised that that isn’t the default way government behaves, rather than the way they actually behave as you have described it.
Adam Thierer: I think it’s because it comes down to the uncertainty associated with innovation and technological change and entrepreneurialism. I mean, there’s a lot of psychological explanations that behavioral economists and other psychologists use to explain why people support the status quo. It’s in fact called status quo bias. And there’s another term for it called loss aversion. People will generally want to basically maintain or sustain what they currently have as opposed to taking a risk on something new and different that could maybe make them better off in the future. So those impulses are in all of us. None of us want to lose money or take a risk we don’t have to. But it’s only through trial-and-error experimentation and risk-taking that we gain wisdom and that we prosper as a species. And entrepreneurs are the prime actors. In my book, I make them almost a heroic actor in being willing to take that plunge. And in a better world, policymakers and the general public would understand that, appreciate that role, and not penalize it. But unfortunately, the law all too often, because it’s based on concerns about the status quo being shaken up or certain values being shaken up, it preserves them. It locks them in.
Set It and Forget It Policy [06:15]
Adam Thierer: It’s what I call in my book a “set it and forget it” policy mode. We put laws in place, we just set them there, and they never change. I even have statistics in my book about how something on the order of like 85% of all the laws in the US federal code have only been changed once or never. Most of them have never been changed. Something like 65% of all laws, once they’re put on the books, never, ever alter. Now, that can’t possibly be right. And I show examples in my book of like all the stupid laws that are still on the books that say things like—there’s literally laws in some states that say if a woman is driving a car, a man must walk in front of her with red flags waving that a woman is coming down the road. I mean, that’s just insulting, misogynistic kind of legislation, and yet it’s still on the books. And people say, “Well, it’s not enforced anymore, who cares?” The problem is that there’s so many tens of thousands of laws like that that do penalize modern innovators and entrepreneurs. And so unfortunately, I think our policymakers just don’t understand that dynamic and that it’s easier just to leave things as they are as opposed to take the plunge and change.
Born Free vs. Born Into Captivity [07:31]
Bob Zadek: I want to just comment on one phrase you mentioned. Not to belabor it, but just to comment on it. You said nobody wants to take a risk they don’t have to take. You mentioned that in your presentation, and of course that’s correct. But there is a response to that. Everybody does have to take risk. You cannot live—and you have explained this beautifully in your book—you cannot live a risk-free life. Well, you can, but it’s not very pleasant. So everybody takes a risk, takes many risks every moment of every day. You are taking a risk and making an automatic, unconscious risk-reward analysis. And you are concluding the benefits, the reward, is more than offset by the risk. That’s a calculation every entity makes, every mammal makes. And the fact is, so risk is not per se bad, any more than having to buy food is bad. It’s a cost. You try to manage the cost like every other cost in your life. You will manage the cost, but you don’t live a life—you don’t aspire to live a life that is cost-free, any more than you aspire to live a life that’s risk-free. So no, risk is a fact of life, and it requires simply management of the cost and the benefit. So no one wants a risk, nobody wants to have to pay for everything. People would prefer everything be free, but nothing really is free, and therefore you simply have to weigh the cost. I just wanted to make that comment about risk because I have given a lot of thought in my life, since my life is in the world of commercial credit and making loans, and making loans every day is taking a risk. If you don’t want to take a risk, you can’t be in the business, that’s all.
Now, in your book, you do mention about how the government is structured in a way to avoid the risk. And you mention in the book a very interesting dichotomy, which I loved, Adam, and it really explains so much, and I’d like you to explain it to our listeners. You talk about, in describing why some innovations are subject to more regulation than others—and I would say Uber is a good example, you’ll probably use this in your answer, but I’m not coaching you, of course—you talk about new industries that are “born free” versus “born into captivity.” It’s a wonderful way to explain what’s going on. Please help our audience understand what you meant by those two concepts.
