Cato Online Forum

Embracing a Culture of Permissionless Innovation

By Adam Thierer
November 2014

“Why does economic growth… occur in some societies and not in others?” asked Joel Mokyr in his 1990 book, Lever of Riches: Technological Creativity and Economic Progress.1 Debate has raged among generations of economists, historians, and business theorists about that question and the specific forces and policies that prompt long-term growth.

As varied as their answers have been, there was at least general agreement that institutional factors mattered most-it was really just a question of what mix of them would fuel the most growth. Those institutional factors include: government stability, the enforceability of contracts and property rights, tax and fiscal policies, trade policies, regulatory policies, labor costs, educational policies, research and development expenditures, infrastructure, demographics, and environmental factors.2

This leads many scholars and policymakers to speak of innovation policy as if it is simply a Goldilocks-like formula that entails tweaking various policy dials to get innovation just right.3 Such thinking animates the Obama administration’s Strategy for American Innovation, which catalogs “policies to promote critical components of the American innovation ecosystem.”4 The White House claims its Strategy plays a “critical role in guiding the development of new policy initiatives that can help unleash the transformative innovation that leads to long-term economic growth.”5

Unfortunately, far less attention has been paid to the role that values-cultural attitudes, social norms, and political pronouncements-play in influencing opportunities for entrepreneurialism, innovation, and long-term growth.6 Does a socio-political system respect what Deirdre McCloskey refers to as the “bourgeois virtues” that incentivize invention and propel an economy forward?7 “A big change in the common opinion about markets and innovation,” she has argued, “caused the Industrial Revolution, and then the modern world… The result was modern economic growth.”8

There are limits to how much policymakers can influence these attitudes and values, of course. Nonetheless, to the extent they hope to foster the positive factors that give rise to expanded entrepreneurial opportunities, policymakers should appreciate how growth-oriented innovation policy begins with the proper policy disposition.9 As Mokyr notes, “technological progress requires above all tolerance toward the unfamiliar and the eccentric.”10

For innovation and growth to blossom, entrepreneurs need a clear green light from policymakers that signals a general acceptance of risk-taking-especially risk-taking that challenges existing business models and traditional ways of doing things.11 We can think of this disposition as permissionless innovation and if there was one thing every policymaker could do to help advance long-term growth, it is to first commit themselves to advancing this ethic and making it the lodestar for all their future policy pronouncements and decisions.

Permissionless Innovation vs. the Precautionary Principle

While it would seem self-evident that pro-innovation attitudes matter and that a general embrace of risk-taking and commercial pursuits is crucial to unlocking entrepreneurial creativity and opportunities, scholars have typically failed to put a name on this disposition. “Permissionless innovation” is a phrase of recent (but uncertain) origin that nicely summarizes that vision. Permissionless innovation refers to the notion that experimentation with new technologies and business models should generally be permitted by default.12 Unless a compelling case can be made that a new invention or business model will bring serious harm to individuals, innovation should be allowed to continue unabated and problems, if they develop at all, can be addressed later.

Permissionless innovation is not an absolutist position that rejects any role for government. Rather, it is an aspirational goal that stresses the benefit of “innovation allowed” as the default position to begin policy debates. It switches the burden of proof to those who favor preemptive regulation and asks them to explain why ongoing trial-and-error experimentation with new technologies or business models should be disallowed.

This disposition stands in stark contrast to the sort of “precautionary principle” thinking that often governs policy toward emerging technologies. The precautionary principle refers to the belief that new innovations should be curtailed or disallowed until their developers can prove that they will not cause any harms to individuals, groups, specific entities, cultural norms, or various existing laws, norms, or traditions.13

When the precautionary principle’s “better to be safe than sorry”14 approach is applied through preemptive constraints, opportunities for experimentation and entrepreneurialism are stifled. While some steps to anticipate or control for unforeseen circumstances are sensible, going overboard with precaution forecloses opportunities and experiences that offer valuable lessons for individuals and society. The result is less economic and social dynamism.

Innovation is more likely in systems that maximize breathing room for ongoing economic and social experimentation, evolution, and adaptation. Societies that appreciate those values-and allow them to influence both social norms and policy decisions-are likely to experience greater economic growth.15 By contrast, those that deride such values and adopt a more precautionary policy approach are more likely to discourage innovation and languish economically.

