Ken Cuccinelli Should [Have] Run on an Innovation Agenda

“Virginia is Open for Innovation”

Derek Khanna
Oct 31, 2013 · 12 min read

Here is a white paper written for Cuccinelli for him to have run on innovation. It was written weeks before the election, but now in retrospect I still think he should have run on these type of ideas. We need governors to engage in issues like these that are new, interesting, and forward-leaning. I hope others for state office consider an innovation agenda.

Below is written from the perspective of if Cuccinelli had actually released this:

America has a long tradition of technological advancement and innovation. Virginia in particular has been part of the success story of American ingenuity. Every year, thousands of Americans launch a business in Virginia, many among them immigrants or the children of immigrants. They start with a vision, a dream: an idea of what can be. They save up for years, maybe ask their family and friends for money, and take a chance. They have a healthy skepticism for the status quo and believe in the power of new ideas. These entrepreneurs are the heroes of American growth in the 20th and 21st century.

Today, in the 21st century, with the internet and modern technology, starting a company has never been easier. The barriers to entry for innovators has reached a point where nearly any 18-25 year old with a good idea, some basic web coding ability, and a bit of luck, can launch the next Facebook, Twitter or Instagram. And when they do, their success reverberates throughout the entire American economy. It means high paying jobs for Americans and it means new and better services and products for consumers.

The full utilization of American ingenuity and innovation demands these entrepreneurs, and thankfully there is no shortage of dreamers willing to take big risks and run with ideas, ideas that often seem crazy at first. If policy-makers are serious about robust economic growth that will lead to millions of new jobs — better jobs (higher paying and high skilled) than those lost in the recession — then we need to evaluate how our laws discourage innovation set simple rules of the road that apply to everyone equally, and then (most importantly), we need to get out of the way. And Virginia gets it.

Virginia is consistently rated as among the best states to start a business:

· Virginia was number 1 in the Mercatus Center’s report “Freedom in the 50 States” for regulatory climate for business.

· Virginia was number 1 in Forbes’ eight annual list of the Best State for Business which measures 35 data points across six main areas.

· Virginia was number two in a study by Pollina Corporate Real Estate measuring economic development programs and departments.

· Virginia was number three in the U.S. Chamber of Commerce’s fourth annual Enterprising States report.

Resources are tight, but we have seen that smart spending can often lead to more growth than more spending. Through Virginia’s tax incentive system we have been able to attract new jobs to Virginia, but we have been able to cheaper than other states. As Virginia Economic Development Partnership CEO Martin Briley explains:

“We don’t lead with incentives, but we do recognize that we can use them to level the playing field.”

Only 15% of corporate expansion nor relocation deals over the past 10 years have included tax incentive programs, but they have created 40% of the new jobs.

Virginia is the national leader in concentration of high-technology workers, with 9.8% of the private sector workforce employed in technology in 2012 which is almost double the average state concentration of 5.4%. By population, Virginia has the fourth most high-technology jobs after California, Texas and New York. In particular sectors of technology, success is even more clear as Virginia ranks second for computer system design employment. The growth of Virginia as a technology hub is terrific news for Virginian residents and those coming out of college in Virginia colleges because these high-skilled jobs also pay extremely well. Tech workers in the state earned an average wage of $102,000, which is 106% more than the average Virginian private sector wage.

Gov. McDonnell called 2012 the Year of the Entrepreneur, touting Virginia as an incubator for ideas on reducing regulatory burdens upon business. The Cuccinelli Administration will evaluate what has worked, learn from the lessons of our previous success and then expand this progress going forward. This is just the beginning, when combined with the capitol region of Maryland and the District of Columbia, there are nearly 500,000 people employed in the tech sector, which is more than any single state other than California. The data demonstrates that this success is the beginning of a long term trend of growth in this sector and the Cuccinelli Administration will do everything it can to expand upon this success. We have seen that even small adjustments in our laws and regulatory climate can unleash incredible economic growth through entirely new market models.

But we should not rest on our laurels, as there is significant work to be done to expand Virginia’s technology boom. Here are a few ideas that I intend to implement that will effect business, innovation and technology in the state of Virginia. Addressing the following eight issues will be initial steps for Virginia to lead the country in innovation:

1. Tesla Motors:

In Virginia, a law prohibits auto manufacturers from being car dealers. In April of 2013 Tesla’s request to operate a dealership was denied by the Virginia DMV. Tesla vehicles are gaining in popularity in some jurisdictions, so this restriction hurts not only the California company that is being denied the ability to easily sell their cars in Virginia, but also the Virginias who would be employed in Tesla stores, and the thousands of potential Tesla buyers who would like to be able to buy the Model S, Roadster and 2014 launch vehicle: the Model X.

