Lincoln Network’s Entrepreneur Survey on Government Regulation

By: Garrett Johnson, co-founder of Lincoln Network and Greg Ferenstein, Editor at Ferenstein Wire

Executive Summary: The following are findings from a preliminary survey of founders of technology startups on government regulation and emerging policy issues. The data illustrates how the Trump Administration and new Congress can craft policy that is consistent with the perspective of tech industry leaders.

The overarching conclusion is that the stereotypical conflict between small and big government may be a false choice to many innovators. The traditional left-right polarity that many Americans rejected a few weeks ago on November 8th is also a poor fit for understanding the political inclinations of innovators. Instead, there is a framework for some regulation that innovators see as innovation-enhancing or innovation-restricting. Specifically, the evidence emerged in three general patterns about optimal regulations that:

  1. Permits informed user consent of risky technologies
  2. Reduces a hawkish approach to resolving legal disputes and security issues.
  3. Incentivizes performance based organization

Understanding Silicon Valley’s Unique Philosophy

To understand how technologists approach regulations, it is helpful to understand their political philosophy. Tech founders are generally a hybrid between conservatives and liberals. A representative poll of tech startup founders conducted in late 2015 discovered that like conservatives, they are avidly pro-free market, support free trade, believe in more charter schools and often believe that labor unions have a negative effect on the economy.

But that’s not the entire story, because some of their policy inclinations are more like liberals in that many support strong protection for the environment, a health care mandate, and “nudges” like campaigns against sugary drinks.

Rather than view technologists as some kind of centrist political ideology, they generally have a novel role for the state: one that sees the primary role of government to enhance innovation with investments in skill development and open data, rather than controlling the free market.

As this report delves into the nuances of cutting-edge policy, this ideological perspective hopefully helps explain why technologists do not have a knee-jerk reaction against any involvement by government.

Ok, so, how does this relate to regulation?

Innovation happens too quickly for the lumbering legislative process to keep up, but in some cases technologies may perform better in a new regulatory framework. Or regulatory certainty may be better than regulatory uncertainty. Airbnb founder Brian Chesky, for instance, has outright expressed that he wants government regulation of the short-term rental market that helps consumers make safe and informed choices, but not those that protect incumbent industries.

In other words, Silicon Valley wants informed citizens free to make a variety of choices. The data suggests general support for policies in these three arenas:

  1. Informed consent: Tech founders believed that companies should have to provide information so that users can make an informed decision when testing relatively untested technologies.
  2. Reduced prosecutorial and security role: There was a strong belief that the government surveillance has gone too far.
  3. Performanced-based Government Management: Agencies should be funded more like businesses. For instance, military and other agencies get priority access to valuable broadband spectrum that could be leveraged by the private sector to make consumer cellular internet faster or more reliable, but government agencies have no incentive to share their spectrum because they do not get any of the money when it is sold to phone carriers.

Let’s take a look at how each of these patterns emerged from the data, a representative sample of technology founders surveyed from the Crunchbase dataset of startups.

Informed consent: genetic testing and the sharing economy

While respondents were divided over heavy-handed prescriptive regulation, there was broad consensus when issues were reframed as one of information requirements.

That is, participants were actually divided over whether the government could restrict or ban certain technologies. However, participants seemed more receptive to controversial technologies when they had confidence that consumers were properly informed about the risks.

For instance, in 2013, the Food and Drug Administration banned the popular direct-to-consumer genetics testing startup, 23andMe, from displaying analysis of genetic information related to diseases. Federal authorities worried that consumers may react poorly to this information, specifically knowledge that women may carry the BRCA 1 /2 type genes giving them a high susceptibility for breast cancer. Some have argued that the state of research predicting diseases from genetic traits is still in its infancy. As a result of the dispute between FDA and 23andMe, all new users lost access to disease data that the company currently displays to legacy users.

72% of respondents believed that Congress should seek to override the FDA restriction against 23andMe displaying a user’s genetic propensity for certain diseases (technically, it “banned” 23andMe from displaying the genetic information they used to show users)

Support for displaying health information become more popular when it was reframed to information access and transparently. 86% of founders believe that consumers should have access to health data, if required to inform users about the uncertainties in the evidence supporting claims of an increased or decreased likelihood of having a disease.

We found similar results with the the sharing economy.

Sharing economy giants, especially ride-hailing services Uber and Lyft, have come under increased scrutiny for hiring drivers as independent contractors rather than full-time employees. Uber recently settled a $100M class-action lawsuit on whether it was obligated to reimburse drivers for “workplace” expenses. Other lawsuits are ongoing. Post lawsuit, powerful lawmakers are eyeing even more regulation.

