Innovations will be regulated---each step will bring tailored controls that cushion downsides.

Most notable in this regard is the scathing social criticism of the prolific techno-skeptic Evgeny Morozov, who goes so far as to argue that the very term “the Internet” is a meaningless construct.20 He engages in a sort of radical deconstructivism that suggests we are all somehow being fooled into thinking the Internet is as important or meaningful as most of us, quite rationally, believe it is. Morozov also rails against what he regards as the irrational exuberance of digital innovators, who supposedly believe technology can solve all the world’s hard problems. He refers to this as “solutionism” and castigates all those who would engage in a “mindless pursuit of this silicon Eden” or “romantic and revolutionary” thinking about how new technology might improve our lives.21 The critiques set forth by the latest crop of critics have become even more specialized, zeroing in on emerging technologies such as robotics,22 artificial intelligence,23 sensors,24 and the Internet of Things.25 Again, the concerns range from social (e.g., privacy, safety, and security) to personal (e.g., impact on learning and concentration) to economic (e.g., fears about automation and job dislocation). And it is not unusual to also hear a fair share of end-of-world dystopian scenarios thrown around in many of their books and essays, including Terminator-inspired tales of killer robots destroying humanity.26

The critics often fail to devise a coherent political or regulatory agenda for countering what they see as an overreliance on technology. However, when they do come clean about their policy intentions, they are usually calling for quite radical policy interventions, often aimed at imposing sweeping political control over the future course of technological innovation.27

B. ANSWERING THE TECH CRITICS: THE CASE FOR “RATIONAL OPTIMISM”

The problem with all these critics’ arguments is that they overestimate the dangers of new innovations while ignoring, or at least greatly underplaying, the importance of technological innovation for economic and social progress.28 And perhaps the most important shortcoming of these techno-critics, as I’ll discuss in greater length in chapter IV, is that they consistently fail to appreciate how well humans adapt to technological change. In fact, they almost universally ignore how quickly we learn to cope with changes that—while challenging in the short term—ultimately come to be an accepted, and usually enriching, part of our lives.29 Although they are rarely as direct about saying it as Morozov is, the work of some tech critics implies that all this modern innovation isn’t necessary, or at least that there’s just too much irrational exuberance about its potential.

It’s easy for some modern technological critics to dismiss the wild-eyed enthusiasm of some creators because, at times, those innovators or others can overstate the potential of any given invention. When Pollyanna-ish pundits make sweeping claims about how any particular new technology will “change everything” or seemingly solve all the world’s problems, the critics are right to call them out for such statements.

But that criticism can go too far and ignore the fact that, as James Surowiecki observes, “[i]n the delusions of entrepreneurs are the seeds of technological progress.”30 It is hard to believe, for example, that the world would really be a better place if it was completely devoid of the “romantic and revolutionary” thinking that Morozov and other critics deride. We need not always support the bullish enthusiasm of all modern entrepreneurs to nonetheless appreciate how their ongoing efforts to find solutions to hard problems can often yield very beneficial results—or even just powerful lessons following their failures.

This more practical disposition toward technological experimentation and change is what author Matt Ridley calls “rational optimism.”31 At a macro level, the rational optimist is generally bullish about the future and the prospects for humanity but is not naive about the challenges associated with technological change. At the micro level, the rational optimist seeks practical solutions to intractable problems through ongoing trial-and-error experimentation, but is not wedded to any one process or particular technology to get the job done.

This is the approach seen in the works of Herman Kahn,32 Julian Simon,33 F. A. Hayek,34 Ithiel de Sola Pool,35 and especially Aaron Wildavsky and Virginia Postrel, whose work was discussed earlier. These “dynamist” thinkers express optimism about the role technology plays in advancing social and economic progress, but their optimism is always rooted in empiricism and rational inquiry, not blind faith in any particular viewpoint or ideology. Rational optimists don’t hold an unthinking allegiance to technology as an autonomous force or savior to all of civilization’s woes. Indeed, the blueprint that rational optimists offer is not utopian but anti-utopian: precisely because difficult problems defy easy solutions, we should look to devise a plurality of strategies to tackle them. New technological innovations might be among those strategies, but they are not the only ones we should rely on. Ongoing experimentation is the key to unlocking knowledge and prosperity.36

Importantly, rational optimists would never discourage the entrepreneurial dreaming and daring that so many modern tech critics deride. While Morozov and other critics might lambast those “romantic and revolutionary problem solvers,” the truth is that the world is a better place because such people exist. Much of their entrepreneurial activity will yield socially beneficial results. Equally as important, however, is the fact that it will also produce many failures, but society will then learn from those mistakes and improve future experiments accordingly.