Adam Thierer: Yeah, I’d be happy to. And just to comment on your earlier point about risk, I wholeheartedly agree, of course, and it’s a major focus of my life’s work. In fact, I have a book chapter I wrote years ago called “Failing Better.” Like, learning how to fail and learn from failure is one of the crucial things that really puts America, differentiates America from a lot of other countries and cultures where failure is frowned upon and treated with sort of social stigma or shame. Whatever you want to say about America’s problems, one thing that we still have is that we still have more of a culture that tolerates a little bit more of that sort of failure and learning from it. And one of my favorite quotes of all time that I learned when I was in Catholic school as a youth is one of my Jesuit teachers said to me—he repeated a quote from Saint Thomas Aquinas. And to paraphrase it, it basically said Aquinas said that if the sole goal of a captain was to make sure that his ship never sank, then he would never take his ship out of port. But of course, we know that’s not the goal, the sole goal of a captain. He of course doesn’t want his ship to sink, but captains brave the high seas and the risks that they entail because they know that there’s reward out there for doing so in the exploring of the oceans or in the moving of trade and commerce. And that’s the key, right? There can be no reward without risk.
Now, back to the point about what do I mean about institutions or, rather, I’m sorry, industries that are born free versus born into captivity. Every new technology that comes along ultimately is confronted with this. And if you’re lucky as someone who’s an entrepreneur or an inventor, you’re in a born-free sector. And what I mean by that is a sector that’s not encumbered with prior restraint on innovative activities. There aren’t a slew of permission slips being issued by an alphabet soup of different regulatory agencies—the Federal Whatever Commission. And that’s the problem, is that so many other sectors and industries are sort of born into captivity of that world.
So for example, when the computing technologies came along and the internet, luckily we did not have a Federal Computer Commission. We did not have a Federal Internet Commission. And they were essentially born free and able to innovate very rapidly. And as a result, the leading technology information technology companies in the United States are household names across the globe. Love them or hate them, the reality is that these companies are on everybody’s lips everywhere you go. Now, you look in other sectors and you say, “Well, okay, I want to be a driverless car innovator, or a commercial drone innovator, or some sort of advanced medical device innovator.” Well, unfortunately, in those contexts, you’re going to be confronted with a slew of laws and regulations. So even though a driverless car is basically a computer on wheels, it’s not going to be treated like a computer and left largely unfettered. It’s going to be treated more like a traditional vehicle and regulated very, very heavily right out of the gate, which is exactly what’s happened. Over the last 10 years, there’s been efforts to try to provide more room for driverless car innovation, but it keeps getting pushed back from various types of institutional forces in government at the federal and state level and in industry. Same with commercial drones, same with advanced medical devices. You have to deal with some federal bureaucracy, maybe several, and then all the state and local officials. And this has a powerful, powerful determining effect on which industries or sectors prosper in our country and which ultimately fail and go somewhere else.
Global Innovation Arbitrage [09:01]
Adam Thierer: Because we live in a world, as I call in the book, of global innovation arbitrage. Innovation and capital tend to move wherever it’s treated best. Entrepreneurs aren’t going to stick around in a country where they’re basically told, “Well, you’ve got to come get all these permission slips before you can innovate.” No, they’ll go somewhere else where they have more flexibility. So that dichotomy is really, really powerful in determining national competitive advantage.
Bob Zadek: And what I’ve experienced firsthand, anecdotally, is when legislatures and regulators are confronted with something new, the default rule is, “My goodness, these must be regulated somewhere. How did this slip by?” There’s a presumption of regulation that legislatures and regulators are caught off guard if they can’t really find somewhere that this activity has been regulated, and they look upon themselves as a failure. “How did we not anticipate this activity and know to regulate it?” It’s almost like they have their own personal… they look at how they might have failed by not anticipating this activity and not have it regulated when it is born. So you’re exactly right. I experienced that firsthand when I was doing some lobbying on behalf of a lender group which was simply an activity making these kinds of loans was not regulated. And we walked into the conference room of a United States Senator who, on her way in—she was an important Senator—and she said, “Tell me again who regulates you?” And we had to say, “Well, really no one.” And she was aghast. Like, “How did we mess up?” So I have experienced that firsthand, although anecdotally, but that seems to be the expectation in government is that everything is regulated. It’s almost as if governments don’t appreciate that wonderful old meme—it’s actually a constitutional principle—everything which is not forbidden is allowed. They don’t seem to appreciate that rule, which was called the Lotus rule from a ship that sank in 1920. But they don’t seem to appreciate that rule.
