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In June, Presidential candidate Hillary Clinton surprised business leaders by issuing a detailed Technology and Innovation platform.  Tech issues rarely feature in Presidential campaigns, but Clinton seems determined to shore up an already strong position in Silicon Valley by promising an administration that recognizes the singular role disruptive innovation has played in driving U.S. economic growth over the last two decades.

Clinton’s plan may have been designed to deflect concern here in California and other innovation hubs about growing criticism of the tech economy from the Obama Administration and Democrats on the left.  Just a day after Clinton released her plan, for example, Sen. Elizabeth Warren, who has taken an increasingly active role in the campaign, directly attacked leading technology companies including Apple, Amazon and Google, hinting that they had grown too large to escape the blunt instrument of antitrust to break them up.

Overall, the Clinton agenda is something of a dog’s breakfast, mixing unlikely promises for significantly increased federal spending in education, basic research, and infrastructure with more specific reforms in such hot-button areas as immigration, intellectual property, and tech infrastructure.

Though nearly every aspect of the plan would require a cooperative Congress, there is still much to admire in the particulars, and, more to the point, much that innovators and their investors have wanted to hear from Washington for a long time:

Immigration - Among Silicon Valley’s highest priorities, for example, Clinton promises “comprehensive” immigration reform, including a pledge to “staple a green card” to the diplomas of non-U.S. masters and PhD students in science and engineering, “enabling international students who complete degrees in these fields to move to green card status.”  No technology company would object to that proposal.

Patents - Clinton also pledges to fix the badly out-of-balance patent system, although here the promised reforms are modest.  Clinton endorses legislation floating around Congress that would break the stranglehold of the notoriously plaintiff-friendly Eastern District of Texas, which openly courts patent trolls and frivolous litigation.  But there is no mention of larger patent issues, notably the scaling back or eliminating patent protection for software and business methods, an invention of the courts and the patent office in recent years.  The consensus, even among many leading software providers, is that those new categories have done far more harm than good.

Copyright - On copyrights, Clinton promises a law that would “unlock” a ballooning number of older written and audio-visual works that, thanks to repeated and retroactive copyright extensions on behalf of Disney and other large rights holders, can’t be licensed or used because no one knows who owns them anymore.  (Liberation of so-called “orphan works” would have been enabled by a proposed settlement in a case involving wholesale scanning by Google Books, but that settlement was scuttled in 2011.  Google went on to win the case outright.)  The Clinton plan is silent, however, on scaling back the expanding copyrights that created the orphan works problem—and others—in the first place.

The Sharing Economy - During the primaries, both Sen. Bernie Sanders and Secretary Clinton raised repeated concerns about new “sharing economy” services, including Uber and TaskRabbit, that help contractors and freelancers coordinate their work through network technologies.  Sanders dismissed these services as “unregulated” and said he had “serious problems” with Uber in particular.  For her part, Clinton said last year that network-based employment raised “hard questions about workplace protections and what a good job will look like in the future.”

Clinton’s Tech and Innovation plan is more measured, if non-committal, about whether she sees the sharing economy as a direct attack on unions and labor regulators.  She promises only to “convene a high level working group of experts, business and labor leaders to recommend how best to ensure that people have the benefits and security they need no matter how they work.”  Depending on what specific “benefits and security” her experts believe casual workers need, that could mean either an endorsement of the sharing economy or its death by a thousand regulations.

Broadband Infrastructure - The recent decision by the Federal Communications Commission, at the urging of the White House, to transform Internet access into a public utility has already spooked investors, who spent nearly $1.5 trillion over the previous twenty years continually upgrading broadband infrastructure even as America’s roads, bridges, water pipes, gas mains and electrical grid—the actual public utilities—fell catastrophically behind.  (D.C.’s own Metro system, once the city’s pride and joy, is largely closed for the summer for repairs.)

On that front, the Clinton agenda gets a mix grade.  On the positive side, the candidate strongly endorses reducing regulatory barriers (largely at the state and local level, however) that unnecessarily deter more and more efficient private infrastructure, including “dig once” and “climb once” policies to encourage faster deployment of, respectively, fiber optic cable and next-generation mobile equipment.

But at the same time, and even as the Clinton plan waves in the direction of continued Internet self-governance under the multistakeholder process that has worked so well, Secretary Clinton “strongly supports” the idea that Internet access should be closely regulated as a utility.  As I’ve argued before, that approach is bound to slow both the speed and size of investments in continued infrastructure improvements.