The goal is not to “save everything” with “the folly of technological solutionism,” as Morozov worries. Rather, it is to seek to solve-some-problems through the application of practical knowledge to social and economic challenges through incessant experimentation with the new and different approaches to those problems.37 But rational optimists will not shy away from the fundamental truth that a symbiotic relationship exists between technological innovation and human flourishing. That connection, as noted next, is why the critics’ complaints must be met with a full-throated response.

C. THE CONNECTION BETWEEN INNOVATION, ECONOMIC GROWTH, AND HUMAN FLOURISHING

Before we consider the profound benefits associated with innovation, we should try to define the term. Of course, defining “innovation” is notoriously difficult,38 almost as challenging as settling on a good definition of “technology” itself.39 The Organisation for Economic Co-operation and Development (OECD) rather dryly defines innovation as “the implementation of a new or significantly improved product (good or service), or process, a new marketing method, or a new organizational method in business practices, workplace organisation or external relations.”40 But, as is often the case with other attempted definitions of the term, the OECD caveats its definition by noting how “[t]his broad definition of an innovation encompasses a wide range of possible innovations” and that narrower and more nuanced definitions are available.41

W. Brian Arthur, author of The Nature of Technology, argues that the problem with trying to explore the concept of innovation directly is that “the idea is too diffuse, too nebulous, for that to be useful.”42 Despite that warning, he continues on to explain how

[i]nnovation has two main themes. One is [a] constant finding or putting together of new solutions out of existing toolboxes of pieces and practices. The other is industries constantly combining their practices and processes with functionalities drawn from newly arriving toolboxes— new domains. . . . The result is new processes and arrangements, new ways of doing things, not just in one area of application but all across the economy.43

More concisely, in their book Innovation Economics, Robert-D. Atkinson and Stephen J. Ezell define innovation as “the development and widespread adoption of new kinds of products, production processes, services, and business and organizational models.”44 What these and most other definitions of innovation share in common, then, is a focus on new and better ways of doing things and, in particular, new ways of satisfying human wants and needs. Thus, even if its precise definition proves elusive, what is most crucial about the process of innovation is that it serves as a means to an end: it helps drive progress and human flourishing. “Innovation is more than the latest technology,” notes Sofia Ranchordás, a resident fellow at Yale Law School, “it is a phenomenon that can result in the improvement of living conditions of people and strengthening of communities. Innovation can be technological and social, and the former might assist the latter to empower groups in ways we once thought unimaginable,” she observes.45

The endless search for new and better ways of doing things drives human learning and, ultimately, prosperity in every sense— economic, social, and cultural. The pessimistic critics of technological progress and permissionless innovation have many laments, but they typically fail to consult the historical record to determine how much better off we are than our ancestors.46 And that record is unambiguous, as Robert Bryce explains in his recent book, Smaller Faster Lighter Denser Cheaper: How Innovation Keeps Proving the Catastrophists Wrong:

The pessimistic worldview ignores an undeniable truth: more people are living longer, healthier, freer, more peaceful, lives than at any time in human history… [T]he plain reality is that things are getting better, a lot better, for tens of millions of people around the world. Dozens of factors can be cited for the improving conditions of humankind. But the simplest explanation is that innovation is allowing us to do more with less.47

“Doing more with less” drives greater economic efficiency, expands the range of goods and services available, and generally lowers prices.48 This raises our overall standard of living over the long term.49

Indeed, there exists widespread consensus among economic historians and scholars that, as the Cato Institute’s Brink Lindsey asserts, “the long-term future of economic growth hinges ultimately on innovation.”50 Countless economic studies and historical surveys have documented the positive relationship between technological progress and economic growth. A 2010 white paper from the US Department of Commerce revealed that “[t]echnological innovation is linked to three-quarters of the Nation’s post-WW II growth rate” and continued on to note that,

[a]s it fuels economic growth, innovation also produces high-paying jobs. Recent studies by the Federal Reserve show that innovation in capital goods is the primary driver of increases in real wages. Without innovation, wages would be much lower.-Additionally, across countries, 75% of differences in income can be explained by innovation-driven productivity differentials.51

These findings are reflected in many other major economic studies on the factors that drive economic growth. For example, two major economic surveys from 2003 and 2006 found that technological progress accounts for 30–34 percent of growth in Western countries.52 And economists estimate that differences in technological adoption patterns account for 80 percent of the difference between rich and poor nations.53

Of course, just because the historical evidence linking innovation and long-term growth reveals an unambiguous and undeniable relationship, the short-term disruptions caused by technological change won’t be any easier to swallow for some individuals, businesses, or public policymakers.