The rules restricting direct sale of cars is beyond silly, aren’t you worried about the rampant and pervasive threat of new car manufacturers selling cars directly to consumers?

Entrepreneurs want to innovate, not legislate. Virginia is not the only state with rules that hinder Tesla’s ability to compete. In Texas, the car dealer lobby donated $2.5 million to election campaigns, and spent another $750,000 on lobbying. Competing with $3.2 million for one state, just to get legal permission, is not something that most new market participants can afford — and no free market supporter should expect them to pay it. A Cuccinelli Administration wants an open playing field for all participants.

Fixing this problem, allowing for car manufacturers to sell directly to consumers, is about restoring the free market. The issue is bigger than just Tesla, is about the next Tesla that may be a Virginian company. Prohibiting manufacturers from selling directly to consumers forces manufacturers to develop a car, and invest millions of start-up capital in production capacity, without knowing if any dealers will even carry the car. The dealers have an interest in favor of the status quo, as they may be less likely to carry a car unless there is already strong market demand for that car. Thus state governments create a chicken-and-egg problem. And if the dealer agrees to carry the car, manufacturers would still be relying upon the dealer to choose to promote and sell the car. This middle men gets a cut of each car sold. Ultimately, this government-mandated middleman creates a higher barrier to entry for new car manufacturers in the US and acts as a tax upon the final price of each car in Virginia.

Americans care about this issue, as over 118,000 Americans have signed a White House petition to allow Tesla to sell directly to consumers. These policies, implemented at the behest of specific interest groups, are a formula for killing innovation and Virginian jobs.

2. Occupational licensing:

According to a 2010 study, 29% of the workforce is required to hold a license, up from 5% in the 1950s. For some professions, such as lawyers and doctors, licensure is defensible but increasingly license restrictions are being abused by established business interests. In Virginia there are over 44 professions and occupations with licensure. Cosmetology, barbers, “wax technicians,” auctioneers, interior designers, boxers, and martial artists are among the regulated professionals and occupations with licenses.

People have a right to earn a living in whatever non-harmful way they so choose. A Cuccinelli Administration will launch a thorough investigation into all forms of professional licensing in Virginia to ensure that licensure is limited when strictly necessary for public health and safety.

3. Greater use of technology in education:

One of the reasons behind Virginia’s success in the technology sector has been our terrific schools, as our 334 high schools and colleges are consistently rated as among the nation’s best. In 2013 US News & World Report ranked Virginia forth in the country for high school education.

Because future job growth is increasingly coming from the technology sector, and because there is already a shortfall of qualified workers in the STEM fields, it is critical that Virginia’s High Schools and colleges prepare our students for the economy of the 21st century.

State schools need to consider updating their extracurricular activities for the 21st century by providing the latest computer programming courses and “hacker-spaces” to allow for high school students to experiment with 3D printing and other modern technologies.

A Cuccinelli Administration will ensure that our schools are preparing students with the skills they need for the modern economy.

4. Create task-force to streamline civil code:

State laws in Virginia need to be brought into the 21st century. A Cuccinelli Administration will investigate areas of the code that can be streamlined and improved, and where necessary, repealed.

We want a system of laws that are clear for businesses and Virginian residents. Where laws are unclear, Virginia can remove legal costs by making them more clear. Where laws are outdated, Virginia can learn from the best practices of other states or develop new and better laws. Among the laws that should receive specific attention are non-competes agreements. Several studies have shown that states with different approaches to non-competes agreements in contract law can lead to more flexibility in the job market which is particularly important in the technology sector. Therefore, this is something that Virginia should investigate further.

5. State anti-SLAPP laws:

SLAPPs are a “strategic lawsuit against public participation.” These lawsuits usually use claims of defamation and they can demand exorbitant amounts of money for the purposes of stifling speech. The United States has a long tradition of respecting free speech which is specifically protected by the First Amendment. The first Virginian Constitution, from 1776, which predates the Constitution itself, called this freedom “one of the great bulwarks of liberty.” The modern Virginia Constitution has kept this protection to protect freedom of speech.

Websites that allow user generated content have increasingly be the platform for SLAPP lawsuits to chill speech. Jane Perez, a Virginia resident, wrote a negative review on Yelp of a contractor she had hired. In the review, she claimed that the contractor had damaged her home and allegedly implied that he had stolen her jewelry. The contractor, sued Perez for $750,000 and sought a preliminary injunction to force Perez to take down the review. This injunction was originally granted but was then reversed.

The problem with this situation is that it chills speech that may be perfectly lawful. To combat this problem, over half of the states in America have an anti-SLAPP law, which gives individuals a course of action to get frivolous or intimidating lawsuits dropped. A Cuccinelli Administration will support a state anti-SLAPP law to protect Virginia resident and innovators.

