Innovation and Regulation

Image representing Eric Schmidt as depicted in...
Google Executive Chairman Eric Schmidt (Image via CrunchBase)

Crovitz: Google Speaks Truth to Power – WSJ.com.

An interesting column by L. Gordon Crovitz at The Wall Street Journal, wherein the writer suggests that the “growing regulatory state” has reached such proportions that even an Obama supporter like Google executive chairman Eric Schmidt has to rail against it in public.

“Regulation prohibits real innovation, because the regulation essentially defines a path to follow,” Mr. Schmidt said. This “by definition has a bias to the current outcome, because it’s a path for the current outcome.”

Leave aside for the moment the irony implicit in a WSJ editorial that defends Google, a sworn enemy of News Corporation in the battle over who owns online information. Schmidt is right: regulation prohibits innovation.

What we have discovered, however, is that there are places in the economy where we want innovation (the Internet, technology, energy, etc.), there are sectors where it must be regulated for the sake of public welfare (healthcare, aviation, architecture, agriculture etc.) and there are places in the economy where innovation can be a four-letter word (finance and  lobbying leap to mind.)

And we have learned the hard way that monopolies can be bad. Theodore Roosevelt spent much of his career fighting the market and political power of trusts. As long ago as that effort took place, I am certain we do not want to revisit that battle.

Thus the point Mr. Crovitz seems to miss is that all regulation is not created equal. The failure of the political dialogue in this country is rooted in our increasing reliance on Paleolithic mantras like “Capitalism Bad!” “Regulation Bad!” or “China Bad!” It is frustrating to see this kind of thinking on protest signs, but it is inexplicable that it would be coming from an educated wordsmith like Mr. Crovitz or a talented executive like Mr. Schmidt.

Politicians will always attempt to curry favor with their constituencies by putting reins on industries and phenomena that they do not understand, and by extension scare them. Trying to fight bad demagoguery with worse demagoguery is self-defeating. The smart thing to do is to expose one’s detractors as demagogues and raise the level of the debate.

One thought on “Innovation and Regulation

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  1. David, you seem to be one of the few conservatives these days who is aware that things are rarely black and white. My take on regulation is that the gradual dissolution of regulatory restraint over the past several decades is largely what caused the present economic mess. It seems to me that politicians have been far more likely to trash wise regulation than to impose unwise. You are absolutely right that regulations come in many flavors, and paleolithic demagoguery from either side accomplishes nothing good.

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