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Monday, February 25, 2019

Should Entrepreneurs Really Have to Justify Their Creations to Government?

To suggest that regulators decide which innovations should be allowed in society and which ones should be discouraged is dangerous and harmful to human progress.


The umbrella was an innovation in 18th-century London, and the first brave soul to use one was mocked and publicly shamed. It might seem crazy that Londoners didn’t jump at the opportunity to be able to protect themselves from rain, but their initial reaction to umbrellas is pretty consistent with general human behavior regarding innovation. The journey between the invention and adoption of new technology tends to be nonlinear, and there are often several iterations of a product before widespread adoption.

This process is a key aspect of technological advancement, and yet there is a growing push in academia for entrepreneurs to prove their inventions are “socially beneficial” before they are allowed to put their products to market and gauge the consumers’ response to their innovations.

Governments Should Not Decide What Is “Socially Beneficial”

Last month, Margrethe Vestager, the EU Commissioner for Competition, hosted a one-day conference titled “Shaping competition policy in the era of digitisation.” In the first panel on competition, data, privacy, and artificial intelligence, one of the panelists, Karen Yeung, a law professor at the University of Birmingham, argued (50:00 mark):

Not all innovation is socially beneficial. Some innovation is harmful, corrosive, and socially damaging, often driven by motivations we wouldn’t like to encourage […] What we want to encourage is not innovation carte blanche, but socially beneficial innovation whilst discouraging its damaging forms.

But what exactly is “socially beneficial innovation,” and how can lawmakers have the foresight to recognize if, indeed, a particular technology will be “socially beneficial”? Moreover, how can regulators ensure that “socially beneficial” innovations are adopted? After all, the people who needed umbrellas rejected them.

For a more recent example, let’s take Facebook. In 2005, TechCrunch founder Michael Arrington wrote an article expressing his FOMO—he desperately wanted a Facebook account, but at that time, the social networking site was only open to American college students. By 2009, Facebook was not only open to everyone, but it had also played a pivotal role in the election of the first black president of the United States of America, Barack Obama, in what has since been called “The Facebook Election.”

Deloitte published a study in 2015 on Facebook’s global economic impact. The study explored not only people who are directly employed by Facebook but the millions of jobs that feed off of Facebook’s business model, including social media marketers and app developers. Deloitte estimated that “through the channels of marketers, app developers and providers of connectivity, Facebook enabled $227 billion of economic impact and 4.5 million jobs globally in 2014.”

Policymakers aren’t clairvoyants, and entrepreneurship tends to be outside their area of expertise.

By 2017, 70 million monthly small businesses users leveraged Facebook to advertise and create jobs.

If, back in 2003, Mark Zuckerberg had been required to ask Congress for their blessing on his pre-Facebook project, facemash.com, and plead the case for why his innovation was “socially beneficial,” it is highly unlikely that politicians would have had the foresight to predict how Facebook would evolve. And who could blame them? Few could have imagined that a social site originally intended to rate students’ attractiveness would evolve into one of the most successful businesses of all time—an economic powerhouse, creating jobs in the USA and across the world and even helping the first black president of the United States win the election.

Policymakers aren’t clairvoyants, and entrepreneurship tends to be outside their area of expertise. If entrepreneurs must seek the government’s blessing before experimenting with their ideas, it will result in slower economic growth with fewer products, low-quality services, and higher prices. Everyone will lose.

Digital Regulation Advocates Are Ignoring History

To be sure, Dr. Yeung pointed out some key problems with digital technology that deserve some attention. She argued that fake news, misinformation, and the promotion of extremist violence online are among the damaging types of “innovations” that should be discouraged. But these phenomena are hardly unique to the digital age. In 2017, The Economist published a brief history of fake news that explored how, in the 1800s, the New York Sun used stories of giant man-bats on the moon as a part of a commercial strategy to increase readership. Misinformation has been a feature of human communication since before the invention of the printing press in 1493.

To suggest that regulators decide which innovations should be allowed and which should be discouraged is dangerous and harmful.

In 2018, the International Center for Journalists published a learning module on the history of misinformation detailing both state and private misinformation campaigns dating back to Anthony and Cleopatra. As for the promotion of violence, terrorists and freedom fighters alike have long used pamphlets, folktales, poetry, and even songs to reach their target audiences and motivate them to carry out acts of violence. While digital technologies might be the next step in the spread of fake news and violent content, it is inaccurate to argue they have led to some sort of unprecedented increase in these phenomena.

When taken at face value, the argument that governments should only allow “socially beneficial” innovation may sound pretty harmless. But to suggest that regulators decide which innovations should be allowed in society and which ones should be discouraged is dangerous and harmful to human progress. The government cannot regulate creativity or manage how technologies evolve over time. And, frankly, regardless of its recent scandals, it would have been a shame if regulators had squashed Facebook before it even had a chance to flourish.