“While their businesses provide workers with great flexibility, companies like Lyft and Uber have often resisted the efforts of those same workers to access a greater share of the wealth generated from their work,” said Senator Elizabeth Warren at the New America Foundation.

If working for Uber and Lyft were so terrible, why would anyone do it? Critics point to overly-aggressive advertising, promising wages of up to $35/hour, when the reality is often much lower, after factoring in gas, maintenance, and insurance.

Perhaps even more concerning, ridesharing companies can radically reduce prices overnight to offset low demand, further complicating the income of their drivers.

In response to “confusing” wages, Uber had attempted to give drivers certain income guarantees, but drivers still complain about the uneven application of different seasons and days.

Many participants were not all that opposed to regulation of the gig economy labor market. Many feared that workers were being ‘abused’ by the system.

Silicon Valley generally sees information alone as an antidote to social ills. Thus, about 65% of founders see independent contracting as good for workers, but that number jumps to 80% if the question is reframed as workers being allowed to become independent contracts if companies help them understand their expected risks and wages.

Transparency seems to be a way that can both uphold conservative principles and align with the beliefs of innovators.

Finding II: Protect civil liberties and encryption:

Perhaps the greatest overlap between stereotypical small-government values and Silicon Valley support is in regard to the state’s role as a legal and security enforcer. The survey revealed extraordinary unanimity on all issues related to encryption, copyright prosecution, and tort law.

Hawkish policymakers from parties have often applied a law and order approach to technology policy. This has caused deep rifts between tech companies and the party that prides itself on being pro-business.

The fight over iPhone encryption is the best look at Silicon Valley’s partnership with conservatives

The hawkish approach to tech policy became front page news earlier this year after the presidential leader of the Republican party called for a boycott of Apple after the consumer electronics giant refused the FBI’s order to hack a dead terrorist’s iPhone.

“What I think you ought to do is boycott Apple until such time as they give that security number,” Donald Trump told supporters.

Apple refused the order in an aggressive public stance, arguing that creating a special loophole for the FBI would undermine users’ security against nefarious state and nonstate hackers. The tech industry came out in droves over social media to support Apple and denounce lawmakers.

“We’re sympathetic with Apple. We believe in encryption — we think that that’s an important tool,” said Facebook’s Mark Zuckerberg, who eventually integrated encryption into the company’s own messaging tool.

In our poll, an overwhelming 92% of the participants felt that users should have access to so-called end-to-end encryption, which is communication so secure that both the company’s manufacturer and the government have difficulty cracking it (or, provide some sort of easy access government “back door” to user’s information).

“My view is that a benefit of crime control (one-off instances) is of lesser importance than the benefit of whole nation security (security of keeping communications secure for everyone, for legal and illegal uses)”, wrote one tech founder participant.

Why overwhelming technology consensus matters

To be sure, it’s not just a philosophical difference between tech and security agencies, but a disagreement over what is technologically possible. One of the reasons many tech founders believe strong encryption should be legal is because it’s not possible to create a backdoor that only the government can access.

Nefarious hackers (including state-sponsored hackers from Russia and China) would be able to steal US company trade secrets and undermine consumer confidence in internet products.

“The government suggests this tool could only be used once, on one phone. But that’s simply not true,” wrote Tim Cook in an open letter, explaining that creating an opening for one entity necessary creates openings for others (including Apple).

Big government in the courts

In our survey, a majority tech founders also worried about overly aggressive fines and prison time associated with violations of intellectual property law and regulations.

Like laws against end-to-end encryption, legal strategies to prevent intellectual property violations must often involve an overwhelming show of force. In response to music and movie pirating, several entertainment associations drafted the now defunct Stop Online Piracy Act (SOPA), which would have granted the government broad powers to shut down websites tangentially involved in facilitating copyright infringement.

Eventually the bill was defeated thanks to an unprecedented protest by Internet organizations. But lawmakers still apply a similar logic of deterrence-through-overwhelming-force in other ways.

For instance, consumers face massive fines of up to $150,000 per illegal download, with lawsuits usually involving more than one act. Other laws, such as the CFAA, in the context of so called “hacking” can apply to family members who share a netflix password or tinkerers who want to make modifications to their own electronics.

As such, even though the tech industry stands to lose money from piracy, a slight majority (62%) of internet founders were in favor of bills that reduced the penalty for hacking.

Easing suits

The same sentiment, favoring restraint in government regulation, was also observed in civil and agency lawsuits that have prevented experimentation with novel transportation and delivery technology.

