Beyond Permissionless Innovation

Exciting things happen outside the reach of regulators.

Paul McCarthy is the father of a boy born without fingers on one hand. A few years ago, McCarthy found that a $30,000 prosthesis—the only option then available—was not a perfect match for his 12-year-old son's needs, so he went online to find a better, less pricey alternative. McCarthy's search led to the assembly of an unlikely team: a South African woodworker, an American puppeteer, and another father in a similar situation. Thanks to the power of the Internet, the men were able to collaborate from thousands of miles apart to make an inexpensive but workable prosthetic appendage using 3D printers.

Such "permissionless" innovation, in which people with big ideas for how to make the world better act on them without first jumping through regulatory hoops, is remarkable. It's also extremely fragile. The entire enterprise could crumble overnight with a stroke of a regulator's pen, a change in an insurance company's policy, or a lawsuit filed by entrenched manufacturing interests. It hasn't so far in this case. But due to pressure from competitors that make traditional prosthetics, the company McCarthy and his partners created has already had to agree to define its product as a "training" prosthetic, thus opening the door to future regulatory limitations on its business model.

Consider how the Food and Drug Administration (FDA), in the name of safety at any cost, quashed the genomics company 23andMe by ordering it to stop marketing its cheap, at-home genetic testing kits. According to the agency, 23andMe should have obtained permission from regulators before selling its product to American consumers who were interested in learning more about their own personal genetic information.

Driving these actions is the "precautionary principle" norm to which most public officials subscribe. Unfortunately, the principle allows regulators' imaginations to run away with them. Any perceived threat, even from a low-probability worst-case scenario, is reason enough to slow, stifle, or stop a technological development from moving forward. The mere possibility that something might go wrong if innovations aren't held up for years of testing is usually cited as the justification, but the real upshot is that the incumbents in a marketplace are protected from unexpected competition. It's cronyism in the name of safety.

Take the FDA's decision to encourage testing of medicines that have been around so long they never had to receive government approval. The agency rewards companies that agree to a new testing regimen with a license that forces most competitors out of the market, thus giving them monopoly pricing powers. The result—larger profits for suppliers—also means higher prices and fewer choices for consumers.

After a small drugmaker in Philadelphia was granted the right to produce Colchine, a gout remedy that goes back hundreds of years, its price suddenly jumped 2,000 percent, from 25 cents to $5 per pill. And the situation isn't unique to that one drug. A survey of more than 21,000 generic medications conducted for Bloomberg News by the drug price tracker DRX found that over 3,500 have seen their prices double since 2007 with no obvious benefits, such as fewer side effects, to offset those surges.

The consequences of the precautionary principle are not just monetary. When an abundance of caution prevents the terminally ill from using experimental drugs, the results can be tragic. Thankfully, the rule requiring dying cancer patients to wait for the FDA's permission to try life-extending drugs is being successfully challenged at the state level by the Right to Try movement.

A reluctance to try big ideas until they've been certified as fully safe isn't confined to the FDA. The timidity permeates all of government, hindering innovation along the way. "Under a strict application of the precautionary principle, planes, trains, and automobiles should have all been pre-emptively banned," says my Mercatus Center colleague Adam Thierer. "Early on, they were all pretty damn risky. Only constant trial-and-error innovations (driven by failures) resulted in safety improvements."

In his book Permissionless Innovation, Thierer argues that creators of new technology shouldn't have to seek the blessings of skeptical, out-of-touch regulators before they can develop and deploy innovations. A right to try new things should be the default presumption. That shift would effectively knock down the barriers to progress erected by cautious governments and self-serving special interests.

That doesn't mean there's no place for precaution, testing, certification, and even some level of regulation. But the "permissionless" framework places the burden of proof on those who want to intervene in the name of safety. If regulators can make the case that a new development could have irreversible, immediate, and catastrophic consequences, Thierer says, precautions should be taken. Unmanned aerial vehicles that want to fly immediately above airport runways might warrant some looking at, for example—but since the same type of risk doesn't exist with most other uses of commercial drones, the current near-complete Federal Aviation Administration ban on their use is doing far more harm than good.

As Wall Street Journal columnist Gordon Crovitz summed up nicely in a 2014 piece, "The freedom to innovate without asking permission should become the rule for all U.S. industries, not the rare exception." But why stop there? Just as innovators shouldn't have to ask the government before they can bring new products to consumers, people who want to try out new arrangements for living their lives or making their livings shouldn't have to ask for permission, either. So long as everyone respects everyone else's rights, why can't we have permissionless consumption, employment, entertainment, and more?

This means people shouldn't be subjected to employment barriers set up by lawmakers—usually at the behest of special interests—that limit their ability to start a business. Occupational licensing laws that require expensive and time consuming training and certification from the state to become a hair-braider, an interior decorator, or a horse masseuse (yes, really) have no place in a permissionless employment world. Nor do "certificate of need" laws that force people to literally ask a government agency for the authority to start a new small business or expand an existing one.

The good news is that permissionless employment is well on its way, thanks to the efforts of startups that use smartphone apps to match jobs with independent contractors. Examples go far beyond the well-known ride-booking platforms Uber and Lyft—there are also cleaning services like Homejoy, grocery delivery services like Instacart, last-minute errand-running services like TaskRabbit, restaurant-quality meal delivery services like SpoonRocket, and the list goes on.

This "demand economy" fundamentally challenges the work arrangements that became standard in the 20th century, and lawmakers and unions—who knew how to get ahead at others' expense under those old arrangements—are not particularly happy about it. Fortunately, consumers increasingly are satisfied with the new economy. As wearable cutting-edge medical technology proliferates, what role will there be for a slow-moving FDA? When patients can consult with physicians online and various tests can be self-administered, will government regulation of the provision of health care even be realistic? How will drug warriors keep up when downloadable chemistry allows people to "print" their own pharmaceuticals at home? Colon cancer screenings may soon consist entirely of patients swallowing a pill that wirelessly transmits video images back to their doctors. And it's no secret that people are already working on apps that will do for prescription drugs what iTunes did for music.

Technology may not be a silver bullet. But if we can forestall the top-down regulation of future innovations for long enough, the share of our lives that's effectively out of reach of government actors will increase—hopefully to the point where permissionlessness becomes the norm rather than the exception.