On the Importance of 'Regulatory Humility'
Originally posted in CNET on July 20th, 2015 as part of its “20 Years of Tech.”
In the Broadway musical “Rent,” there’s a song titled “525,600 Minutes” that asks poignantly: How do you measure a year in your life (“in daylights, in sunsets, in midnights, in cups of coffee”).
It is interesting to consider what serves as the metronome of one’s life. For a good part of my career, technology has been the clock-master, marking time with each striking innovation.
When I stepped down as Federal Communications Commission chairman in 2005, I could look back and count out my service with an astonishing list of technological innovations. When I started at the FCC, almost no one I knew owned a cell phone, but by the time I left, everyone had one. I saw the rise of the Internet, the birth of satellite radio and the invention of the DVR. I can distinctly remember the first time I heard MP3 music that led to Napster and the iPod. I watched Wi-Fi go from junk spectrum used for baby monitors to a critical broadband network. Everything over IP upended the nature of communications systems, allowing voice, video and data to ride over the Internet.
As my tenure was ending, the CEO of Cingular (later acquired by AT&T) told me about his deal with Apple for its upcoming iPhone. As marking time goes, technology beats at double time.
In those years, what struck me about this gushing fountain of innovation was how incongruous it was with the sphere of law and regulation. Lawyers are trained to move incrementally and to avoid risk. They generally confront novelty by analogizing what they see to something they already know; law is designed to evolve. In contrast, the engineers and entrepreneurs leading the dot-com revolution preferred bold strides to incremental steps and taking risk was a vaunted value not a danger to be avoided.
I also observed that the craft and process of regulation was anathema to new markets. Regulation starts with categorization and definition. When a regulatory body wants to regulate something new, it must first label it in order to take action. The problem is that the laws that provide these labels are almost always old relative to the new inventions, so regulators are often putting round pegs in square holes.
“What struck me about this gushing fountain of innovation was how incongruous it was with the sphere of law and regulation”
This clash of worlds was brought home to me when a new collection of worried tech leaders started arriving at the FCC’s door. Steve Case of AOL, for example, argued that we not to treat his red hot AOL Instant Messenger as a telephone service in the face of calls to check AOL’s power. Thankfully, we did not and in time the sickle of creative destruction cut down IM and AOL’s Internet dominance.
The central argument made by the new companies was that regulation would strangle the vitality, speed and breadth of innovation and investment. “Innovation without permission” became the mantra of the Web and the accepted political consensus that the Internet should not be regulated.
But regulators do not relish the sidelines. They like to be associated with the energy and excitement of the “new new thing.” This leads to intervening in markets to get into the game, basing their actions more on theory and hypotheticals than on demonstrable evidence of market problems.
When regulators jump into fast changing markets, they have to build policy on predictive judgments about the future. The result frequently is a host of unintended consequences that disrupt markets. Ill-founded regulation is not harmless. Laws are easier to enact than to remove and usually remain long after the past due date. Regulatory agencies simply are not able to adapt quickly to continuing change.
Former Twitter CEO Dick Costello recently made these points succinctly in an interview in the Guardian:
“I can’t think of an example where regulation didn’t have unintended consequences and I’m unable to conceive of a regulatory body that will be swift enough to deal with the constantly evolving issues of ethics, communication and technology. I just don’t think it’s possible.”
America’s historic commitment to innovation without permission is eroding as government increasingly takes more muscular positions toward the Internet and innovative companies get more entangled in historic regulation. Even some tech companies — long disciples of the principle and its greatest beneficiaries — have begun inviting regulation in a veiled effort to gain advantage. This will prove a profound mistake with time.
Over the past 20 years, we’ve witnessed a fast-paced technological age largely free of government control and direction. The next 20 years holds even more promise but only if regulatory humility remains the highest virtue.