This is why attitudes toward innovation and entrepreneurship are so important. Progress-oriented policy requires a general openness to constant change and the “creative destruction” that Austrian-born economist Joseph Schumpeter famously spoke of in the 1940s, when he explained how cascading waves of continuous change, or what he described as the “perennial gales of creative destruction,” were what spurred innovation and propelled an economy forward.54 As my Mercatus Center colleague Jerry Ellig has explained it, in the Schumpeterian paradigm, “firms compete not on the margins of price and output, but by offering new products, new technologies, new sources of supply, and new forms of organization.”55

The Schumpeterian paradigm and other “dynamic competition” models best capture the nature of competition and innovation in today’s digital world.56 The Schumpeterian model explains why some tech companies can gain scale so rapidly only to stumble and fall with equal velocity.57 Digital Davids are constantly displacing cyber-Goliaths.58 Social and economic risk takers and innovators are constantly shaking things up in the digital economy and bringing about equally seismic disruptions throughout our culture.59

New disruptions flow from many unexpected quarters as innovators launch groundbreaking products and services while also devising new ways to construct cheaper and more efficient versions of existing technologies. The more this cycle repeats, the more likely economic growth becomes. But the Schumpeterian model also explains why technological innovation can be so gut-wrenching and generate so much opposition in the short term.

Indeed, it’s amazing to think about all the once-mighty tech titans that ruled their respective sectors, only to be rapidly displaced by smaller start-ups a short time later.60 For some, the velocity of their downfall was precipitous and fatal. Other times their decline and fall was gradual and incomplete as the shells of the old companies remain in existence even as their cores have been hollowed out. Consider a few examples:

IBM: “Big Blue” was once synonymous with computing itself. IBM dominated the mainframe computer marketplace and kept antitrust officials in a 13-year tizzy. But both-IBM and the government weren’t paying attention to the personal computing revolution, which abruptly kicked IBM off its perch and utterly decimated its business and shareholder value throughout the 1980s. While it reinvented itself later and rebounded, it is a shadow of the company that once ruled the computing marketplace.

Kodak: The postwar generation had “Kodak moments” and the film and camera giant’s importance was significant enough that even singer Paul Simon begged, “Mama, don’t take my Kodachrome away.” But the combination of digital photography, online photo storage, and home printing would eventually wipe out Kodak’s market dominance, even though the firm had seen much of the change coming. Its failure to adapt led the firm into bankruptcy in 2012.61

Sony: For those coming of age in the early and mid- 1980s, “Walkman” was synonymous with any portable music device. Sony had created a product that everyone wanted and all its competitors were forced to copy. A generation later, the device had lost much of its appeal— and whatever market dominance Sony once gained from it. By the late 1990s, digitized music and the rise of MP3 players meant that Apple and others would rapidly eat away at Sony’s once-dominant position. Although the company rebounded and remains a major player in video games and other consumer electronics sectors, it is not the feared juggernaut it once was.

Atari: For the first generation of video gamers, Atari was the name of the game. It dominated the home console market in the late 1970s. A few years later, it was “game over” for the company, primarily because of Nintendo’s growing dominance of the console market in the late 1980s. While Nintendo would last longer and indeed is still with us, the firm faces vigorous competition from other platforms, including the unexpected rise of smartphones as a major gaming platform.