Self-driving cars could save lives and transform cities, but the potential lawsuits from pedestrians harmed by the technology has held back research on public roads. Since there are many lives lost to human-driven cars every year, the sooner self-driving cars are on the road, the more lives saved; but self-driving cars are a relatively untested technology, so there is a potential trade off between the dangers posed by self-driving cars now and lives lost to car accidents in the future.

Instead of asking respondents about complicated legal cases, we asked them to tell us whether they wanted a higher-risk, quick innovation strategy vs being overly cautious. 73% of tech founders want the government to err on the side of innovation.

A large majority also supported easing regulations on drones, which the Federal Aviation Administration has been generally cautious about permitting in cities.

In the trade off between security and innovation, respondents often felt the government had to overcorrect in order to achieve it’s goal of safety, law and order.

Performance based regulation

We asked respondents about several potential and existing laws that were meant to orient government toward performance. For instance, one of the broad critiques of education is that if often lacks accountability as graduate outcomes are opaque and teachers lack a financial incentive to improve student performance.

Senators Marco Rubio and Ron Wyden have proposed the “The Student Right To Know Before You Go Act”, which mandates that colleges publish statistics on graduate outcomes. Some college associations have opposed the legislation on the grounds that it makes colleges run too much like the free market (and colleges should train people to be good citizens, not profitable workers). As a result, many college associations have collectively refused to collect or release graduate labor market outcome data.

The tech community, however, was generally supportive of this idea, with 84% agreeing or leaning toward Rubio’s bill.

To test how strong this approach to education went, we included another question about a popular Silicon Valley initiative: charter schools, which both Mark Zuckerberg and Bill Gates have poured hundreds of millions of dollars into.

Charters are often highly experimental, non-union schools with more latitude to pay for performance and fire bad teachers. Our question on charters revealed both the limits and consensus related to performance based government. 100% of participants believed in the concept of charter schools. Yet, only 12% believed all schools should be charters (like New Orleans has tried), while 68% said most or a few should be like charters.

“Schools should innovate and teachers need to innovate with them,” said one participant “We are teaching in basically the same fashion as we did 50 years ago and technology makes more information and student paced learning feasible. Incentives are fine as long as they do not cannibalize poor schools.”

Changing agencies

In some cases, government agencies must be given first access to resources. The Department of Defense relies on wireless radio waves for critical communications, often competing with new innovations that rely on the very same scarce slice of the magnetic spectrum (like new remote controlled artificial limbs).

At present, government agencies have less incentive to give away the rights to spectrum. Some have proposed a business oriented solution: let agencies cash in on auctioning spectrum off to the private sector.

Our tech founder participant pool was generally intrigued by a financial incentives approach, with 76% overall supportive. However, most (40%) of the support came from respondents who admitted they had no idea about the policy, but liked the concept.

Conclusions

The motivating interest of this report sponsored by Lincoln Network and CalInnovates was to understand attitudes surrounding emerging technologies, given that there is no broad consensus on how to deal with emerging technologies, from drones to self-driving Cars. Often, regulations seem surprisingly ad hoc, such as the way the FDA abruptly shut down 23AndMe’s analysis of user’s genetic information.

We find that technologists broadly support regulations that require transparency and promote performance-based government. At the same time, there was broad opposition to aggressive enforcement of crimes and potential crimes, on issues such as end-to-end encryption and intellectual property.

The overall picture finds a consistent philosophical approach that can be used to guide policymakers as they encounter unexpected challenges with new technologies. Further research will be conducted to see if and how the attitudes of technologies overlap with the nation’s policymakers.

About Lincoln Network:

Lincoln Network is made up of entrepreneurs and technologists who believe that technology and innovation are key ingredients to a more free society. Both online and offline, we actively bring together the most thoughtful minds from the worlds of tech, policy, and politics to discuss how best to solve our biggest problems. We believe in the entrepreneurial spirit. We believe in optimistic and solutions-oriented thinking. Through hackathons, meetups, policy discussions, and online engagement, Lincoln Network is creating and supporting a community of like-minded individuals who desire to advance liberty in the public square with the use of technology.

About Calinnovates:

CALinnovates serves as a bridge between the thriving and fast paced technology communities based in California and the slower moving but equally important public policy communities in Sacramento and Washington, DC.

APPENDIX: ALL QUESTIONS:

*Note: in order to fit questions within the graphic, exact question wording is modified. For full details and raw data, contact Lincoln Network at: about@joinlincoln.org.