Unlocking long-term growth opportunities, therefore, depends upon a rejection of precautionary principle thinking and an embrace of permissionless innovation as the default policy disposition.

The Secret Sauce that Powered the Information Revolution

Consider how permissionless innovation powered the explosive growth of the Internet and America’s information technology sectors (computing, software, Internet services, etc.) over the past two decades. Those sectors have ushered in a generation of innovations and innovators that are now the envy of the world.16 This happened because the default position for the digital economy was permissionless innovation. No one had to ask anyone for the right to develop these new technologies and platforms.17

A series of decisions and statements in the mid-1990s paved the way, beginning with the Clinton administration’s decision to allow commercialization of what was previously just the domain of government agencies and university researchers. Shortly thereafter, Congress passed, and President Clinton signed, the Telecommunications Act of 1996, which notably avoided regulating the Internet like earlier communications and media technologies. Later, in 1998, the Internet Tax Freedom Act was passed, which blocked governments from imposing discriminatory taxes on the Internet.

Perhaps most importantly, in 1997, the Clinton Administration’s released its Framework for Global Electronic Commerce, outlining its approach toward the Internet and the emerging digital economy.18 The Framework was a succinct and bold market-oriented vision for cyberspace governance that recommended reliance upon civil society, contractual negotiations, voluntary agreements, and ongoing marketplace experiments to solve information age problems.19 Specifically, it stated that “the private sector should lead [and] the Internet should develop as a market driven arena not a regulated industry.”20 “[G]overnments should encourage industry self-regulation and private sector leadership where possible” and “avoid undue restrictions on electronic commerce.”21

This policy disposition resulted in an unambiguous green light for a rising generation of creative minds who were eager to explore this new frontier for commerce and communications. As Federal Trade Commission Commissioner Maureen K. Ohlhausen observes, “the success of the Internet has in large part been driven by the freedom to experiment with different business models, the best of which have survived and thrived, even in the face of initial unfamiliarity and unease about the impact on consumers and competitors.”22

The result of this “freedom to experiment” was an outpouring of innovation. America’s info-tech sectors thrived thanks to permissionless innovation, and they still do today. An annual Booz & Company report on the world’s most innovative companies revealed that 9 of the top 10 most innovative companies are based in the U.S. and that most of them are involved in computing, software, and digital technology.

And What’s Good for the Goose…

What’s even more powerful about this story is how the information technology and “data-driven innovation” became the goose that laid the golden eggs for the broader U.S. economy.23 Brink Linsdey has noted that “economists generally agree that information technology (IT) was behind the decade of high TFP [total factor productivity] growth that ran from the mid-1990s to the mid-2000s.”24 It also boosted overall economic growth during that period.25

If an embrace of permissionless innovation can unlock this sort of entrepreneurial energy within the information technology sectors, it can also provide a shot in the arm to other sectors. The rest of the economy could certainly use such a boost since “the evidence of a real decline in business dynamism keeps stacking up.”26

Recent studies “suggest that incentives for entrepreneurs to start new firms in the United States have diminished over time”27 and that this is hurting job creation and productivity.28 Two recent Brookings Institution studies by Ian Hathaway and Robert E. Litan also documented a decline in business dynamism in the American economy across a broad range of sectors-including a “precipitous drop since 2006 [that] is both noteworthy and disturbing”29-as well as the increased “aging” of businesses, with the share of older firms in the U.S. economy increasing by 50 percent over the past two decades.30

Many different institutional factors affect business dynamism, especially the regulatory environment that new startups face. “If you look over time, the number of rules has just proliferated,” says Litan. “The cumulative weight of regulation-federal, state and local-is probably the most important impediment to starting a business.”31 Unfortunately, many current public policies “are rife with barriers to entrepreneurship, competition, innovation, and growth,” notes Lindsey.32

As a result, “the regulatory environment in the United States has become less favorable to private-sector activity in recent years compared to other countries,” a recent Mercatus Center report concluded.33 This is especially true for new start-ups.34 Even if it is the case that “established firms that have the experience and resources to deal with [regulatory burdens],” Litan notes, the cumulative effect of regulations ends up hampering innovation by new, smaller firms. 35

The reason this is important is not just because “business dynamism is inherently disruptive,” as Hathaway and Litan note, “but [that] it is also critical to long-run economic growth” since “a dynamic economy constantly forces labor and capital to be put to better uses.”36 Thus, because economists widely acknowledge that “young firms are known to play a central role in job creation,”37 it is especially important that policymakers get their signals right.