MySpace: While Facebook dominates discussions about social networking today, it’s already easy to forget that just a few years ago almost everyone expected MySpace to rule social networking for a long time to come. That concern over MySpace’s hegemony peaked shortly after Rupert Murdoch and News Corp. bought the company in 2005 and led critics like Victor Keegan of the United Kingdom’s Guardian newspaper to ask, “Will MySpace Ever Lose Its Monopoly?”62 A short time later, however, MySpace lost its early lead and became a major liability for Murdoch—he paid $580 million for the company in 2005, but sold it for only $35 million in June 2011.63

Mobile phones: The mobile phone handset and operating system (OS) marketplace has undergone continuous change over the past 15 years and is still evolving rapidly. When cellular telephone service first started taking off in the mid-1990s, handsets and mobile operating systems were essentially one in the same, and Nokia and Motorola dominated the sector with fairly rudimentary devices. The era of personal digital assistants—more commonly known as PDAs—dawned during this period, but mostly saw a series of overhyped devices, such as Apple’s “Newton,” that failed to catch on. In the early 2000s, however, a host of new companies and devices entered the market, many of which are still major players today, including LG, Sony, Samsung, Siemens, and HTC. Importantly, the sector began dividing into handsets versus OS. Leading mobile OS makers have included Microsoft, Palm, Symbian, BlackBerry (RIM), Apple, and Android (Google).

The sector continues to undergo constant change. Palm smartphones were wildly popular for a brief time and brought many innovations to the marketplace.64 Palm underwent many ownership and management changes, however, and rapidly faded from the scene.65 Similarly, RIM’s BlackBerry was the dominant smartphone device for a time, but it has recently been decimated.66 BlackBerry’s roller-coaster ride has left it “trying to avoid the hall of fallen giants,” in the words of an early 2012 New York Times headline.67 Although the company once accounted for more than half of the American smartphone market, today its share has slipped into the single digits.68 Microsoft also had a huge lead in licensing its Windows Mobile OS to high-end smartphone handset makers until Apple and Android disrupted its business. It is hard to believe now, but just a few years ago the idea of Apple or Google being serious contenders in the smartphone business was greeted with derision, even scorn.

Famously, many commentators denigrated Apple’s entry into the smartphone business because many industry analysts believed the market was mature.69 Just a few years later, Nokia’s profits and market share plummeted,70 and Google purchased the struggling Motorola. Meanwhile, Palm is dead and Microsoft is struggling to win back market share lost to Apple and Google. “The violence with which new platforms have displaced incumbent mobile vendor fortunes continues to surprise,” says wireless industry analyst Horace Dediu.71

In each of these cases, Schumpeterian change has brought us many new goods and services that have improved our overall standard of living. But precisely because disruption of this sort unsettles so many traditional businesses, sectors, and professions, the shortterm opposition to change will always be vociferous.

Nonetheless, the vital lesson here is perfectly summarized by Daron Acemoglu and James A. Robinson, authors of Why Nations Fail, when they conclude: “Sustained economic growth requires innovation, and innovation cannot be decoupled from creative destruction, which replaces the old with the new in the economic realm and also destabilizes established power relations in politics.”72 When public policy discourages risk-taking and actively regulates to disallow permissionless innovation, the result is less entrepreneurialism, diminished competition, fewer consumer choices, and stagnated economic growth.73 The following case study of Europe’s declining global competitiveness in the digital marketplace over the past 20 years makes that abundantly clear.

D. THE REAL-WORLD IMPACT OF PERMISSIONLESS INNOVATION

Let’s get even more concrete about how creative destruction plays out in the real world and how permissionless innovation affects the standard of living for different populations.74 To do so, consider this question posed by James B. Stewart in a summer 2015-New York Times-column: “Why hasn’t Europe fostered the kind of innovation that has spawned hugely successful technology companies?”75 That-question helps frame the importance of the debate between permissionless innovation and the precautionary principle.

Since the rise of the commercial Internet in the mid-1990s, the United States and the European Union have adopted starkly different visions toward the digital economy and innovation policy more generally.76 This is particularly true as it relates to online advertising and the data collection practices that have powered digital commerce over the past two decades.77 Beginning in 1995 with the adoption of its “Data Protection Directive,” the European Union has instituted highly restrictive policies governing online data collection and use.78 The EU’s approach has been shaped by precautionary principle thinking at every turn, based largely on concerns about privacy and data security. Combined with “a deeply ingrained fear of failure that is a bigger impediment to entrepreneurship on the Continent than in other regions,”79 this general aversion to change has greatly discouraged innovation in Europe.80 Indeed, attitudes toward risk and failure account for the significant differences in US and EU policy and help unlock the mystery of why American tech firms have grown so much faster and bigger than European firms.81 German economist Petra Moser notes that Europeans are “trying to recreate Silicon Valley in places like Munich, so far with little success,” because “[t]he institutional and cultural differences are still too great” and “[i]n Europe, stability is prized” above all else, she says.82 In his recent Times essay on this transatlantic clash of visions, Stewart noted that [o]ften overlooked in the success of American startups is the even greater number of failures. “Fail fast, fail often” is a Silicon Valley mantra, and the freedom to innovate is inextricably linked to the freedom to fail. In Europe, failure carries a much greater stigma than it does in the United States.83

