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Regulation

Britain Need Permissionless Innovation

By
Ryan Khurana
on
December 4, 2018

Britain has some of the highest quality Artificial Intelligence Research in the world. To leverage its impact, it should embrace a model of permissionless innovation.

One of the great hallmarks of a free market economy is its capacity for innovation. The fewer barriers there are to trade and commerce, the more human ingenuity is allowed to flourish. Innovation is the key driver in long-term economic growth, and without it, populations compete to divide a fixed pie of resources.

Technological advance, which is enabled by the creative destruction of market forces, has been responsible for much of the rise in living standards and expansion of the economic pie since the Industrial Revolution.

It is odd then that the United Kingdom, one of the progenitors of the Industrial Revolution, has grown hostile to innovation. Since the Great Recession of 2008, productivity growth has remained almost stagnant as new businesses have failed to scale.

Constraints on capital that choke fledgeling startups, onerous regulations prevent new ideas from being tested, and a corporate culture that prefers tried and tested to new and risky, have contributed to this stagnation. A generation has grown up not seeing the fruits of innovation, but only the struggles of low economic growth.

Much of the hostility towards the status quo, including the favourable attitude millennials exhibit towards socialism, can be explained in the light of the failure of existing policies to promote technological development.

If the UK is to ensure continued prosperity for its citizens, the government would be wise to move towards the model of permissionless innovation that spurred the information technology revolution in the United States.

There are areas in which this is already being tried, such as the Financial Conduct Authority’s “regulatory sandbox” for financial technology firms. Through this program, startups are selected to operate in a controlled environment free from the regulatory barriers they would have otherwise faced, and develop the policies that will govern them in the future in cooperation with the FCA.

Other sectors would benefit greatly from this approach.

Healthcare, for example, resembles the financial sector in being highly regulated due to the significant costs to society of error. Developments in the application of new technologies, such as artificial intelligence, to improving healthcare are underway, and the UK has contributed much to the development of these methods.

Implementation, however, is much more difficult given the current constraints, and modelling a sandbox for healthcare on the successes in finance would enable health technology startups to scale more easily.

The benefit of sandboxes is that they do not prescribe general rules for operation, but rather work with innovators to develop a firm-specific environment that is beneficial to all stakeholders. Legislators are often at a loss when trying to understand the disruptive technologies that are being developed, and would be wise to show restraint in regulating them.In the United States, the Federal Trade Commission often makes regulatory arrangements with specific companies, rather than stipulating broad policies that affect the entire market. This approach enables greater experimentation in governing technologies without locking in policies that become outdated and cumbersome as technology develops.

A similar case-by-case approach applied in Britain would enable the UK to capitalise on the research it already produces.

The field of artificial intelligence presents the greatest opportunity for the UK to innovate if regulations become less prescriptive and a culture of permissionless innovation is embraced. The UK is a world leader in AI research, but lags behind the US and China when it comes to deployment of new technologies.

In the recent report on AI by the House of Lords, many recommendations were made to incentivise commercialisation, such as making it easier for companies to “spin out” of university research centres. The report, however, contained much of the prescriptive regulatory thinking that is holding back deployment.

For example, the authors called for algorithms to be more transparent and “explainable” to those with non-technical backgrounds. These explainability criteria, which are being embraced by the European Union, would sacrifice the accuracy of AI systems, and impose new costs on firms who have already developed usable technologies.

The potential for the UK’s human capital and world-class research to translate into innovative businesses that power economic growth is present. All that is required to unleash this potential is a move away from prescriptive thinking and an embrace of the principles of permissionless innovation. This would renew the engine of capitalism, expanding opportunity and prosperity for all.

This article originally appeared in The Telegraph.

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