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People sometimes ask me what the most important concept in political economy is. The answer is easy, but subtle: permissionless innovation; a strong presumption in favor of allowing experimentation with new technologies and of new business platforms that use those technologies. A lot has been written about why this vague concept is so powerful (my own go-to source is Adam Theirer’s Permissionless Innovation).
It’s at the core of what Friedrich Schiller, the German philosopher and poet, wrote about in a letter to a friend in 1793 where he describes the beauty of the “Englische Tanze” (English dance):
“I know of no better image for the ideal of a beautiful society than a well executed English dance, composed of many complicated figures and turns. A spectator located on the balcony observes an infinite variety of criss-crossing motions which keep decisively but arbitrarily changing directions without ever colliding with each other.
Everything has been arranged in such a manner that each dancer has already vacated his position by the time the other arrives. Everything fits so skillfully, yet so spontaneously, that everyone seems to be following his own lead, without ever getting in anyone’s way. Such a dance is the perfect symbol of one’s own individually asserted freedom as well as of one’s respect for the freedom of the other.”
This passage contains a fundamental insight, because the first sentence shows that Schiller intends more than admiration for the lovely order that emerges from the free expression of individuals’ dances within a set of rules that coordinate the whole. He intends this image to be a metaphor for human society.
Permissionless innovation may seem like common sense, but it isn’t. For decades, the Bell telephone network refused to connect any phones except those it licensed. The claim was that the phones might not be safe; the effect was to arrest progress at the stage of rotary phones attached by wires to walls. The problem went far beyond phone sets, though: economist Tom Hazlett describes how requiring permission set back communications in the United States for decades.
There are two kinds of obstacles to permissionless innovation: requiring permission from regulators and requiring permission from competitors.
The first type of obstacle, needing permission from regulators, seems more innocuous. But it isn’t. The delays in processing applications for permission to experiment sharply curtail the types and frequency of experiments that are possible. Worse, attempts by regulators to pick winners and losers can pose obstacles of their own.
Suppose the authorities do not require licenses for technological experiments, but they do offer subsidies for the kinds of work that seems promising. Consider the massive government incentives that subsidize solar power in the USA. That’s not to say that policies are irrelevant — as this BBC podcast illustrates, deregulation is the way to foster solar power — but rather that market processes of discovery are better than bureaucrats at picking the precise form innovation will take.
Of course, the nature of innovation means that it is often the least “promising” technologies — in the view of experts — that turn out to be the most important. A Yale management professor famously told student Fred Smith, the founder of FedEx, “The concept is interesting and well-formed, but in order to earn better than a C, the idea must be feasible.”
The idea of Federal Express may have gotten a C from Yale, but it got an A+ from the market once it was implemented. In that instance, the “permission of competitors” and “permission of regulators” came down to the same body: the US Postal Service. FedEx was allowed to slip through only because there was a loophole for “extremely urgent” letters and parcels; that’s why “Extremely Urgent” still appears on every envelope FedEx delivers.
We live in the golden age of permissionless innovation. The Internet offers an infrastructure where a bewildering variety of innovations can be tried out, and (almost) all of these experiments can be conducted without getting anyone’s permission.
Think for a second what a dumb idea Twitter was. Surely, nobody was going to spend time writing clumsy haikus, and even fewer people were going to read them. Here’s what cofounder Ev Williams told Inc. in 2013, shortly before taking Twitter public was expected to make him a billionaire:
“With Twitter, it wasn’t clear what it was. They called it a social network, they called it microblogging, but it was hard to define, because it didn’t replace anything. There was this path of discovery with something like that, where over time you figure out what it is.
Twitter actually changed from what we thought it was in the beginning, which we described as status updates and a social utility. It is that, in part, but the insight we eventually came to was Twitter was really more of an information network than it is a social network.”
I don’t want to get too “meta” here, but the point is this: Access to the Internet spawned an innovation called Twitter, but no one knew what it was for. A beautiful social media version of the English dance happened, though. It just happened. People figured out a use for Twitter, because once it was there, they could experiment without asking for anyone’s permission. No one, not even Twitter’s own founders, understood what would make it useful.
As Schiller might put it if he were on Twitter today:
“A spectator following a hashtag observes an infinite variety of criss-crossing tweets which keep decisively but arbitrarily changing directions without ever censoring each other. Everything fits so skillfully, yet so spontaneously, that everyone seems to be following his own lead, but the thread builds into an informative whole without any guidance or central direction.
Such an app is the perfect symbol of one’s own individually asserted freedom to convey useful truths, as well as of one’s respect for the freedom of the other to post random cat videos.”
Permissionless innovation allows us to create truly new things for each other to enjoy — things the experts may not understand or approve of, but that nonetheless hold the potential to transform the world.
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Updated by Joseph Simnett
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