Moreover, he notes, “Europeans are also much less receptive to the kind of truly disruptive innovation represented by a Google or a Facebook.”84 What European regulators fail to appreciate is, as Daniel Castro and Alan McQuinn of the Information Technology and Innovation Foundation observe, that “[i]nnovation is about risk, and if innovators fear they will be punished for every mistake . . . then they will be much less assertive in trying to develop the next new thing.”85 Meanwhile, the United States adopted a very different disposition that favored risk-taking and tolerated business failures and cultural disruptions. Disruptive technologies were embraced (or at least permitted) in the United States, resulting in the explosive growth of the Internet and America’s information technology sectors (computing, software, Internet services, etc.) over the past two decades. Those sectors have ushered in a generation of innovations and innovators that are now household names across the world, including in Europe.

The result of the general freedom to experiment in this arena was not only an outpouring of innovation that was unprecedented in recent times but also a boost for US competitive advantage overall.86 For example, a recent Booz & Company report on the world’s most innovative companies revealed that nine of the top 10 are based in the United States and that most of them are involved in computing.87 Another recent survey revealed that the world’s 15 most valuable Internet companies (based on market capitalizations) have a combined market value of nearly $2.5 trillion, but none of them are European while 11 of them are US firms.88 Meanwhile, the information technology market on either side of the Atlantic illustrates how investor money overwhelmingly flocks to US shores. The market capitalizations for America’s major tech companies overwhelm European tech firms.89

The data on the overall size of the respective tech markets on either side of the Atlantic provide an even more dramatic contrast. As of 2015, the market value of Apple, Google, and Facebook each exceeded the entire value of the European market for tech “unicorns,” or firms with a market value of over $1 billion. Airbnb’s market value alone exceeds the value of all of Germany’s billion-dollar technology companies combined.

Many European officials and business leaders are waking up to this grim reality and are wondering how to reverse this situation. Danish economist Jacob Kirkegaard of the Peterson Institute for International Economics notes that Europeans “all want a Silicon Valley. . . . But none of them can match the scale and focus on the new and truly innovative technologies you have in the United States. Europe and the rest of the world are playing catch-up, to the great frustration of policy makers there.”90

Unsurprisingly, European officials are unhappy that American innovators enjoy competitive advantages in many digital sectors. As a result, some European policymakers are increasingly looking to force their more restrictive policies on US-based digital innovators. 91 The easier way to “level the playing field” between digital rivals on either side of the Atlantic would be for Europe to relax its restrictive, risk-averse policies, to give their innovators a better chance of learning from marketplace experimentation.92 Of course, that would mean that European policymakers would need to be willing to embrace the possibility that many of those firms would fail, or to the extent they succeeded, that restrictive data collection policies and other regulations might need to be reformed.

Thus far, European officials have shown little willingness to embrace that option and are instead stepping up their efforts to regulate technology companies, especially US-based firms.93 In fact, within the so-called sharing economy, European governments have moved aggressively to limit or shut down ride-sharing provider Uber.94 Following a major strike by French taxi drivers during summer 2015, France went so far as to arrest two Uber executives.95 (Ironically, downloads of Uber’s mobile app increased following the arrests.96) There’s even talk in Europe of creating an EU-wide super-regulator, mostly to address concerns about US-based tech companies.97

Such moves are motivated by a fear of disruption and change.

Whether it is economic or social norms, failure is often not an option in some European countries; public policies will protect industries, organizations, professions, or even just cultural norms that are threatened by technological change. The irony, however, is that the more aggressively European officials seek to avoid the possibility of various short-term failures, the more prone the continent is to potentially far more dangerous and systemic failures in the long term.98 “The trouble with Europe’s broad attack on U.S. tech companies is that it hurts Europe above all,” observes Mike Elgan of eWeek. “Europe will never be able to regulate its way to tech competitiveness. It has to come from industry, not government.” Elgan correctly argues that Europe’s problems with America’s tech innovators “should be solved by European startups, innovation, [and] entrepreneurship not meddling EU commissions, politicians and judges.”99

Whether European officials are willing to take steps to reverse this predicament remains to be seen. Regardless, the lesson for US policymakers should be clear: if they want to continue to produce world-leading technology innovators, they must avoid Europe’s overly precautionary and highly risk-averse approach to policy. Permissionless innovation remains the better default policy position toward new entrepreneurs and technologies, no matter how disruptive they may be in the short term.

