Regulatory Evolution

Silicon Valley has a knack for producing world changing companies.  These startups are often disruptive because they envision a product or service in an entirely new way. Facebook tackled identity in the context of social networking, creating a platform used the world over.  Google turned the human need to find things into one of the most successful advertising businesses the world has ever seen.  When it comes to building new things, the Valley really pushes the envelope.

What gets less attention is the challenge the Valley’s businesses represent for existing models of regulation.  For example, Airbnb is viewed by the hospitality industry as a threat.  Why?  For the simple reason that if private owners and renters can put their homes on Airbnb, that will erode hotel revenues.  Since the hospitality industry has to comply with costly local and state regulations, they view Airbnb as a competitor with an unfair (even unlawful) advantage.

Uber is viewed similarly by the incumbent taxi industry.  Where Uber’s customers feel that the service streamlines an arcane and inefficient taxi hailing process, incumbents see Uber as an economic pirate-of-sorts, a well-coifed Jack Sparrow who provides the same services they do but without any of usual regulatory burdens.

Companies like Uber and Airbnb are at an impasse with existing models of regulation. Or, to put the point differently, these companies do not neatly fit within existing models so they frustrate the incumbents that do.  This is precisely why so much vitriol is being exchanged between SV companies and beneficiaries of the existing business models: Everyone knows that blood must be spilled to bring about the future, yet no one wants the blood to be their own.

What if regulatory frameworks evolved in real time with novel business models?  Is it possible for government and private interests to work together to ensure a smooth, relatively painless transition to a world where on-demand services like Airbnb and Uber aren’t conceptualized as outlaws?  Could we produce more wealth if Silicon Valley companies reached out to regulators and law makers early on to propose thoughtful ways of working together?

Is this really possible?  Absolutely.  There are incredible opportunities in antitrust, employment law, and intellectual property to remake regulation so that it facilitates the future.  The only question is whether we will seize these opportunities.

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