Radio Spectrum for 5G Networks – On the plus side of the ledger, Clinton promises to continue President Obama’s support for next-generation mobile networks, known as 5G, which utilize densely-packed cellular antennae and higher-band radio spectrum to offer as much as 100 times the speed and capacity of today’s wireless Internet. Secretary Clinton promises to release spectrum warehoused by the federal government itself, and to support a mix of licensed, unlicensed, and shared new frequencies that will accelerate nascent 5G applications including the Internet of Things and autonomous vehicles, as well as increasingly high-definition video.

Internet Adoption -  The Clinton plan also promises to expand broadband entitlement programs aimed at closing what remains of the digital divide.  But these programs, including the troubled Broadband Technology Opportunities Fund, have had limited (if any) success.  So far, they’ve produced little besides wasted taxpayer billions and corruption.

While everyone shares the goal of universal broadband adoption for all Americans, the solution doesn’t come from raising taxes on consumer phone bills (currently approaching 20%!) to fund poorly-managed programs to subsidize rural and low-income communities.  Among those who do not have a broadband connection at home, as repeated surveys make clear, availability and even price are rarely cited as the principal reasons.

Non-adopters—especially older Americans—don’t have a broadband connection, it turns out, largely because they don’t want one.  Rightly or wrongly, digital hold-outs don’t see the Internet as having any relevance to their life.  That was a problem identified as long ago as 2010 in the visionary National Broadband Plan, from which the Clinton agenda cribs frequently without acknowledgment.   And it’s one problem government could play a crucial role in solving through public education and the President’s bully pulpit.  But not from throwing more money at federal contractors.

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As Secretary Clinton’s wish list suggests, what Silicon Valley really wants from both presidential candidates is not more government, but less.  In many cases, much less.

That desire, of course, distinguishes tech from most special interests, and Clinton’s team deserves praise for getting it at least partly right.  For years, I’ve watched visiting politicians looking to partner with the venture community grow disappointed to hear from tech leaders across the political spectrum that they don’t actually want new federal programs or legislation aimed at promoting innovation.

What they really want most is to be left alone; to be allowed to continue to practice the kind of largely unregulated experimentation that the Mercatus Center’s Adam Thierer calls “permissionless innovation.”  That wise policy has been strongly supported by a bi-partisan coalition since the mid-1990’s.  It has done more than any grant or subsidy could to promote U.S. leadership in the Internet and other emerging technologies, in sharp contrast to Europe, where centralized innovation planning and micromanagement have had the opposite effect.

But Washington’s commitment to permissionless innovation has been under attack, particularly in the last few years.  As the innovation economy increasingly becomes the economy, lawmakers can’t help but refocus their attention there.  Law enforcement and intelligence operations, at the same time, are increasingly wary of open networks and encrypted communications (about which the Clinton plan hedges), generating some very public fights with innovators in the name of both consumer privacy and national security.

The closer the next President--whoever it turns out to be--can hew to the U.S.’s longstanding if battered commitment to let a thousand Silicon Valley start-ups bloom, the better off everyone will be, in the short as well as the long run.  Political pandering aside, what the innovation ecosystem really needs is a reboot of the 1990’s promise to leave the Internet “unfettered by Federal or State regulation” – a policy that now needs expansion to equally high-potential disruptors in energy, materials, robotics, genomics, health care, transportation and manufacturing.

That, in any case, is the lesson of the last election in which innovation policy played a major role—the election, that is, of that other Clinton.

For my Innovations column in The Washington Post this week, I noted four critical issues holding back consumer adoption of the Internet of Things.

As Paul Nunes and I explain in Big Bang Disruption, transformative technologies must not only be better and cheaper than the products and services they replace, but also need to overcome consumer inertia.  That's particularly so when the disruptor affects many industries, or when the worse and more expensive products are so familiar to consumers that they won't replace them even for a better and cheaper alternative, at least not without strong incentives to do so.

Those incentives include life-changing new applications of the products.  In other words, the disruptor, to reach the rapid take off we refer to as the Big Bang, must do more than just replace existing and still-working products.  It must do so in a way that adds new functions and new applications that the existing technology can't possibly duplicate.

Each of these characteristics is present in the emerging market for an Internet of Things, where everyday objects will be enhanced with some measure of computing power--processing, memory, and the ability to communicate over the Internet with other devices, sending and receiving data (often very small amounts of data) through the cloud.  When fully realized, the IoT has the potential to dramatically remake the supply chains for many consumer and industrial goods, revolutionizing every step from design to sourcing to manufacturing, distribution, retailing, and service.

And it will do so across industries, affecting financial services, manufacturing, energy, consumer goods, agriculture, and more.

But so far, the IoT has made only incremental progress.  What's holding back the Big Bang?