E. GLOBAL INNOVATION ARBITRAGE

As the preceding discussion indicates, when and where public policies or political attitudes are stacked against entrepreneurial opportunities, then innovation will be disincentivized and innovators will look to do business elsewhere. Thus, there’s an even more practical reason why policymakers should take seriously the importance of permissionless innovation as a policy disposition: we increasingly live in a world where “global innovation arbitrage” 100 or “regulatory arbitrage for permissionless innovation” is a reality.101 Just as capital now fluidly moves around the globe seeking out more hospitable regulatory treatment, the same is increasingly true for innovations. Innovators can, and increasingly will, move to those countries and continents that provide a legal and regulatory environment more hospitable to entrepreneurial activity.102

As noted, the United States essentially won the first round of the “Web Wars” and took a commanding lead in the battle for global digital supremacy in terms of Internet-enabled innovation. Again, this occurred because the United States got policy right. Unfortunately, America’s digital technology supremacy may be reversing itself with some new technological innovations. “As I watch our government go slow in promulgating rules holding back American innovation,” noted Sen. Cory Booker (D-NJ) at a US Senate Commerce Committee hearing in early 2015, we are “seeing technology exported from America and going other places.”103

Consider what’s been happening in such diverse fields as commercial drones, driverless cars, genetic testing, and the sharing economy as the global competition to attract innovation and investment on these fronts intensifies. In particular, consider how the United Kingdom has been taking steps on these fronts to attract innovators who are being shunned by US policymakers:

Drones: US-based tech innovators such as Amazon and Google had been threatening to move their drone research offshore before the Federal Aviation Administration (FAA) finally started taking steps to liberalize its rules and open the skies for aerial innovation.104 Amazon even sent the FAA a letter warning stating, “Without the ability to test outdoors in the United States soon, we will have no choice but to divert even more of our [drone] research and development resources abroad.”105 Meanwhile, other countries have been opening their skies to drone innovation.106 Both the United Kingdom and Australia have been more welcoming to drone innovators.107

Driverless cars: The United Kingdom is opening its doors— or roads, as the case may be—to autonomous vehicles, or “driverless car” technology.108 The New York Times noted recently that “the country is positioning itself as a giant test track for global automakers,” and that “[a] recent review of Britain’s transport laws provided a green light for testing driverless cars on public roads—something often not allowed on the streets of other European countries. The country’s policy makers also are completing industry guidelines to sidestep other potential roadblocks, like liability and insurance issues, that could still hamper carmakers’ plans for autonomous cars.”109

Genetic testing: One of the more vivid recent examples of-global innovation arbitrage involves 23andMe, which-sells mail-order DNA-testing kits to allow people to learn more about their genetic history and their potential predisposition to various diseases.-Unfortunately, the FDA is actively thwarting innovation on this front after ordering the company to halt sales in the United States.110 The agency has recently taken steps to loosen regulation of 23andMe, although only for narrowly defined purposes.111 On the other side of the Atlantic, UK officials seem to be welcoming the firm with open arms as the UK’s Medicines and Healthcare Products Regulatory Agency said the company’s test can be used there, albeit with caution.112

Sharing economy: Sharing economy innovators are potentially at risk in the United States because of incessant bureaucratic meddling at the state and especially the local level.113-If policymakers don’t take steps to liberalize the layers of red tape that encumber new sharing economy start-ups, it is possible that some of these companies will start to look for opportunities offshore. The United Kingdom’s Department for Business, Innovation & Skills recently published a white paper titled “Unlocking the Sharing Economy,” which discusses how the British government intends to embrace the many innovations that could flow from this space.114 The preface to the report opens with a telling passage from Matthew Hancock, a member of the UK Parliament and the Minister of State for Business, Enterprise, and Energy, in which he notes, “The UK is embracing new, disruptive business models and challenger businesses that increase competition and offer new products and experiences for consumers. Where other countries and cities are closing down consumer choice, and limiting people’s freedom to make better use of their possessions, we are embracing it.”115