6. Repeal or Revise Virginia Certificate of Public Need Program:

The Virginia Certificate of Public Need (COPN) program requires owners and sponsors of identified medical care facility projects to secure a certificate from the State Health Commissioner prior to initiating medical projects. In practice this program regulates whether someone is allowed to open a new office or purchase new medical equipment (CT scanners or X-ray machines). The program is for the purpose of avoiding unnecessary duplication of medical care.

Certificate of public need programs are largely a result of a 1974 mandate that required all 50 states to have a structure of approval before any new major capital projects involving healthcare. This law was implemented to slow the growth of medical spending but CON laws failed to slow the growth of medical spending. In a survey of the empirical literature on CON laws, health economist Michael Morrisey writes that those studies “find virtually no cost-containment effects…. If anything, CON programs tended to increase costs.”

The federal mandate was repealed in 1987, along with its federal funding. In the decade after, 14 states discontinued their programs including California, Texas and Indiana. In 2004 the Federal Trade Commission (FTC) and the Department of Justice both claimed that CON programs actually contribute to rising prices because they inhibit competitive markets that should be able to control the costs of care and guarantee quality and access to treatment and services.

This program needs to be seriously investigated to determine if it makes sense for the modern economy. Is there such a danger of oversaturation in the medical market that the only solution is a government regulator to approve capital expenditures? This program has the risk of protected incumbents over new market participants, which is what health economist Michael Morrisey has found:

“A reasonably large body of evidence suggests that CON has been used to the benefit of existing hospitals. Prices and costs were higher in the presence of CON, investor-owned hospitals were less likely to enter the market, multihospital systems were less likely to be formed, and hospitals were less likely to be managed under for-profit contract. . . . The continued existence of CON and, indeed, its reintroduction and expansion despite overwhelming evidence of its ineffectiveness as a cost-control device suggest that something other than the public interest is being sought.”

This is precisely what we don’t want in a free economy. A Cuccinelli Administration will launch a commission to investigate whether this program is working and how it may be revised to meet its intended goals.

7. Cabinet “Secretary of Innovation” position:

In February 1997, the House of Delegates passed a resolution requesting that “the Governor appoint a Technology and Science Advisor within his Cabinet to advise him with regard to technological and scientific issues in Virginia and assist him and executive branch agencies with the potential reorganization or restructuring of Virginia state government in response thereto.” On May 21, 1998, Gilmore issued Executive Order Number Nine, creating the Office of the Secretary of Technology. The new Secretary’s responsibilities included the “coordinated planning and effective development of information technology resources” in Virginia. The Secretary is responsible to the governor for the Department of Information Technology, Department of Technology Planning, Center for Innovative Technology, and the Virginia Information Providers Network Authority. Virginia has had five terrific Secretaries of Technology.

But with the growth of the technology sector in Virginia this role should focus more upon innovation and technology-sector growth than information technology for Virginia’s government. This role should coordinate an innovation agenda for the state and work with innovators to find the barriers to entry and get rid of them.

A Cuccinelli Administration will replace the cabinet position of “Secretary of Technology” with a “Secretary of Innovation” or “Chief Innovation Officer” to focus on ensuring that Virginia’s technology sector flourishes.

8. Update laws for driver-less/autonomous cars:

It has been reported that nearly every major car manufacture, including Ford, Toyota, GM & Tesla, is hard at work developing autonomous vehicles. Google’s self-driving car is merely the tip of the iceberg. While a fully driverless car is unavailable currently for consumers, different levels of autonomy are present in every modern vehicle, including adaptive cruise control, lane-assist, and parallel parking assistance. Future models of Mercedes-Benz vehicles will include auto-braking systems. According to a new report by Cisco, consumers are ready when the technology is ready, as 60% of American consumers trust driverless cars.

The decision of whether to allow driverless cars of the road is a state issue. Virginia has the power to set driving laws in our state on the matter. So far, California, Nevada and Florida have all legalized the use of fully autonomous cars in just the last two years. This is a complicated issue, as it presents particularly novel questions relating to liability for potential accidents. In theory, driverless cars should be exponentially safer than human driven cars, but in the first commercial versions, it, like most new technologies, may have its share of problems. Therefore, this issue deserves careful consideration. But this is an issue that Virginia must get in front of, as this is an issue that Virginia should be on the cutting edge on. A Cuccinelli Administration will launch a commission to investigate legal issues associated with allowing for driverless cars and analyze the best to safely allow this technology on Virginia roads.

Politics and Policy

Place for thoughtful pieces and discussion on policy issues

Derek Khanna

Written by

Yale Law Fellow, Columnist & Policy Expert. I focus upon tech & policy. Help my fight on phone unlocking @DerekKhanna

Politics and Policy

Place for thoughtful pieces and discussion on policy issues

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