October 22 - Election Preview
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Legislation and regulations have been coming thick and fast on a host of technological issues in the headlines in recent years, including ride-hailing, short-term home rentals, drones and daily fantasy sports betting. But how well is government doing at keeping up with such disruptive technologies?
Lawmakers and regulators can’t be accused of just sitting on their hands when it comes to addressing recent industry-reshaping innovations. As of June 1, 34 states had passed legislation providing for the operation of transportation network companies (TNCs) like Uber and Lyft, according to the R Street Institute, a free market think tank based in Washington, D.C. Several major U.S. cities, including Portland and San Francisco, have adopted measures allowing short-term rentals through websites such as Airbnb and HomeAway, according to a recent policy study by R Street. Thirty-five to 45 states have considered, and 10 or more states have enacted, bills dealing with unmanned aerial vehicles (UAVs), or drones, in each of the last four years, according to the National Conference of State Legislatures. And that legislative activity came in spite of the fact that the Federal Aviation Administration began working on drone regulations in 2012 and adopted several in December 2015 and last month. Seven states - Colorado, Indiana, Mississippi, Missouri, New York, Tennessee and Virginia - have also passed laws this year legalizing daily fantasy sports (DFS) betting through websites like FanDuel and DraftKings, according to the Legal Sports Report and LexisNexis State Net. (For more on DFS see the Aug. 5 issue of Cap J.)
With each of these issues, however, legislators’ and regulators’ hands have largely been forced. As The Wall Street Journal reported last year, Uber’s preferred expansion method has been “to barrel into new markets, establish a base of enthusiastic riders and drivers, and use that grass roots support to try to fend off opposition,” an approach company CEO Travis Kalanick calls “principled confrontation.” In addition to filling public hearing rooms with vocal supporters, Uber has also enlisted an army of lobbyists to pursue its interests in state capitols and city halls across the nation, likely outspending Philip Morris and Pfizer in 2015, according to Bloomberg Businessweek. By the time Colorado became the first state to pass legislation authorizing ride-hailing services in June 2014, millions of people were already using Uber’s app to hail rides and the company was valued at over $18 billion, making it worth more than car rental company Hertz. (Uber is currently valued at over $62 billion, exceeding the valuation of both General Motors and Ford, which have been in business over 100 years longer.) Regulators in cities like Portland and states like Nevada initially resisted the company’s aggressive tactics, but ultimately opted to authorize the operation of TNCs.
The situation hasn’t been too different in other new tech-driven industries. For example, cities and states have only recently begun regulating short-term rental companies like Airbnb, which, as of Cap J’s May 8 2015 issue, was “a $20-billion business with over 1,000,000 short-term rental listings in more than 34,000 cities and 190 countries around the world, making it bigger than major hotel operators like Wyndham Worldwide and Hyatt Hotels.” In February of this year, voters in Airbnb’s hometown and the hub of the tech boom, San Francisco, considered a ballot measure aimed at restricting short-term rentals in the city. That measure - Proposition F, billed as the first referendum on the sharing economy - failed by a sizeable margin, 55 percent to 45 percent. One of the major factors contributing to that outcome was the fact that Airbnb and other opponents of the measure spent over eight times more than supporters, upwards of $8 million versus about $800,000, according to the Los Angeles Times.
The meteoric rise of the consumer drone industry - which grew 167 percent, to 4.3 million unit shipments and $1.7 billion in sales worldwide, from 2013 to 2015, according to an estimate in a 2015 report on Internet trends by Kleiner, Perkins, Caulfield & Byers - has been accompanied by a marked, though not quite as dramatic, rise in state and local government regulatory activity on UAVs. But it’s likely that over 1 million drones had already been sold by the time the FAA issued its first UAV regulations last year.
Similarly, FanDuel and DraftKings signed major sports leagues and teams as partners and attracted tens of millions of players to their websites before Virginia became the first state in the country to specifically legalize daily fantasy sports games in March.
The lag between the emergence of these new tech industries and governmental action on them allowed them to reach a critical mass that has limited legislators’ and regulators’ options.
“If government had examined the fantasy sites a year ago, shutting them down or putting them in a legal corner would’ve been relatively easy,” Newsweek’s Kevin Maney said in a column last year.
The question now, according to Maney, is whether lawmakers are “willing to take action that would destroy the companies’ $2.5 billion combined value owned by important investors [and campaign donors] like KKR, Comcast, NBC, Major League Baseball and several Silicon Valley VCs” and end “an activity enjoyed by around 50 million people, many of them the lawmakers’ constituents.”
Maney said much the same thing about drone regulation.
“If the FAA had been either farsighted or fast moving, at the first sign of drones it might’ve outlawed them or confined them to someplace like Oklahoma where they can’t get in the way of anything too important,” he said. “But now the FAA is forced to accommodate drones, not the other way around.”
Uber and Airbnb have actually relied on governments’ sluggishness.
“By the time cities understood what those companies were doing, it was too late to block or seriously limit them,” Maney said. “New York tried to stop both, ran into outcries from its citizens and backed off. Other cities, like San Francisco, ended up passing laws that allow the companies to keep doing what they were already doing, as long as they pay some additional taxes.”
As Maney pointed out, the pattern isn’t new. Back in the 1910s the number of automobiles on American streets shot up from 200,000 to 2.5 million, spooking horses and tormenting pedestrians unaccustomed to anything moving so fast. But by the time the first traffic law was passed, it “had to accommodate cars. It could not stop them.”
To be fair, there are plenty of valid reasons for the lag in governmental action on disruptive technologies, such as opposition from impacted industries like taxicabs, hotels and casinos; resistance from those who believe the new technologies are already covered under existing privacy and other laws; fear of stifling innovation and economic growth; the exponential rate at which technology is developing; and the complexity of much of it. For example, how many government officials actually understand how Bitcoin – or its baseline technology, blockchain – even works?
The problem with the delay, however, is that unregulated technologies can pose risks to the public. One obvious example is the nearly 700 close calls between drones and passenger aircraft reported to the FAA between January and mid-August of last year, months before the agency issued its first UAV regulations.
Making matters worse is the fact that there are technologies on the horizon that pose far greater risks than drones. For example, university researchers recently developed an inexpensive system for editing genomes, “the basic building blocks of life,” according to The Washington Post. That system, known as CRISPR-Cas9, “holds the promise of providing cures for genetic diseases, creating drought resistant and high-yield plants, and new sources of fuel,” the Post said. But China has already used it to edit the genomes of animal embryos, changing the animals’ shapes, sizes and other traits in ways that can be passed on to successive generations, “thereby creating a new species.” That nation has also been working on using CRISPR to edit human embryos to select desirable traits, or, in less scientific terms, to create designer babies, while the British government has approved experiments with CRISPR for the treatment of infertility.
Another potentially world-changing technology that is a bit farther off but developing rapidly is artificial intelligence. As the Post reported, the technology is only “superfast computers crunching massive amounts of data” right now, but it’s still causing a great deal of concern in some quarters. Tesla founder and CEO Elon Musk called it “our biggest existential threat,” while theoretical physicist Stephen Hawking said it “could spell the end of the human race.”
Protecting the public from the risks associated with these emerging technologies will be a global undertaking. But the loftiness of the stakes involved may only spur greater caution - and more delay - in regulating them in this country. Which raises the question: What does accommodation of genome editing and artificial intelligence look like?