Overregulation and Innovation

Susan Crawford is a former high-ranking Obama Administration official responsible for formulating communications policy. Before leaving, her formal title was special assistant to the President for science, technology, and innovation policy. 

Now this title seems especially ironic, even misbegotten, particularly the part about "innovation policy." 

This is because last week on NPR's The Diane Rehm Show, Ms. Crawford declared that "overregulation" is "the way we make innovation happen in America." This is a rather astounding statement by a former Obama Administration official with "innovation policy" in her portfolio. It was uttered in the context of asserting, wrongly, that the U.S. is behind countries such as China with respect to broadband deployment. 

While astounding, Ms. Crawford's statement is not entirely surprising. Now back in academia as a professor at Cardozo School of Law, Ms. Crawford is an avowed, unapologetic advocate of public utility-style regulation, if not outright government ownership, of America's broadband Internet service providers, such as Verizon, Time Warner Cable, AT&T, Comcast, Cox, CenturyLink, Cablevision, and all the rest. 

In April 2012, Ms. Crawford wrote an article for Wired magazine advocating just such public utility regulation for cable broadband providers. In that piece, her regulatory advocacy was premised on the assertion that an airline gate agent had refused to allow Ms. Crawford to store her viola in the first class storage compartment or in the overhead bin. At the time I was not unsympathetic to her musical instrument's plight. But I explained in "Just Downright Flighty: The Viola and the Crazy Gate Agent" why the airline agent's action did not provide a justification for suggesting that today's broadband providers, operating in a competitive marketplace, should be regulated as if they were Ma Bell operating in the monopolistic environment of the 1970s. 

Well, with her comment suggesting that "overregulation" is the way to make innovation happen in America, Ms. Crawford is at it again. American inventors and innovators from Benjamin Franklin to Thomas Edison to Steve Jobs – and thousands more not so well known – must be turning over in their graves. 

Of course, when there is a market failure, or in instances when public safety and health are at risk, there is a place for proper regulation – but not overregulation. Even President Obama, not one to shy away from proposing (too many) regulatory solutions, seemingly appreciates the fact that unnecessary, over-zealous regulation stifles innovation. For example, in his Executive Order 13563, issued in January 2011, Mr. Obama said that America's regulatory system, while protecting public health, safety, and the environment, must promote "economic growth, innovation, competitiveness, and job creation." 

There is even a section in the Executive Order on "Integration and Innovation" which states:

Some sectors and industries face a significant number of regulatory requirements, some of which may be redundant, inconsistent, or overlapping. Greater coordination across agencies could reduce these requirements, thus reducing costs and simplifying and harmonizing rules. In developing regulatory actions and identifying appropriate approaches, each agency shall attempt to promote such coordination, simplification, and harmonization. Each agency shall also seek to identify, as appropriate, means to achieve regulatory goals that are designed to promote innovation.

The whole thrust of the entire Executive Order is to suggest that, where possible, regulatory burdens – and the associated costs of regulation – should be reduced. Certainly, nothing in the section on innovation suggests otherwise. 

And then there is this: On the same day the Executive Order was issued in January 2011, President Obama published an op-ed in the Wall Street Journal under the title, "Toward a 21^st Century Regulatory System." In his op-ed, he declared that sometimes regulations get out of balance, "placing unreasonable burdens on business – burdens that have stifled innovation and have had a chilling effect on growth and jobs." Indeed, President Obama began his op-ed by stating: "For two centuries, America's free market has not only been the source of dazzling ideas and path-breaking products, it has also been the greatest force for prosperity the world has ever known." Certainly, President Obama, Ms. Crawford's former boss, doesn't seem to hold a brief for the proposition that regulation is, as Ms. Crawford put it, "the way to make innovation happen in America." 

In the post-Mao era, I doubt seriously that the Chinese, whom Ms. Crawford cites favorably by way of an example to be emulated, subscribe to that proposition. 

I cite President Obama's Executive Order and Wall Street Journal op-ed, not because Mr. Obama has always been as sensitive to the adverse impact of unnecessary regulation as he should be, but because the order and his commentary are consistent with the near universal mainstream consensus among economists and policy experts that unnecessary regulation stifles both innovation and investment. 

I repeat: For Ms. Crawford to assert that "overregulation" – or even just plain ol' regulation – is "the way we make innovation happen in America" is misguided.