• April 8, 2015
• Regulation

INTRODUCTION

We are in the transition from an industrial society to an information society. As we've learned from the first 25 years of the life with the web, in the world of networked information, problems get solved differently – almost oppositely – than they did previously.

When distribution is free, participation is frictionless, and information is abundant, the order of operations for many tasks is flipped. My colleague at Union Square Ventures, Albert Wenger, describes this as series of profound inversions.[1] For example: publish first, then edit (Wikipedia, blogging); get paid, then work (Kickstarter); start selling, then build your reputation (eBay). Contrasted to the previous model for launching a product or idea – intense study and market research prior to launch, with extremely high costs for adjusting after the fact – the internet model is “release early and often”: learning as you go and iterating quickly and inexpensively, based on lots of data.

We are now facing this inversion in the area of regulation.

Our current regulations – intended to ensure trust, safety, and security in an unsure world – were designed for the industrial era, where change happened over decades and information was expensive. This model, which we’ll refer to as the “1.0” model, took an “up-front permission” approach, based on central licensing and permitting as a prerequisite for acting.

Fast forward 100 years: Internet-based connectivity has both radically lowered the cost of accessing information and redesigned our models for establishing trust across wide networks of people. For example, web and mobile platforms (such as Uber, Airbnb, and Facebook) have developed sophisticated (though still imperfect) internal systems for ensuring trust, safety, and security within their communities. Out of necessity, these systems scale to millions of users, are deeply integrated with real-time data, and are designed to adapt over time. To accomplish this, they employed an inverted model – we’ll it call the “2.0” model – which freely allows users to act, but then holds them accountable through data and accumulated reputation:

Or, put another way, the 1.0 model uses restricted access to achieve policy goals (public safety, etc.), given that enforcement/accountability is expensive and difficult to administer; whereas the 2.0 model instead relaxes market access and then uses large volumes of real-time data to hold actors accountable:

Today, we are facing a conflict between these two regulatory approaches. Since 2007, driven by the explosive growth of mobile apps, 1.0 rules and regulations are being tested by internet-based applications that use their own internal 2.0 regulatory schemes[2]. The most prominent examples have been in transportation (e.g., Uber, Lyft, Sidecar), travel (Airbnb) and health (23andMe[3]), but the problem is quickly spreading to every government jurisdiction and economic sector, and will only get worse as more aspects of our lives are mediated by web and mobile platforms.

As often happens during times of technological change, our instinct is to apply the rules from the previous era to the new technology. For example, when cars were first invented, they weren't allowed to drive faster than a horse and carriage could walk, and required the assistance of a three-man flag crew.[4] But over time, we adapted both our rules and our infrastructure (by building roads, highways, seat belts, etc.) to fit the new technology and the new economic and cultural norms it ushered along.

This paper explores how we could approach public sector regulations "the internet way," by harnessing the inverted approach to regulation that the web allows, and asks readers to consider a single, simple question:

Where can we replace permission-based rules with information-based rules, granting the freedom to operate in exchange for access to data?

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