Again, an embrace of permissionless innovation is the way out of this conundrum.

Operationalizing the Vision

Patience, flexibility, and forbearance are the key policy virtues that nurture an environment conducive to entrepreneurial creativity. As the FTC’s Ohlhausen argues, it is “vital that government officials… approach new technologies with a dose of regulatory humility, by working hard to educate ourselves and others about the innovation, understand its effects on consumers and the marketplace, identify benefits and likely harms, and, if harms do arise, consider whether existing laws and regulations are sufficient to address them, before assuming that new rules are required.”38

Beyond its importance as an aspirational vision, permissionless innovation can guide policy in concrete ways, especially regulatory policies. Possible reforms include regulatory streamlining39 and flexibility requirements,40 “sunsetting” provisions,41 better benefit-cost analysis,42 and a greater reliance on potential non-regulatory remedies-education, empowerment, transparency, industry self-regulation, etc.-before resorting to preemptive controls on new forms of innovation. Relying on common law solutions is also preferable to top-down administrative controls.43

Conclusion: Reasons for Optimism

In sum, attitudes matter as much as institutional factors in understanding what drives innovation and long-term growth, and there are reasons for optimism if policymakers embrace permissionless innovation as their default policy disposition.

Pessimists who predict permanent productivity and growth slowdown shouldn’t forget that “the rate of growth of productivity at the frontiers of knowledge is especially difficult to predict; and it is unwise to underestimate human ingenuity,” as Federal Reserve Vice Chairman Stanley Fischer noted in a recent speech.44 While “it is difficult to know exactly in which direction technological change will move and how significant it will be,” Joel Mokyr reminds us that, “something can be learned from the past, and it tells us that such pessimism is mistaken. The future of technology is likely to be bright.”45 Contra the belief that all the “low-hanging fruit” has already been picked, Mokyr notes that “we can also plant new trees that will grow fruits that no one today can imagine.”46

Getting the disposition right will be more important than ever with so many exciting-but potentially highly disruptive-technologies starting to emerge, including: the “sharing economy;”47 3D printing; the “Internet of Things” and wearable technology;48 digital medicine; virtual reality and augmented reality technologies; commercial drone services;49 autonomous vehicles;50 and various robotic technologies.51

Permissionless innovation can help spur the next great industrial revolution by unlocking amazing opportunities in these and other arenas, boosting long-term growth in the process.