That last line from Minister Hancock makes it clear that if other countries, including the United States, fail to create a more hospitable environment for innovation, then the United Kingdom and other countries will be all too happy to invite those companies to come set up operations there. The offshoring option is just as real in countless other sectors of the modern tech economy. Similar opportunities for such “global innovation arbitrage” exist for the Internet of Things and wearable tech, robotics, Bitcoin, and other advanced technologies. Moreover, this sort of jurisdictional competition for innovation can happen at multiple levels of government— cities, counties, states, countries, and continents.116

This reiterates why policy incentives matter so much. “America right now is the net exporter of technology and innovation in the globe, and we can’t lose that advantage,” notes Senator Booker. “[W]e should continue to be the global innovators on these areas.”117 But that will happen only if American policymakers are willing to embrace permissionless innovation for these new technologies.

INNOVATION OPPORTUNITY: Private Drones

Unmanned aircraft systems (UASs), or drones, are poised to become far more ubiquitous in coming decades.118 Many hobbyists already use drones for a remarkable range of applications. As New York Times tech columnist Farhad Manjoo has noted, drone enthusiasts “see almost limitless potential for flying robots” and they see drones as “a platform—a new class of generalpurpose computer, as important as the PC or the smartphone, that may be put to use in a wide variety of ways.”119 Drones could also have many important news-gathering uses for both professional media organizations and average citizens.120

The commercial benefits could also be profound. As Sen. Cory Booker (D-NJ) has argued, “[T]he potential possibilities for drone technology to alleviate burdens on our infrastructure, to empower commerce, innovation, jobs . . . to really open up unlimited opportunities in this country is pretty incredible to me.”121 A 2013 study from the Association for Unmanned Vehicle Systems International, which represents the industry, predicted $82.1 billion in economic impact between 2015 and 2025 from the integration of UASs into the nation’s airspace.122

Drones are already positively transforming many sectors, including agricultural and weather monitoring, disaster response management, law enforcement (especially missing persons searches), and entertainment services (such as movie production). Major tech innovators, such as Google,123 Amazon,124 and Facebook,125 are already actively experimenting with drone technologies to provide services to the public, but many smaller drone innovators exist (such as DJI, Parrot, and 3D Robotics). These manufacturers of commercial drones had revenue exceeding $600 million in 2014.126

Those numbers would likely be much larger if not for endless foot-dragging by federal regulators. Congress ordered the FAA to come up with a plan to integrate drones into domestic airspace by September 2015, but the agency missed the deadline and has continued to delay progress.127 This is partially due to the fact that private drones have already raised many safety and privacy concerns.128 The FAA invited comments in a proceeding about drone privacy,129 and legislation limiting private or commercial drone use has already been introduced at the federal level130 and in many states.131 In early 2015, the White House issued a memorandum addressing such concerns and creating a multistakeholder process to develop best practices for drone privacy.132

Some drone regulation is likely inevitable, but preemptive controls could curtail many of the benefits that could flow from relatively unrestrictive experimentation with UASs.133 Restrictions on news-gathering uses of private drones could also raise serious First Amendment concerns.134

It may be the case that existing laws and policies—property rights, nuisance laws, torts, “Peeping Tom” laws, etc.—could cover the most concerning privacy- infringing scenarios.135 For safety issues, UAS operators could simply be held liable in court for damages that they cause, much as automobile drivers can be held liable for their damages. New legal standards for UAS-related controversies will evolve gradually through a body of common-law cases, as they have for many other technologies.136

Generally speaking, however, permissionless innovation should guide policy decisions for the nation’s airspace.137 New rules must leave ample space for future innovation opportunities so that, like the Internet, airspace can become a platform for commercial and social innovation.138 Unfortunately, some companies have been exporting development of these technologies abroad owing to the uncertainty of the regulatory environment here in the United States.139

Chapter IV

How We Adapt to Technological Change

In this chapter, we consider why the worst fears about new technologies usually do not come to pass. The reason is simple: humans have the uncanny ability to adapt to changes in their environment, bounce back from adversity, and learn to become wiser and more resilient over time.

This has important ramifications for the policy debate between the precautionary principle mindset and the notion of permissionless innovation. If adaptation is not just possible but even extremely likely, then there is even less reason to preemptively restrict social and economic experimentation with new technologies and technological processes.

