May 5 2014
Regulators: Eyeing the Web
The internet has made the free flow of information possible in a way undreamed of previously. It has been a boon to entrepreneurs. It has allowed news consumers and providers to bypass media gatekeepers. This was possible because the internet escaped the regulators.
An editorial in the Wall Street Journal headlined “The End of the Permissionless Web” predicts that these days may be over:
Regulators don't plan to make the same mistake with the next generation of innovations. Bureaucrats and prosecutors are moving in to undermine services that use the Internet in new ways to offer everything from getting a taxi to using self-driving cars to finding a place to stay.
What has made the Internet revolutionary is that it's permissionless. No one had to get approval from Washington or city hall to offer Google GOOGL +0.11% searches, Facebook FB +1.11% profiles or Apple AAPL +1.08% apps, as Adam Thierer of George Mason University notes in his new book, "Permissionless Innovation."
A bipartisan consensus in the 1990s led Washington to allow commercial development of the Internet without onerous regulations. Unlike the earlier telecommunications and broadcasting industries, Internet entrepreneurs didn't need licenses to proceed, just good ideas.
The regulators are gearing up to kill innovation on the web. New York attorney general Eric Schneiderman, according to the editorial, realizes that the internet develops so rapidly that regulators can’t keep up. Instead of waiting to see if regulations are really needed, however, the attorney general proposes regulating as soon as possible.
Airbnb, which allows people to rent accommodations all over the world directly from the owner, mobile-phone app Uber, which allows customers to call a car without using a traditional taxi, are juicy targets for regulators. The hotel industry objects to competition from Airbnb and the taxi industry objects to Uber. Can’t have competition:
Mr. Schneiderman went to court demanding the names of people who rent out their homes to see if they violate any laws. Airbnb objects to this fishing expedition. With a valuation in the billions, the Silicon Valley company can afford lawyers to protect its customers, but costly regulatory overreach will inevitably suppress new startups from trying to compete.
As for Uber, Mr. Schneiderman is concerned that the company charges more during busy times. So this needs regulation? There is a simpler way to "regulate" this: don't use Uber at times when the fare is high. But letting the consumer decide is alien to the regulator mentality.
Then there is the drone business—thriving in Canada but not in the U.S., where regulations from the Federal Aviation Administration are pending. In addition to thwarting creativity, many regulations aren’t really necessary (unless you are an established business trying to get the regulators to put the kibosh on a creative upstart):
In his book, Mr. Thierer argues that regulations should be the last resort. The common law provides remedies for innovations that inadvertently cause harm without imposing prior restraint on innovation: "Under tort law, instead of asking for permission to introduce a potentially dangerous product, a firm must pay for the damages its dangerous product creates if it is found liable." If someone flies a drone recklessly or with a mounted camera that violates "peeping Tom" privacy laws, victims can sue for damages. Likewise, traditional contract law protects users of Airbnb and Uber to ensure that the services are honest.
The hardest thing for government regulators to do is to regulate less, which is why the development of the open-innovation Internet was a rare achievement. The regulation the digital economy needs most now is for permissionless innovation to become the default law of the land, not the exception.
If we learned anything in the first five Obama years, it should have been about the dead hand of regulation. The last thing the web needs is regulation that will slow down innovation in what has been a dynamic sector of our economy.