2. Innovation brakes (a.k.a. consumer protection dwarfs invention)

Constraining ourselves to merely avoid dystopian scenarios seems to be a rather pessimistic outlook in itself though. We can do better!

The possibilities of innovation paint a futuristic picture quite the opposite of dystopia (unless you are an ultraconservative technophobe of course): a vision of abundance, longevity, and unlimited creation. Ray Kurzweil points to the Singularity as artificial intelligence, synthetic biology and nanotechnology begin to merge.

However, while Marc Andreessen claims that “software is eating the world”, Peter Thiel’s Founders Fund observes that tangible technological innovation is slowing down at the same time. The single best explanation for it (Occam’s razor) is that regulatory barriers (from which software remains largely untouched) stifle technological innovation beyond any justifiable degree.

Interesting examples for this can be found in the Founders Fund manifesto “What happened to the future?” (hereafter, FF) and Balaji Srinivasan’s lecture notes on “Regulation, Disruption and Technologies of 2013" for Stanford’s “Startup Engineering” class on Coursera (hereafter, SE):

The most alarming of the examples brings us the FDA: The cost of approving a drug has exceeded $3 billion (FF).

While the leading pharmaceutical corporations may easily deal with such figures, large corporations are usually not the place where true breakthroughs emerge (they are good at incremental optimization not disruptive paradigm shifts).

True innovation comes from entrepreneurs with bold ideas. But most entrepreneurs fail — and venture capitalists usually pay for it. Now, which VC can afford to invest a couple of billion (vs. the usual million) dollars in a single startup whose most likely outcome still is failure? It seems more appealing to pour one’s money into capital-efficient (“ramen-profitable”) software companies with similar probabilities of becoming billion dollar “unicorns”. Opportunity cost are simply too high.

On top of Biotech, Transportation and Lodging seems to be the area with the most harmful regulatory action at the moment (SE):

AirBnB faces regulatory scrutiny in New York, Amsterdam and Quebec.

Drone startups have to comply with FAA rules for manned aircraft.

In North Carolina, the automotive lobby achieved a ban for Tesla’s direct-to-customer sales model.

The California Public Utilities Commission (CPUC) is the Sword of Damocles swinging above Lyft and Uber.

The National Highway Traffic Safety Administration (NTSA) wants each state to ban self-driving cars for now.

And then there is Finance and Payments of course, with the Patriot Act giving PayPal a hard time, Russia and China opposing Bitcoin, and the positive counterexample of AngelList’s Naval Ravikant changing the law to legalize crowdfunding through the JOBS act (SE).

Let’s get back to a state where regulation assists innovation instead of killing it. Healthy consumer protection favors the highest quality producers; The unhealthy form of consumer protection we see right now only protects established corporations, and thereby builds up tremendous opportunity cost (as seen in a lack of growth and stagnating median wages).