We tend to think of innovation as closely related to original invention or fits of genius. However, as Matt Ridley explains, innovation is not the same as invention, although invention and technology are often part of it.
Incredible technical inventions are one thing, but what innovators specifically do is find practical applications for these inventions and drive prices down. In fact, the lowering of prices matters for the innovation to spread and be widely adopted.
Letting innovation flourish allows everyone to access things initially considered luxuries for the wealthiest one percent of society. Thanks to the innovator, yesterday’s utopias become today’s realities.
Moreover, and this is of vital importance, it is through innovation that people take charge of problem-solving. Innovation empowers the individual and civil society.
Thus, thanks to the breakthroughs that have come about through innovation, it is not surprising that innovation is universally praised and recognized as a force for progress. In fact, except for North Korea, no government in the world has an official policy to ban innovation or harass innovators.
Unfortunately, this almost universal praise for innovation is little more than lip service in many cases. In the real world, disruptive innovators face a much more hostile environment. As Bradley Tusk explains in The fixer, an unholy alliance of politicians, regulators and established interests is not usually grateful for disruptive innovation. Quite the contrary, it strikes back, hitting very hard.
State failures
There is abundant (and somewhat dubious) literature on “market failures.” I believe that in regulatory matters, we can focus on something much less esoteric: state failures.
Regarding regulations, there are three state failures that we can quickly identify:
1) Innovation, almost by definition, can never be addressed by existing regulations. Regulation always comes later. Our legislators, unfortunately, seem to ignore the fact that their regulations cannot foresee the novelty of an innovation. If they could, they would be innovating in the private sector instead.
2) This is why our authorities often make the foolish mistake of imposing the existing regulation on a product or service they never foresaw—sort of like applying the telegraph regulation to Starlink, Elon Musk’s satellite internet company.
3) Regulatory excesses can very easily become an attack on the future. As Adam Thierer puts it: “Trying to preemptively plan for every hypothetical worst-case scenario means that many best-case scenarios will never come about.”
The Politician and the Bartender
Is there any role left for politicians regarding innovation then?
Absolutely.
In fact, it is a crucial role. Politicians must defend a culture of innovation and risk-taking in their actions and words. Adam Thierer, Stephen Ezell, and Philipp Marxgut emphasize that what politicians publicly say and do is vital in setting the tone for a country’s innovation climate.
And is there any role for regulation?
Problem-solving should be left to imaginative responses rather than regulations and prohibitions that hinder and stifle entrepreneurship.
However, perhaps regulation is needed for a minimum safeguard for the population. If this is the case, we must remember that regulation can never play the leading role in the innovation process. According to Jeff Stier’s analogy, if we were preparing a cocktail, the recipe would be nine parts innovation and one part regulation.
The opposite would be another kind of cocktail: a Molotov cocktail.
A slightly modified version was published on the Austrian Economics Center website
* Federico N. Fernández is Executive Director at Somos Innovación (a Latin American pro-innovation alliance) and CEO at We Are Innovation (Somos Innovación’s sister organization for Europe). Federico is Founder and President of Fundación Internacional Bases (Rosario, Argentina) and also the Chairman of the Organizing Committee of the International Conference “The Austrian School of Economics in the 21st Century,” which takes place in Europe and LatAm alternatively.
