In a recent article for CapX, I discussed the regulatory hurdles that will likely need to be overcome in order for the Hyperloop to begin revolutionizing inter-city transportation. However, I didn’t address particular recommendations for what changes the regulatory structure needs in order to catalyze this nascent industry.

Rather than embrace an entirely new agency to regulate emergent technology, state and federal agencies likely already have a cornucopia of means by which light-touch and appropriately tailored regulations can effectively address the public interest concerns (e.g. safety and security) associated with the Hyperloop, as well as other emerging technologies more broadly. How should regulators address whether new rules are necessary?

When pondering the need for regulation, government officials should ask three general questions before proposing new rules:

  1. Does actual harm — not merely hypothetical — exist? If not, new regulations are unnecessary. If so, continue to the second question.
  2. Are existing agencies, statutes, or regulations already addressing the actualized harm? If so, new regulations are unnecessary. If not, continue to the third question.
  3. Does the benefit of new regulations outweigh the costs associated with the particularized harm? If not, new regulations are unnecessary. If so, carefully tailored regulations might be appropriate.

Of course, with the onslaught of emerging technologies assailing the regulatory apparatus from practically every industry, these questions are often ignored. Regulators and government officials seem intent on regulating specific technologies in an ex ante fashion — that is, developing regulations prior to the emergence of actualized harms in anticipation of potential worst-case scenarios down the road. While that type of regulatory approach could conceivably be matched to the technologies and industries of the past, the modern digital age is far less accommodating to such an approach. By regulating in advance of known harms, regulators generally forestall the emergence of best-case scenarios.

Take the recent and ongoing case of the Federal Aviation Administration attempting to craft rules for the safe integration of commercial unmanned aerial vehicles into the national airspace. UAVs or drones, as they are more commonly called, hold the potential to revolutionize a wide array of industries from delivery services to transportation. Airspace, a woefully underutilized resource, could turn into an entirely new platform for innovation in the same way the commercialization of the Internet transformed the communications industry into a hotbed of disruptive innovation. Unfortunately, the FAA has consistently dragged its feet promulgating final rules despite a legislative mandate from 2012, and the interim rules it did release last spring leave much to be desired.

These types of inefficiencies are unfortunately all too common within the leviathan bureaucracy of regulatory agencies at the federal level, but this should come as no surprise. In order to appropriately accommodate the general public interest with regard to emerging technologies, the old 20th-century model of command-and-control, top-down regulatory authority simply does not work. The pace of technological change in the modern age is such that regulatory rulemaking simply cannot keep up. That system and associated framework need to change if America is to continue in embracing rapid, disruptive technological progress.

Part of any regulatory framework for emerging technologies is recognizing the current inefficiencies associated with the many, many anachronistic regulations meant for far simpler times. We can help realign these organizational incentives by forcing regulatory agencies to focus only on situations where clearly demonstrated harms actualize, and we should also embrace the notion of an Innovator’s Defense Fund as a means of forcing those agencies to focus their attention on substantial harms.

So, what might a new regulatory framework for dealing with emerging technologies look like?

To begin, sunset provisions should be mandatory in any new regulatory scheme, and those sunsets should, at most, be set at no more than two years out from the day of enactment. This will ensure that any rules that end up producing onerous unintended consequences for industries are slated to be reviewed at regular intervals.

Second, any systematic approach for implementing regulations intended for new, emerging technologies should be designed to ensure:

  • Flexibility for industry and individuals.
  • Weighing in favor of maximizing the speed of innovation.
  • Permitting experimentation by default.
  • Avoiding requirements that would result in technological lock-in.
  • Minimizing barriers to entry (e.g. avoid occupational licensing regimes).

Finally, ex ante regulations should be avoided whenever possible, except when the anticipatory need for such rules can be clearly articulated. An example of such an anticipatory need would be the previously mentioned case of the FAA and commercial drones. Given that the FAA has a statutory mandate to ensure the safety of the national airspace, operational integration of a new technology will necessarily involve a certain baseline set of regulations. Of course, those regulations need to be tailored in order to provide for sunset provisions and the five-fold systematic approach for assessing the particulars of the rules to be promulgated.

There are many challenges for both regulators and innovators to come to terms with amidst an age of miraculous and rapid technological progress. However, reverting to regulations intended for a different era of technologies, business models, and industries will not serve the entrepreneurs of the digital age well. We need to strike a balance between the public interest and the needs and rights of innovators to tinker while experimenting with new technologies.

Otherwise, the growth that has characterized our modern age until now will plateau. Forestalling technological progress, while not the intention of well-meaning regulators, is what often results from short-sighted, reactionary proposals for new regulations. Regulators should embrace forbearance from taking action as a general rule of thumb when assessing the need for new regulations.

Op-ed by Ryan Hagemann; originally in 1776