In the Post article, I identify four obstacles--some technical, some legal--that are keeping consumers from jumping fully on-board with connected, smart homes, wearable health and fitness, and other high-potential IoT applications.   If developers and their investors want to see big returns and jump-start the connected device revolution, they'll first have to design solutions for each:

  • Interoperability – As is typical with emerging technologies, every Internet of Things vendor hopes to establish itself as the industry standard for interactions with other networks and other products. Competing industry groups have also sprouted up, hoping to eliminate incompatibilities by offering an open, neutral set of communications and data exchange rules anyone can follow. Some Internet of Things vendors are trying to build products that follow everyone’s standards, while others are leaving the problem to third party developers. The standards war will undoubtedly be resolved, but in the interim consumers are understandably hesitant to make big investments in new systems.
  • Mobility – Internet of Things devices may not need to communicate large volumes of data, but the sheer number of connected items and their need for constant interaction can’t be supported even with today’s fastest 4G LTE mobile networks. That’s one reason mobile providers and their partners are investing billions in next-generation 5G networks, which will increase network speed and capacity by orders of magnitude, optimizing performance for both the close quarters of your home and the potential range of autonomous vehicles on the road and in the air.  In the United States, both Verizon and AT&T have already announced tests of 5G technology.  But the new networks require more and different ranges of radio frequencies, which only the FCC can allocate.
  • Invisibility – Sleep Number isn’t actually the first company to offer a smart bed; they’re just the first to build the sensors right into the mattress. Earlier efforts required users to remember to wear separate devices that were uncomfortable to sleep with or extra equipment that had to be installed under an existing “dumb” mattress.  To work for all consumers, technologies that transform markets have to become invisible — just part of the scenery. So Sleep Number’s mainstreaming of the disruptive technology is a necessary condition for mass adoption.  Ironically, the more disruptive the technology is, the sooner it tends to disappear.
  • Security — Already, a few early products with inadequate protection have led to some embarrassing security breaches, including a hacker who gained control over a “smart” baby monitor to talk to the baby. The Federal Trade Commission and other regulators are already circling the emerging industry, threatening pre-emptive action.  But as Kohlenberger points out, a widely-deployed Internet of Things will generate tremendous improvements in health outcomes, traffic fatalities and home security, among others. If lawmakers overreact to the Internet of Things’ growing pains, it may unintentionally delay both the development and adoption of technology that will actually improve the safety and security of activities that today rely on fallible human operators.

As these issues are resolved, the Internet of Things is likely to experience the same kind of dramatic takeoff that followed the introduction a few years ago of smartphones that users actually enjoyed owning.  Once the value proposition and technical obstacles are overcome, if history is any guide, consumer adoption for the Internet of Things will happen on an expedited schedule.

In other words, watch for the bang.

The Nov-Dec issue of The European Business Review features a new article by Larry and co-author Paul Nunes, "What Companies Must Do Now that Better is Also Cheaper."  The article introduces the four economic drivers that have changed the nature of innovation and redefined the concept of industry disruption, offering readers a starting point to evaluate and respond in their own businesses.

The four drivers are:

  1. Price Deflation - The continuing impact of Moore's Law well outside of computing and consumer electronics, ushering in the era of combinatorial innovation.
  2. Platform Exploitation - The expansion of global low-cost platforms--based on the Internet, broadband, and cloud computing--for collaboration on everything from R&D to sourcing, manufacturing, distribution, retailing and customer service.
  3. Cross-Subsidization - The use of renewable information assets to seed new markets at the expense of incumbents.
  4. Marginal Cost Elimination - The accelerated shift from physical to software-based distribution, with marginal costs approaching zero.

The combination of these forces has changed the rules of innovation in a growing range of industries.  Incumbents and start-ups alike need to change their strategy to adapt--or disappear.

The fall issue of Democracy Journal features an essay by Larry on the growing divide between disruptive innovation and technology policy, part of a series on the digital future.

In "Fewer, Faster, Smarter," Larry argues that the continued explosion of digital innovation has created a public policy crisis for the 21st century.  New regulators are coming face-to-face for the first time with disruptions that challenge decades or more of compromises and cozy relations between government and industries now being reconstructed.

Innovators in the sharing economy, the Internet of things, artificial intelligence, the quantified self, self-driving cars, drone aircraft, digital currency and 3D printing are already feeling the pinch as regulators try to shove round disruptors into square laws, often with the encouragement of incumbents.

Some of these issues may well rise to the surface in the 2016 Presidential elections.  Already, Larry has been asked several times to comment on what the elections mean for Silicon Valley, which candidates best represent technology interests, and how technology will affect the election.  While it is far too soon to answer many of these questions, there's little doubt that innovators and investors are watching closely--or ought to be!