The Presumption of Regulation [10:31]
Bob Zadek: Now, government stifles innovation using many, many tools that you have outlined in the book. Give us some examples of how government almost, almost inadvertently stifles innovation, and what happens to governments over time when they do stifle innovation? Because if you help our listeners understand the tools or the behavior of government that stifles innovation, they will be able to react against it when they experience it. How does government go about, perhaps inadvertently to give them the benefit or it the benefit of the doubt, how do they stifle innovation?
Adam Thierer: Yeah, there’s a variety of policy instruments that stifle innovation, sometimes as you say unintentionally and other times unfortunately quite intentionally. We have very direct limits on a variety of important technologies, specifically in the field of health and finance, your field, where we have a very, very heavily precautionary, preemptive restraint, prior restraint on any sort of innovation for the most part. Everything there is sort of born into captivity and heavily regulated out of the gate. But in many other cases, we have inadvertent tax and especially regulatory policies that discourage business formation and entrepreneurialism. I can’t possibly get into all of them on today’s show, but I’ll focus in particular on some of the most onerous ones, and they really come down to a whole crazy quilt of different permitting and licensing schemes at the federal and especially the state and local level. And this creates real problems in America because, of course, we have states and they’re wonderful things and I’m a big believer in federalism, but unfortunately the downside of federalism is that the patchwork of policies that develops for certain sectors and technologies can become incredibly burdensome when innovators want to go out and start something new and different.
Telehealth and Regulatory Barriers [12:30]
Adam Thierer: And so what you’re faced with is you want to do something like—let’s just take one random new technology: telehealth. You want to basically provide doctor’s advice or medical advice of some sort by the internet. And this is something that we’ve been talking about in this country for a quarter century and had high hopes for. Now, ultimately it’s been a very slow roll, and part of that is because technology and broadband is catching up. But now it’s here and we’re ready, and COVID taught us that this can be done. But we have state and local laws governing the licensure of the medical profession or the licensing of medical devices at the federal level through the Food and Drug Administration that make it very, very difficult, if not sometimes impossible, for entrepreneurs to provide that sort of a platform or for doctors to provide that sort of advice. Now, this would seem like something that we should have long ago learned should be good and allowable. I mean, we used to have doctors make house calls. That was sort of old-school telemedicine. And then sometimes your doctor just picks up the phone and talks to you, right? Now, if you’re a state away, it might work a little different, but why should it? And maybe we could have a much more robust system so that I don’t have to get on a plane to talk to a cancer specialist in California if I’m here in Virginia where I’m at now. Why can’t I maybe just do a Zoom chat with them or something, send them my X-rays or my biopsies or whatever, my results from tests? That world is encumbered by layers and layers of permitting and licensing rules and other regulations.
This is the fundamental challenge for the United States going forward is: can we clean up the messes of the past? And we really struggle with this in this country. Again, as I referred to it as the “set it and forget it” kind of mentality among government, they just figure like, “Well, it had to have a good intention, there must be a reason we put it on the books, we need to keep enforcing it.” And only when COVID happened did we realize how the costs of that were enormous and that had to change, right? So my hope is that between that crisis we’ve had with COVID and between the fact that innovation continues to happen whether some people like it or not—I mean, some of these things happen on the outskirts or rather on the fringes of law when people do take matters in their own hands and say, “Like, I’m just going to consult people a couple of states away about medical advice,” or “I’m going to go get a different device or technology, I’m going to buy it in a different state even though it’s not licensed or regulated in mine.” This is sort of happening by nature, but it would be a lot better if our policymakers would just reform policies to make it easier and stop basing public policies on hypothetical worst-case scenarios or yesterday’s thinking about the state of the art. Again, that’s my hope. Maybe I’m being naive, but I’m hopeful that that’s where we’re heading.