A. From Panic to Eventual Adaptation

As chapter III noted, when new inventions first come on the scene, the initial reaction from philosophers, scientists, and pundits is often fear and loathing about the potential ramifications of technological change for both the culture and the economy. “Armageddon has a long and distinguished history,” Garreau notes. “Theories of progress are mirrored by theories of collapse.”1

In his magisterial history of apocalyptic theories, The Idea of Decline in Western History, Arthur Herman documented how such “declinist” thinking—or what Garreau referred to as “hell” scenarios—have been a pervasive, reoccurring feature of most past academic writing and social commentary. The irony of much of this pessimistic declinist thinking, however, is that, “[i]n effect, the very things modern society does best—providing increasing economic affluence, equality of opportunity, and social and geographic mobility—are systematically deprecated and vilified by its direct beneficiaries,” Herman says. “None of this is new or even remarkable.”2

Indeed, despite the fact that the general real-world trend has been in the direction of steady improvements in human health, welfare, and convenience, the skeptics persist in thinking that impending doom lies just around the corner. Even if the sky didn’t fall before as predicted, critics will always insist that this time it’s different! And many people believe them.

Chapter II offered some explanations for this strange phenomenon. In a nutshell, this behavior is rooted in our innate tendency to be pessimistic as well as a desire for greater certainty about what the future holds.3 By taking advantage of these tendencies, “the gloom-mongers have it easy,” notes Dan Gardner in his book, Future Babble: Why Expert Predictions Are Next to Worthless, and You Can Do Better, because their predictions “feel right to us. And that conclusion is bolstered by our attraction to certainty.”4

But just because those pessimistic predictions feel right, it doesn’t mean they are right. Again, the historical record is unambiguous: ongoing technological innovation has done more to improve the human condition that any other factor.

Yet, not only do the techno-critics consistently fail to appreciate what the historical record has to say about innovation fueling progress and prosperity, those critics also pay little attention to just how effectively humans adapt to ongoing technological change. “The good news is that end-of-the-world predictions have been around for a very long time, and none of them has yet borne fruit,” Garreau reminds us.5 Why not? Let’s return to his framework for the answer. After discussing the “Heaven” (optimistic) and “Hell” (skeptical or pessimistic) scenarios cast about by countless tech writers throughout history, Garreau outlines a third, and more pragmatic, “Prevail” option, which views history “as a remarkably effective paean to the power of humans to muddle through extraordinary circumstances.”6

The “Prevail” or “muddling through” scenario offers the best explanation for how we learn to cope with technological disruption and prosper in the process. As Garreau explains it, under the Prevail scenario, “humans shape and adapt [technology] in entirely new directions.”7 He rightly notes, “Just because the problems are increasing doesn’t mean solutions might not also be increasing to match them.”8 As John Seely Brown and Paul Duguid noted in their 2001 essay responding to “doom-and-gloom technofuturists”:

[T]echnological and social systems shape each other. The same is true on a larger scale. . . . Technology and society are constantly forming and reforming new dynamic equilibriums with far-reaching implications. The challenge . . . is to see beyond the hype and past the oversimplifications to the full import of these new sociotechnical formations.9

It is this process of “constantly forming and reforming new dynamic equilibriums” that is typically overlooked by technology critics. Or, to the extent the critics are willing to engage in a discussion on this matter at all, they often change the topic and instead stress the disruptions that happened along the way—i.e., the social or economic norms that were challenged by technological change.10

That technological change disrupts is, of course, a truism by its very nature.11 Something is lost in the process. In terms of economics, it may be a job or a business that is lost, or perhaps even an entire profession or sector that disappears. It terms of culture, it may be a particular art form or medium of expression. And in terms of society more generally, technological change might fundamentally alter the ways we interact with each other and the world around us.

All this is undoubtedly true, but what of it? What can we learn from this? What were the mechanics of that adaptive process? As social norms, personal habits, and human relationships were disrupted, what helped us muddle through and find a way of coping with new technologies? Likewise, as existing markets and business models were disrupted, how were new ones formulated in response to the given technological disruption? Finally, how did legal norms and institutions adjust to those same changes?

Individual and societal acclimation to technological change is worthy of serious investigation if for no other reason than it has continuously happened! And what is most remarkable about this process is that we humans have again and again figured out how to assimilate new technologies into our lives despite how much those technologies disrupted our personal, social, economic, cultural, and legal norms.12 We prevailed and prospered.