Why Permissionless Innovation Matters

Why does economic growth occur in some societies & not in others?

“Why does economic growth… occur in some societies and not in others”? That question, posed by Joel Mokyr in his wonderful 1990 book, Lever of Riches: Technological Creativity and Economic Progress, has been asked by countless other economists and historians.

What I have suggested in my recent work, including my latest book, Permissionless Innovation: The Continuing Case for Comprehensive Technological Freedom, is that the answer to that question has to be at least partially (perhaps even primarily) related to public policies that maximize breathing space for ongoing economic and social experimentation, evolution, and adaptation. Those societies that adhere to such a policy vision are likely to experience greater economic growth while those that do not are more likely to languish.

Mokyr noted in his book that “the economic historian is… directed to the macrofoundations of technological creativity, that is to say, what kind of social environment makes individuals innovative, what kind of stimuli, incentives, and institutions create an economy that encourages technological creativity?”

Public policy is obviously not the only determinant of what makes individuals, institutions, and economies more innovative and prosperous. For example, Mokyr identifies many other factors that need to be considered, including: cultural and religious predispositions toward change and science, geographical and environmental factors, labor force costs and attitudes, and various other institutional and economic factors.

Nonetheless, it would seem self-evident that public policy and legal institutions play a very significant role in determining why technological development and economic growth occur in some societies but not in others.

Consider this annual Booz & Company list of the world’s most innovative companies. Their latest survey reveals that 9 of the top 10 companies are based in the United States and that most of them are involved in computing, software, and digital technology.

Certainly public policy must have had a strong influence on this outcome. How has the U.S. tech sector become such a remarkable global force in this regard? I believe it comes down to America’s general embrace of “dynamism” and “permissionless innovation” as the policy norm for the digital economy.

The Relationship between Freedom & Progress

In her 1998 book The Future and Its Enemies, Virginia Postrel used the term “dynamism” to explain how economic and social progress is “a decentralized, evolutionary process” in which risks and mistakes aren’t viewed as permanent disasters but instead as “the correctable by-products of experimentation.” Dynamism represents “a world of constant creation, discovery, and competition.” “Permissionless innovation” is how dynamism gets specifically translated into a concrete policy norm. As I describe it in my new book, permissionless innovation “refers to the notion that experimentation with new technologies and business models should generally be permitted by default. Unless a compelling case can be made that a new invention will bring serious harm to society, innovation should be allowed to continue unabated and problems, if they develop at all, can be addressed later.”

This matters because, as venture capitalist Fred Wilson of Union Square Ventures noted during recent testimony: “If you look at the countries around the world where the most innovation happens, you will see a very high, I would argue a direct, correlation between innovation and freedom. They are two sides of the same coin.” And that’s true in both a narrow and broad sense. It’s true in a narrow sense that innovation is tightly correlated with the general freedom to experiment, fail, and learn from it. More broadly, that general freedom to experiment and innovate is highly correlated with human freedom in the aggregate.

Indeed, I argue in my book that we can link an embrace of dynamism and permissionless innovation to the expansion of cultural and economic freedom throughout history. In other words, there is a symbiotic relationship between freedom and progress. In his book, History of the Idea of Progress, Robert Nisbet wrote of those who adhere to “the belief that freedom is necessary to progress, and that the goal of progress, from most distant past to the remote future, is ever-ascending realization of freedom.” That’s generally the ethos that drives the dynamist vision and that also explains why getting the policy incentives right matters so much. Freedom — including the general freedom to engage in technological tinkering, endless experimentation, and acts of social and economic entrepreneurialism — is essential to achieving long-term progress and prosperity.

Patience & Humility as Policy Virtues

Thus, if it is true that there is a relationship between the general freedom to innovate without permission and the overall freedom and prosperity of a society, it would seem to counsel patience as the preeminent policy virtue since, as Mokyr argues, “technological progress requires above all tolerance toward the unfamiliar and the eccentric.” As Postrel noted:

While dynamism requires many private virtues, including the curiosity, risk taking, and playfulness that drive trial-and-error progress, its primary public virtues are those of forbearance: of inaction, of not demanding a public ruling on every new development. These traits include tolerance, toughness, patience, and good humor.

To guide policy, this philosophy of forbearance should take the form of the timeless principle of “First, Do No Harm.” Policymakers should generally exercise restraint and resist the urge to try to plan the future and all the various scenarios — good or bad —that might come about. We see, the philosophy of forbearance at work in the recent remarks of FTC Commissioner Maureen Ohlhausen when she rightly argued for “a dose of regulatory humility,” and the need for policymakers to try harder “to educate ourselves and others about the innovation, understand its effects on consumers and the marketplace, identify benefits and likely harms, and, if harms do arise, consider whether existing laws and regulations are sufficient to address them, before assuming that new rules are required.”

How the U.S. Got Policy Right

Luckily, this is already the operational norm for most Internet policy issues, and it has been since the mid-1990s. During that time, many public officials realized it was vital to keep the exciting new world of digital technology free of the top-down, “Mother May I” permission-based regulatory systems of the past. As a result, Congress implemented Section 230 of the Telecommunications Act of 1996, which immunized online intermediaries from onerous liability for the content and communications that travelled over their networks. Thanks to the immunities granted by Sec. 230, online speech and commerce flowed more freely, without the constant threat of legal action or onerous liability looming overhead.