Technological Civil Disobedience: The Nightscout Project [14:15]
Bob Zadek: And you point out, and another point you made in the book that was Adam so persuasive, you pointed out that if those same parents had commissioned yet another study and had statistics that indicate the harm of the existing regulation and how the regulation had to be changed, that’s an impossible task. There’s almost no history of that, the normal process, the acceptable process working. But you give example after example of the—I’ll use the phrase lawlessness, but I don’t mean it in armed robbery, of course—but where the approach of lawlessness, just saying, “No, no, that regulation is so bad, it has to be dealt with frontally, not by yet another study.” And it was so persuasive. And Adam, your organization and the one that I so respect, Cato, generates study after study after study, incredibly persuasive, data-driven, and yet getting change is such a struggle. And here you have parents, not trained in anything except in parentshood, are able to affect a change. It really is about the most powerful argument one can make in support of evasiveness, part of the title of your book.
Adam Thierer: Yeah, and importantly, the other important part of that is that these parents and these average Americans that are engaging in these sort of acts of creativity and innovation, they’re not deep-pocketed, right? Most of them are doing this non-commercially in a nonprofit way, and they don’t have lobbyists in Washington. They don’t have big budgets for, you know, marketing and advertising efforts. This is all sort of spontaneous bottom-up activity amongst the people. And to me, that should make it even more exciting and rewarding and hopefully policymakers appreciate this is true bottom-up sort of democracy in action in a real-world sense. People are voting with their innovations. They’re voting with their brains and with their hands to create a better world. You know, Ben Franklin once said man is a tool-building animal by his nature because that’s how the species prospers. And this is that in real time. So, you know, I would hope policymakers be persuaded by that. But the unfortunate reality, Bob, is that we have lines and lines of lobbyists outside of doors in Washington, in Congress, in every regulatory agency getting their case heard. And that is going to be a really powerful thing in terms of preserving the status quo. So shaking up that system is what I’m trying to propose here and say sometimes you have no other choice but to just go out there and do it, to actually engage in some permissionless innovation and try to see if you can make a better mousetrap and hope that the regulators and policymakers come around to understanding that you have. Now, of course, it doesn’t always work out that way. And that’s the risk that entrepreneurs take today when they engage in sort of these acts of evasiveness.
Bob Zadek: In your book, you mention about how the government is structured in a way to avoid the risk. And you mention in the book a very interesting dichotomy, which I loved, Adam, and it really explains so much, and I’d like you to explain it to our listeners. You talk about, in describing why some innovations are subject to more regulation than others—and I would say Uber is a good example, you’ll probably use this in your answer, but I’m not coaching you, of course—you talk about new industries that are “born free” versus “born into captivity.” It’s a wonderful way to explain what’s going on. Please help our audience understand what you meant by those two concepts.
Adam Thierer: Yeah, I’d be happy to. And just to comment on your earlier point about risk, I wholeheartedly agree, of course, and it’s a major focus of my life’s work. In fact, I have a book chapter I wrote years ago called “Failing Better.” Like, learning how to fail and learn from failure is one of the crucial things that really puts America, differentiates America from a lot of other countries and cultures where failure is frowned upon and treated with sort of social stigma or shame. Whatever you want to say about America’s problems, one thing that we still have is that we still have more of a culture that tolerates a little bit more of that sort of failure and learning from it. And one of my favorite quotes of all time that I learned when I was in Catholic school as a youth is one of my Jesuit teachers said to me—he repeated a quote from Saint Thomas Aquinas. And to paraphrase it, it basically said Aquinas said that if the sole goal of a captain was to make sure that his ship never sank, then he would never take his ship out of port. But of course, we know that’s not the goal, the sole goal of a captain. He of course doesn’t want his ship to sink, but captains brave the high seas and the risks that they entail because they know that there’s reward out there for doing so in the exploring of the oceans or in the moving of trade and commerce. And that’s the key, right? There can be no reward without risk.