See also "Silicon Valley is a Political Issue in the 2016 Election" (TechCrunch, August 20, 2015), Andrew Keen's interview with Larry.  And see 'Which Presidential Campaign is Winning Over Silicon Valley? 'None of Them'" (L.A. Times, Sept. 11, 2015), which quotes Larry on the current prospects and their campaigns.

Larry testified on Feb. 25th before the House Energy and Commerce Committee on the future of the Internet and on proposed legislation that would limit the ability of ISPs to manage network traffic in ways that would harm consumers.

A video of the hearing is available, along with Larry's written testimony.

 

 

Last week, I participated in a program co-sponsored by the Progressive Policy Institute, the Lisbon Council, and the Georgetown Center for Business and Public Policy on "Growing the Transatlantic Digital Economy." The complete program, including keynote remarks from EU VP Neelie Kroes and U.S. Under Secretary of State Catherine A. Novelli, is available below.

My remarks reviewed worrying signs of old-style interventionist trade practices creeping into the digital economy in new guises, and urged traditional governments to stay the course (or correct it) on leaving the Internet ecosystem largely to its own organic forms of regulation and market correctives:

Vice President Kroes’s comments underscore an important reality about innovation and regulation. Innovation, thanks to exponential technological trends including Moore’s Law and Metcalfe’s Law, gets faster and more disruptive all the time, a phenomenon my co-author and I have coined “Big Bang Disruption.”

Regulation, on the other hand, happens at the same pace (at best). Even the most well-intentioned regulators, and I certainly include Vice President Kroes in that list, find in retrospect that interventions aimed at heading off possible competitive problems and potential consumer harms rarely achieve their objectives, and, indeed, generate more harmful unintended consequences.

This is not a failure of government. The clock speeds of innovation and regulation are simply different, and diverging faster all the time. The Internet economy has been governed from its inception by the engineering-driven multistakeholder process embodied in the task forces and standards groups that operate under the umbrella of the Internet Society. Innovation, for better or for worse, is regulated more by Moore’s Law than traditional law.

I happen to think the answer is “for better,” but I am not one of those who take that to the extreme in arguing that there is no place for traditional governments in the digital economy. Governments have and continue to play an essential part in laying the legal foundations for the remarkable growth of that economy and in providing incentives if not funding for basic research that might not otherwise find investors. And when genuine market failures appear, traditional regulators can and should step in to correct them as efficiently and narrowly as they can.

Sometimes this has happened. Sometimes it has not. Where in particular I think regulatory intervention is least effective and most dangerous is in regulating ahead of problems—in enacting what the FCC calls “prophylactic rules.” The effort to create legally sound Open Internet regulations in the U.S. has faltered repeatedly, yet in the interim investment in both infrastructure and applications continues at a rapid pace—far outstripping the rest of the world.

The results speak for themselves. U.S. companies dominate the digital economy, and, as Prof. Christopher Yoo has definitively demonstrated, U.S. consumers overall enjoy the best wired and mobile infrastructure in the world at competitive prices. At the same time, those who continue to pursue interventionist regulation in this area often have hidden agendas. Let me give three examples:

1. As we saw earlier this month at the Internet Governance Forum, which I attended along with Vice President Kroes and 2,500 other delegates, representatives of the developing world were told by so-called consumer advocates from the U.S. and the EU that they must reject so-called “zero rated” services, in which mobile network operators partner with service providers including Facebook, Twitter and Wikimedia to provide their popular services to new Internet users without use applying to data costs.

Zero rating is an extremely popular tool for helping the 2/3 of the world’s population not currently on the Internet get connected and, likely, from these services to many others. But such services violate the “principle” of neutrality that has mutated from an engineering concept to a nearly-religious conviction. And so zero rating must be sacrificed, along with users who are too poor to otherwise join the digital economy.

2. Closer to home, we see the wildly successful Netflix service making a play to hijack the Open Internet debate into one about back-end interconnection, peering, and transit—engineering features that work so well that 99% of the agreements involved between networks, according to the OECD, aren’t even written down.

3. And in Europe, there are other efforts to turn the neutrality principle on its head, using it as a hammer not to regulate ISPs but to slow the progress of leading content and service providers, including Apple, Amazon and Google, who have what the French Digital Council and others refer to as non-neutral “platform monopolies” which must be broken.

To me, these are in fact new faces on very old strategies—colonialism, rent-seeking, and protectionist trade warfare respectively. My hope is that Internet users—an increasingly powerful and independent source of regulatory discipline in the Internet economy—will see these efforts for what they truly are…and reject them resoundingly.

The more we trust (but also verify) the engineers, the faster the Internet economy will grow, both in the U.S. and Europe, and the greater our trade in digital goods and services will strengthen the ties between our traditional economies. It’s worked brilliantly for almost two decades.

The alternatives, not so much.