The End of the Permissionless Web

[Tigermike 4,084]

The End of the Permissionless Web

Regulators want to become the gatekeepers for Internet innovation.

Updated May 4, 2014 6:52 p.m. ET

The first generation of the Internet did not go well for regulators. Despite early proposals to register websites and require government approval for business practices, the Internet in the U.S. developed largely without bureaucratic control and became an unstoppable engine of innovation and economic growth.

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 -0.48% searches, Facebook FB +1.21% profiles or Apple AAPL +0.60% 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 central fault line in technology policy debates today can be thought of as 'the permission question,' " Mr. Thierer writes. "Must the creators of new technologies seek the blessing of public officials before they develop and deploy their innovations?" Before the Internet, regulatory systems were "overly rigid, bureaucratic, inflexible and slow to adapt to new realities," pre-empting the "beneficial experiments that yield new and better ways of doing things."

Some officials want to go back. In a recent New York Times NYT -0.06% opinion article, New York Attorney General Eric Schneiderman acknowledged that technology moves at a faster pace than laws can keep up. But instead of waiting to see if new rules are needed, he argues: "The only question is how long it will take for these cyber cowboys to realize that working with the sheriffs is both good business and the right thing to do."

Mr. Schneiderman has targeted Airbnb, an online service that lets users easily rent homes or apartments for short-term stays, giving travelers a new option. The hotel industry, concerned about being disrupted, is lobbying hard to kill the upstart. 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.

Like Airbnb, mobile-phone app Uber creates a marketplace directly linking buyers and sellers—in its case, passengers and drivers—outside the ornate regulations of analog-era municipal taxi commissions. Brussels, Seattle and Miami have banned or strictly limited Uber cars. New York's Mr. Schneiderman objects to the company's practice of pricing more when demand is heavy. The alternative is severely restricted supply, as anyone knows who has tried to hail a cab in the rain.

The drone industry in the U.S. has been grounded because the Federal Aviation Administration has banned commercial use of drones pending new regulations. Meanwhile, countries such as Canada and Australia encourage drones. "As American regulators struggle to come up with a rulebook for the fast-moving industry," Toronto's Globe and Mail bragged recently, "Canada has emerged as perhaps the center of commercial drone technology—from Ontario farmlands to Alberta's oil sands."

Other examples include the Food and Drug Administration's scrutiny of 23andMe's marketing, which forced the company to stop offering health data from its at-home $99 genetics-analysis kit, and prohibitions against selling self-driving cars, which have left the U.S. in the dust behind less regulated Europe.

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.

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[icanthearyou 4,468]

Interesting. Can the government's desire to keep anything "bad" from ever happening, actually prevent a lot of good things from ever happening? Is the government actually trying to stop "bad" things from happening or is that a cover for giving a competitive advantage to special interests who "donate" big money?

[MDM4AU 339]

Is the government actually trying to stop "bad" things from happening or is that a cover for giving a competitive advantage to special interests who "donate" big money?

Even if the former is the truth now, the latter will eventually happen. The folks in DC can't defend against it. Too much money and power involved.