Now, back to the point about what do I mean about institutions or, rather, I’m sorry, industries that are born free versus born into captivity. Every new technology that comes along ultimately is confronted with this. And if you’re lucky as someone who’s an entrepreneur or an inventor, you’re in a born-free sector. And what I mean by that is a sector that’s not encumbered with prior restraint on innovative activities. There aren’t a slew of permission slips being issued by an alphabet soup of different regulatory agencies—the Federal Whatever Commission. And that’s the problem, is that so many other sectors and industries are sort of born into captivity of that world. So for example, when the computing technologies came along and the internet, luckily we did not have a Federal Computer Commission. We did not have a Federal Internet Commission. And they were essentially born free and able to innovate very rapidly. And as a result, the leading technology information technology companies in the United States are household names across the globe. Love them or hate them, the reality is that these companies are on everybody’s lips everywhere you go. Now, you look in other sectors and you say, “Well, okay, I want to be a driverless car innovator, or a commercial drone innovator, or some sort of advanced medical device innovator.” Well, unfortunately, in those contexts, you’re going to be confronted with a slew of laws and regulations. So even though a driverless car is basically a computer on wheels, it’s not going to be treated like a computer and left largely unfettered. It’s going to be treated more like a traditional vehicle and regulated very, very heavily right out of the gate, which is exactly what’s happened. Over the last 10 years, there’s been efforts to try to provide more room for driverless car innovation, but it keeps getting pushed back from various types of institutional forces in government at the federal and state level and in industry. Same with commercial drones, same with advanced medical devices. You have to deal with some federal bureaucracy, maybe several, and then all the state and local officials. And this has a powerful, powerful determining effect on which industries or sectors prosper in our country and which ultimately fail and go somewhere else.
Evasiveness vs. Commissioned Studies [17:44]
Bob Zadek: You point out, and another point you made in the book that was Adam so persuasive, you pointed out that if those same parents had commissioned yet another study and had statistics that indicate the harm of the existing regulation and how the regulation had to be changed, that’s an impossible task. There’s almost no history of that, the normal process, the acceptable process working. But you give example after example of the—I’ll use the phrase lawlessness, but I don’t mean it in armed robbery, of course—but where the approach of lawlessness, just saying, “No, no, that regulation is so bad, it has to be dealt with frontally, not by yet another study.” And it was so persuasive. And Adam, your organization and the one that I so respect, Cato, generates study after study after study, incredibly persuasive, data-driven, and yet getting change is such a struggle. And here you have parents, not trained in anything except in parentshood, are able to affect a change. It really is about the most powerful argument one can make in support of evasiveness, part of the title of your book.
Adam Thierer: Yeah, and importantly, the other important part of that is that these parents and these average Americans that are engaging in these sort of acts of creativity and innovation, they’re not deep-pocketed, right? Most of them are doing this non-commercially in a nonprofit way, and they don’t have lobbyists in Washington. They don’t have big budgets for, you know, marketing and advertising efforts. This is all sort of spontaneous bottom-up activity amongst the people. And to me, that should make it even more exciting and rewarding and hopefully policymakers appreciate this is true bottom-up sort of democracy in action in a real-world sense. People are voting with their innovations. They’re voting with their brains and with their hands to create a better world. You know, Ben Franklin once said man is a tool-building animal by his nature because that’s how the species prospers. And this is that in real time. So, you know, I would hope policymakers be persuaded by that. But the unfortunate reality, Bob, is that we have lines and lines of lobbyists outside of doors in Washington, in Congress, in every regulatory agency getting their case heard. And that is going to be a really powerful thing in terms of preserving the status quo. So shaking up that system is what I’m trying to propose here and say sometimes you have no other choice but to just go out there and do it, to actually engage in some permissionless innovation and try to see if you can make a better mousetrap and hope that the regulators and policymakers come around to understanding that you have. Now, of course, it doesn’t always work out that way. And that’s the risk that entrepreneurs take today when they engage in sort of these acts of evasiveness.
Proposed Solutions: The Innovator’s Presumption and Sunsetting [19:28]
Bob Zadek: You make the point in your book about vested interest. There are once a policy is established, it there are some beneficiaries and they become supporters of this sclerosis-driven system because they have learned how to benefit and they it is that principle of concentrated benefit and spread costs. They benefit profoundly and can afford to fight to keep the status quo. The average American whose benefit is indeterminate and too small to think about and immeasurable is not going to have the same energy to fight for change as those who preserve the status quo. So it’s an unfair battle when certain interests have a huge benefit which they have derived from the existing system. Now, you mentioned in passing a few seconds ago and I want to just have you focus on it just for a minute is that one of the characteristics of the existing system—and we experienced it profoundly, thus my comment about the timing of your book, we experienced it profoundly during the COVID crisis with respect to the Centers for Disease Control and the FDA—is that the system, the governmental system, is so driven by process. “Well, we don’t do that around here.” And it’s what you said earlier about it’s the status quo. So just comment if you would about how strong that motivation is, that it is process-driven. It happened with the testing when early in the COVID crisis there was a company I believe up in Washington state or Oregon which had superior testing products which couldn’t get past the front door because it wasn’t how the FDA operated. So comment briefly if you will on how process-driven the system is, and when I say process-driven, I therefore mean substance-adverse. It’s not substance, it’s process.