Equally as important was the Clinton Administration’s 1997 Framework for Global Electronic Commerce, a statement of the Administration’s principles and policy objectives toward the Internet and the emerging digital economy. It recommended reliance upon civil society, contractual negotiations, voluntary agreements, and ongoing marketplace experiments to solve information age problems. First, “the private sector should lead. The Internet should develop as a market driven arena not a regulated industry,” the Framework recommended. “Even where collective action is necessary, governments should encourage industry self-regulation and private sector leadership where possible.” Second, “governments should avoid undue restrictions on electronic commerce” and “parties should be able to enter into legitimate agreements to buy and sell products and services across the Internet with minimal government involvement or intervention.”

As I have argued in past essays, Section 230 represented “the greatest of all Internet laws” because of how it enhanced online speech, and the Clinton Administration’s Framework, “remains the most succinct articulation of a pro-freedom, innovation-oriented vision for cyberspace ever penned.”

In other words, we got policy right. We embraced the dynamist ethos and made permissionless innovation the lodestar of our policy thinking toward the Internet, interactive technologies, and the digital economy.

And the result has been the greatest flourishing of human creativity and commerce the world has ever known. We have at our disposal today a cornucopia of information riches that dwarfs everything that came before it. Vint Cerf, one of the fathers of the Internet, has repeatedly credited permissionless innovation for the economic benefits that the Net has generated; (“the mainspring of the Internet’s economic power,” as he said in his opening remarks yesterday at the NETmundial meeting in Sao Paulo, Brazil.) As an open platform that embraces ongoing experimentation, the Internet allows entrepreneurs to try new business models and offer new services without seeking the approval of regulators beforehand. That “permissionless” experimentation extends to content and communications as well, since citizens are generally free to engage in vibrant exchange and share content and culture as they wish.

This Isn’t Anarchy

As Leslie Daigle, Chief Internet Technology Officer of the Internet Society, noted in an essay this week, “‘permissionless innovation’ is not about fomenting disruption outside the bounds of appropriate behaviour; ‘permissionless’ is a guideline for fostering innovation by removing barriers to entry.”

That is exactly right. ‘Permissionless innovation’ is not synonymous with anarchy. Rather, permissionless innovation represents an operational baseline that says freedom to experiment should be given the benefit of the doubt, and insisting that restrictions on human creativity be a last resort, not our first.

Risks and problems will always develop in a world that embraces this general freedom to engage in ongoing trial-and-error experimentation. But we learn from our mistakes and find better ways of doing things better, and safer, in the process. This is how progress and prosperity happens.

When more serious problems persist — including various safety, security, and privacy concerns — flexible, “bottom-up” approaches to solving complex problems are almost always superior. Education, awareness-building, transparency, and empowerment-based efforts can often help alleviate the problems associated with new forms of technological change. Moreover, social norms and pressure from the public, media, or activist groups can “regulate” behavior and curb potential problems.

But there are other useful approaches that can be tapped to address or alleviate concerns or harms associated with new innovations. To the extent that other public policies are needed to guide technological developments, simple legal principles are greatly preferable to technology-specific, micro-managed regulatory regimes. Ex ante (preemptive and precautionary) regulation is often highly inefficient, even dangerous. Prospective regulation based on hypothesizing about future harms that may never materialize is likely to come at the expense of innovation and growth opportunities. To the extent that any corrective action is needed to address harms, ex post measures, especially via the common law, are typically superior.

Technologies of Freedom

In closing, it’s worth recalling a question that the late political scientist Ithiel de Sola Pool asked in his 1983 book, Technologies of Freedom: On Free Speech in an Electronic Age, when he was thinking about what sort of policy vision and set of principles would guide the emerging world of “electronic communications.” [See my 30th anniversary retrospective of Pool’s amazing book here.] Pool was deeply concerned that misguided permission-based regulatory scheme of the analog era (such as those governing radio and television broadcasting) would overtake the superior “print” model, which generally has left newspapers and publishers free of onerous bureaucratic regulation. “The specific question to be answered,” Pool asserted, “is whether the electronic resources for communications can be as free of public regulation in the future as the platform and printing press have been in the past.”

We now have an answer to Pool’s question: We did it. And it worked beautifully.

If we hope to encourage the continued development of even more “technologies of freedom,” and enjoy the many benefits they provide, we must make sure that, to the maximum extent possible, the default position toward new forms of technological innovation remains “innovation allowed.” Permissionless innovation should, as a general rule, trump precautionary principle thinking. The burden of proof rests on those who favor precautionary policy prescriptions to explain why ongoing experimentation with new ways of doing things should be prevented preemptively.

The costs are too high to do otherwise. “Without [technological creativity],” Mokyr noted in Lever of Riches “we would all still live nasty and short lives of toil, drudgery, and discomfort.” And, therefore, as Wall Street Journal columnist Gordon Crovitz argued in a recent essay, “the freedom to innovate without asking permission should become the rule for all U.S. industries, not the rare exception.” Hopefully other governments across the globe will eventually discover the wisdom of that logic as well.

For additional thoughts, download a free copy of my new book, Permissionless Innovation: The Continuing Case for Comprehensive Technological Freedom.