“Permissionless Innovation” vs. the “Precautionary Principle”

Jerry Brito, Eli Dourado & Adam ThiererSenior Research FellowsMercatus Center at George Mason University

July 2013

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Outline of discussion1. What is “permissionless innovation”?

– Why is it important?

2. What is the “precautionary principle”?– What are its costs?

3. Case studies: Why permissionless innovation is worth preserving– Commercial drones– Bitcoin– 3D printing– Other emerging technologies

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“Permissionless Innovation”

the general freedomto experiment & learn through trial-and-error

experimentation

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When the Internet was “permissioned” (pre-1990s)

a warning to students from a 1982 MIT handbook for the use of ARPAnet, the progenitor of what would become the Internet:

“It is considered illegal to use the ARPAnet for anything which is not in direct support of government business... Sending electronic mail over the ARPAnet for commercial profit or political purposes is both anti-social and illegal. By sending such messages, you can offend many people, and it is possible to get MIT in serious trouble with the government agencies which manage the ARPAnet.”

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Permissionless innovation gave us today’s Net & digital revolution

• It has driven the explosion of Internet entreprenuerialism over past 2 decades.

• Again, before early 1990s, online innovation & commercial activity wasn’t even allowed.

• But the commercial opening of the Net changed all that. The rest is history.

• We need same revolutionary approach to new technology, whether based on bits (digital economy) or atoms (industrial economy).

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“Precautionary Principle”

= Crafting public policies to control or limit new innovations until their creators can prove that they won’t cause any harms.

– this “better to be safe than sorry” mentality leads to “Mother, May I” (“permissioned”) policy prescriptions & preemptive regulation by bureaucracies

– It is the opposite of permissionless innovation• Rationales for “precautionary” regulation:

– safety & security– public morals– privacy

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The Precautionary Principle vs. Permissionless InnovationA Range of Responses to Technological Risk

ProhibitionCensorship

Info suppression Product bans

Anticipatory Regulation

Administrative mandatesRestrictive defaults Licensing & permitsIndustry guidance

ResiliencyEducation & Media Literacy

Labeling / TransparencyUser empowerment

Self-regulation

AdaptationExperience / Experiments

Learning / CopingSocial norms & pressure

Top-down Solutions

Bottom-up Solutions

Precautionary Principle

Permissionless Innovation

Permissioned Innovation

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Better way to respond to risk?Bottom-up approaches to new tech risks:• Education• Empowerment• New norms• Ongoing experimentation• Adaptation• Self-regulation• Torts, property rights, contracts & other existing

legal standards

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The problem with“permissioning” innovation

• lost entreprenurialism / less innovation• diminished marketplace entry / rivalry• stagnant markets• protectionism / cronyism• loss of int’l competitive advantage • higher prices & fewer services / choices for

consumers

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Bottom Line: What’s good for the Net is good for everything else!

• Net freedom advocates are right to extol the permissionless innovation model—but they are wrong to believe that it need be unique to the Internet.

• We can legalize innovation in the physical world, too.

• All it takes is a recognition that real-world innovators should not have to ask permission either.

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Case Study #1:Commercial Drones

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Commercial Drones

• Currently illegal to operate a drone for profit• FAA must integrate commercial drones in US

airspace by 2015– Regulations are under consideration now

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Private Uses of Drones

• Tacocopter• Agriculture• Freight• Google Loon• We don’t know what else yet

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What about safety?

• Go to court• Could quickly become safer than cars

– Compare risk of pizza delivery by auto vs. by quadrocopter

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What about privacy?

• Go to court• There are already federal, state, and local laws

that protect privacy• Proposed rules are absurd• Social adaptation

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Give adaptation a chance

“Instantaneous photographs and newspaper enterprise have invaded the sacred precincts of private and domestic life; and numerous mechanical devices threaten to make good the prediction that ‘what is whispered in the closet shall be proclaimed from the house-tops.’”

— Samuel D. Warren and Louis D. Brandeis, 1890

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Case Study #2:Bitcoin

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Bitcoin

• World’s first completely decentralized digital currency– Solves the ‘double spending problem’– Pseudonymity

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Benefits

• Cheaper and quicker than traditional networks– Small business alternative to payment networks– Micropayments– Remittances

• Privacy• Access to capital• Inflation resistant• Bitcoin as a platform (permissionless)

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Challenges

• Pseudonymity– Illicit drugs (Silk Road)– Child exploitation– Money laundering

• Consumer Protection

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Bitcoin’s Future

• Silicon Valley VCs are investing millions• Could disrupt the payments industry• Biggest threat to this potential revolution

– Overbroad money laundering regulations– State money service business licensing

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Case Study #3:3D Printing

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3D Printing

• Benefits• Challenges

– Guns– Piracy

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Permissionless innovation & the future tech economy…

• Driverless cars & “smart transportation”• Wearable computing / Google Glass• “Smart energy” & “smart grids”• Geolocation / Geotagging / RFID• Facial recognition & biometrics• Robotics & nanotechnology• “Internet of Things”

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The opportunities before us…

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related Mercatus Center research:Papers & Filings• Mercatus filing to FAA on Unmanned Aircraft System Test Site Program• Mercatus filing to FTC on Privacy and Security Implications of the Internet of

Things• Technopanics, Threat Inflation, and the Danger of an Information Technology Prec

autionary Principle (Thierer)

• Bitcoin: A Primer for Policymakers (Brito)

Articles & Blog Posts• Who Really Believes in “Permissionless Innovation”? (Thierer)• “Permissionless Innovation” Offline as Well as On (Thierer)• The Third Industrial Revolution Has Only Just Begun (Dourado)• Mr. Bitcoin Goes to Washington (Brito)• The Next Internet-Like Platform for Innovation? Airspace (Think Drones) (Dourado)• Domestic Drones Are Coming Your Way (Brito)• When It Comes to Information Control, Everybody Has a Pet Issue & Everyone Will

Be Disappointed (Thierer)