Adam Thierer: Yeah, that’s exactly right. I mean, this is the chronic problem of the modern American regulatory system, which is that the process-driven nature of it, everything going quote-unquote “by the book,” is really problematic when the book is so large and we don’t even know everything in it. I mean, I quoted those statistics earlier about how few laws are even changed. I mean, there’s so much in law now that policymakers and even the regulators who enforce the laws admit that they don’t know everything that’s in the law. And some people will just casually say, “Well, who cares? Most of those things aren’t going to be enforced.” Really? A lot of times they are. And the problem is that there’s that much uncertainty hanging over the heads of the innovative class in a country, then our innovation culture is going to be negatively impacted by it. This is what really discourages business formation and risk-taking when you most need it is fear of the uncertainty associated with the actual legal or regulatory process of quote-unquote “going by the book.” And so it begs the question, how do we break out of that logjam? Well, COVID actually gave us one clue how we do it, and the answer is sunsetting. We need to sunset more laws and regulations on a regular basis. Look, I’m not an anarchist. I believe there are some good laws out there that need to be enforced. But you know what? You have to prove it to me. And you need to prove it to me regularly. You need to give me a really good cost-benefit analysis that shows a certain law or license or permit actually serves some compelling public interest. Well, the problem is in the world of “set it and forget it” government, we never do that. I mean, businesses have to reinvent their business models every couple of years now in this country or else they’ll be obliterated by technological change. Governments never have to change anything. They never even have to look at their business model, how they’re operating. Again, set it and forget it. And so sunset policies help us to reevaluate government more regularly. I argue in my book that we ought to basically have for any technology provision in law, innovation provision in law, a two-year sunset. And if it’s a good law, Congress can always come back and put it in the books, but after two years, it should go away and then we’ll figure out what to do from there. Now, there’s some controversy around the idea of sunsetting because people will say, “Well, some laws are so important you don’t want to have to fight to put them back in the books every two years.” I get it. There may be laws that need to be evaluated only every five to 10 years. But let’s at least have a date! Let’s at least agree that there should be an occasional spring cleaning of government just like we all understand we need to have an occasional spring cleaning of our homes or our businesses. And that’s the most simple piece of advice that I think is bipartisan in nature. Lots of people support this idea, but it just never gets into law. And I don’t understand that, but we have to start somewhere, Bob, and I think we need a simple, clean sort of break with the past mentality. And I think we should rally behind the idea of sunsetting old laws, archaic regulations, and revisiting policies as frequently as we possibly can.
Jeffersonian Sunsetting and Closing [21:01]
Bob Zadek: Adam, I don’t want to hurt your feelings, but Thomas Jefferson beat you to it. Thomas Jefferson was said to believe that any law, every law had to sunset in 20 years, which was one generation in those times. Had to sunset in one generation because he felt it was immoral for one generation to bind another generation who didn’t get to vote on whether they chose to be bound. So Jefferson would agree with you 100%. He gave it 20 years, but of course things go a lot faster now, so I don’t mind one bit that you shortened Jefferson’s 20 years to two years. That’s okay with me. You also in the book, and I want to sort of spend some time on this because it’s an important part of the book, you give lots of examples of how this system, the stifling of innovation, can be fixed. And some of your suggestions wouldn’t occur to people ordinarily, and so you perform a valuable service by listing them. Others are sort of invisible in plain sight, if you will. So give us some of the examples of how government could simply create a much more hospitable environment for innovation. For example, reverse presumption, which I hadn’t thought about until you pointed it out, and you mentioned already sunsetting regulations. And you also mentioned the parity provision. So help us understand what remedies are available pretty easily if there is a governmental will.
Adam Thierer: Yeah, that’s great. Thanks, Bob, for asking that. And in addition to the idea of sunsetting, or as I call it the sunsetting imperative, I think there are a couple of other ideas that are pretty easy that could be written into law more regularly or that we could have policymakers abide by. One of which I call the Innovator’s Presumption, which is that we need to reverse the burden of proof in law that suggests that innovation and entrepreneurship should be presumed to be harmful until proven innocent. That’s not the right standard. It should be just as it is in criminal law: you should be innocent until proven guilty. But unfortunately, far too many policies today are rigged in such a way, either because you’re born into regulatory captivity or just the law doesn’t like innovators, it’s geared against the idea of risk-taking. So how would I change that? Well, there’s actually been some attempts in the past, including by regulators themselves, to write into law some sort of a provision that would state that any person or party who opposes a new technology or service shall have the burden to demonstrate that the proposal is inconsistent with the public interest or public welfare. And why is that important? Again, I call this the Innovator’s Presumption. It’s important because, again, it switches the burden of proof and it tells the world around that agency or around that law, “Hey, it’s safe to innovate. Other people, other people have to make the case against you, but you go forward. You’ve got the green light, not the red light.” So the Innovator’s Presumption would be something I think we could write into any sort of policy governing new innovation and technology.
A final thing that I talk about in the book is called the parity provision. This is a little bit more complicated, but to make it simple, every single policy fight, as I pointed out, often ends up being new innovators and entrepreneurs versus some defender of the status quo, and often some industry that doesn’t want to be disrupted because they enjoy healthy profits and don’t like competition. And so we see this again and again in things like the battle with Uber and taxi cab companies, with Airbnb and hotels. And the parity provision is what we need to address the so-called level playing field problem, which is that incumbents, special interests who defend the status quo, will always say, “Hey, hey, hey, these new kids in town who want to play by a different set of rules, you know, that’s not fair. That’s an unlevel playing field.” And therefore, they say, we should level the playing field of law and regulation such that everybody plays by our rules, the old rules, the old burdensome taxes and regulations. Well, why do incumbents say that? They say that not because they like the taxes and regulations, but because they’ve learned to live with them and they’re paying them and they know the new guys in town can’t. So how do we adjust that? Well, we just again reverse the presumption. Okay, let’s level the playing field. But let’s level the playing field in the direction of greater freedom and not burdensome rules and taxes. Let’s treat everybody the same as the new innovator. Let’s give them more freedom, more permission to go out and innovate. And that’s what I call the parity approach. And I think that would solve so many of the problems with occupational licensing and permitting systems and even other regulations at the federal level. So a combination of those three general reform ideas—the parity provision, the sunsetting imperative, and the Innovator’s Presumption—I think are the kind of ideas that we need to instill into public policy to make sure our entrepreneurial class and innovators in the United States are given more green lights to go forth and do important things that can move the needle on human progress.
Bob Zadek: And as we run out of time, regretfully, I’ll just mention that we are in a world economy, and if we don’t create or continue to create a petri dish for innovation here in our country, another country will, and the ability to successfully innovate without permission is what draws talented immigrants to our country. It’s what draws people into STEM studies because the prospects of being free to invent. It makes our life infinitely better. And if we don’t create that environment, somebody else will. So Adam, you have written such an important book at the perfect time, yearning for more government openness to innovation, basically government realizing they do not know everything and they should just open up and allow people to teach government and teach us all the better way to do something. So this is Bob Zadek. We have spent an hour speaking with Adam Thierer. Adam has written Evasive Entrepreneurs and the Future of Governance: How Innovation Improves Economies and Governments. The converse, not part of the title, is the absence of innovation harms economies and harms government. What a great public service. I hope you have enjoyed the hour I have spent with Adam. If you did enjoy it, if you’re listening on the podcast, please be sure to indicate you like the podcast and offer any suggestions you might have how we can even improve our presentation. Thank you so much to Adam and to my friends out there for giving me an hour of your time this Sunday morning. Have a nice Sunday.