1 Joel Mokyr, The Lever of Riches: Technological Creativity and Economic Progress (New York: Oxford University Press, 1990): 8-9.
2 For a listing and discussion of these and other factors, see: Robert D. Atkinson, “Understanding the U.S. National Innovation System,” Information Technology & Innovation Foundation, June 2014,
3 Michael Nelson, “Six Myths of Innovation Policy,” The European Institute, July 2013,, (“On Capitol Hill and in Brussels, there seems to be a belief that if only governments adopt the right tax policies, adequately fund R&D, enforce patents and copyrights, and support manufacturing, innovative, then start-ups will pop up everywhere and supercharge economic growth. Unfortunately, that misses an underlying problem: In many parts of the U.S. and Europe, innovation is not really welcome. It is misunderstood and even feared.”)
4 White House, “Notice of Request for Information: Strategy for American Innovation,” Federal Register, July 29, 2014,
5 Ibid.
6 Donald J. Boudreaux, “Deirdre McCloskey and Economists’ Ideas about Ideas,” Online Library of Liberty, July 2014,
7 Deirdre N. McCloskey, The Bourgeois Virtues: Ethics for an Age of Commerce (Chicago: The University of Chicago Press, 2006.)
8 Deirdre McCloskey, “Bourgeois Dignity: A Revolution in Rhetoric,” Cato Unbound, October 4, 2010,
9 Randall Holcombe, “Entrepreneurship and Economic Growth,” in The Quarterly Journal of Austrian Economics, Vol. 1, No. 2, (Summer 1998): 58,, (“When entrepreneurship is seen as the engine of growth, the emphasis shifts toward the creation of an environment within which opportunities for entrepreneurial activity are created, and successful entrepreneurship is rewarded.”)
10 Mokyr, Lever of Riches, at 182.
11 Mokyr, Lever of Riches, at 12. (“economic and social institutions have to encourage potential innovators by presenting them with the right incentive structure.”); Bret Swanson, “More disruption, please,” TechPolicyDaily, August 20, 2014,, (“To reignite economic growth, we need a broad commitment to an open economy and robust entrepreneurship.”)
12 Adam Thierer, Permissionless Innovation: The Continuing Case for Comprehensive Technological Freedom (Arlington, VA: Mercatus Center at George Mason University, 2014).
13 Ibid., at vii. Also see Adam Thierer, “Technopanics, Threat Inflation, and the Danger of an Information Technology Precautionary Principle,” Minnesota Journal of Law, Science & Technology, Vol. 14 (2013): 309-86,
14 Indur M. Goklany, The Precautionary Principle: A Critical Appraisal of Environmental Risk Assessment (Washington, DC: Cato Institute, 2001): 3.
15 Joshua C. Hall, John Pulito & Benjamin J. VanMetre, “Freedom and Entrepreneurship: New Evidence from the 50 States,” George Mason University, Working Paper, April 17, 2012,, (“There is a positive and statistically significant relationship between the level of economic freedom in a country and that country’s total entrepreneurial activity.”)
16See Bret Swanson, “The Exponential Internet,” Business Horizon Quarterly, (Spring 2014): 40-47,
17 Ibid., at 46. (“The entrepreneurship and investment that has sustained such fast growth for so long is due, in substantial part, to light-touch government policies (at least compared to other industries. … There have been mistakes, but for the most part, scientists, entrepreneurs, and big investors have been allowed to build new things, try new products, challenge the status quo, cooperate, and compete. They have also been allowed to fail.”) Also see Bret Swanson, “Long Live the Risk Takers,” Business Horizon Quarterly, Issue 8, (2013): 30,, (“failure is a core competency of capitalism and a key component of resilience. Wealth is about creating new ideas. New ideas can only emerge through experiments of science, technology, and enterprise, all of which must be capable of failure in order to generate newness. Failure flushes away bad ideas and points us toward good ones. The failures may at times harm individuals and waste resources-people lose jobs and investments can be lost. The larger effect, however, is to lift the economy to a higher plane of knowledge, efficiency, and resilience.)
18 White House, The Framework for Global Electronic Commerce, July 1997,
19 Adam Thierer, “15 Years On, President Clinton’s 5 Principles for Internet Policy Remain the Perfect Paradigm,” Forbes, February 12, 2012,
20 White House, Framework for Global Electronic Commerce. (The document added that, “parties should be able to enter into legitimate agreements to buy and sell products and services across the Internet with minimal government involvement or intervention… . Where governmental involvement is needed, its aim should be to support and enforce a predictable, minimalist, consistent and simple legal environment for commerce.”)
21 Ibid.
22 Maureen K. Ohlhausen, “The Internet of Things and the FTC: Does Innovation Require Intervention?” Remarks before the US Chamber of Commerce, Washington, D.C., October 18, 2013,
23 A study commissioned by the Direct Marketing Association, John Deighton of Harvard Business School and Peter Johnson of Columbia University found that data-driven marketing added $156 billion in revenue to the U.S. economy and fueled more than 675,000 jobs in 2012. See John Deighton & Peter A. Johnson, “The Value of Data: Consequences for Insight, Innovation & Efficiency in the U.S. Economy” (2013), Also, major reports from economic consultancies Gartner and McKinsey Global Institute have also documented significant consumer benefits from “big data” across multiple sectors. See Gartner, “Gartner Says Big Data Will Drive $28 Billion of IT Spending in 2012,” October 17, 2012,; James Manyika, Michael Chui, Brad Brown, Jacques Bughin, Richard Dobbs, Charles Roxburgh & Angela Hung Byers, “Big Data: The Next Frontier for Innovation, Competition, and Productivity,” McKinsey & Co., 97-106 (May 2011),
24 Brink Lindsey, “Why Growth Is Getting Harder,” Cato Institute Policy Analysis no. 737, October 8, 2013, at 14.
25 Harold Furchtgott-Roth & Jeffrey Li, “The Contribution of the Information, Communications, and Technology Sector to the Growth of U.S. Economy: 1997-2007,” Hudson Institute, Center for the Economics of the Internet, Research Paper, August 2014, (“For the years 1997-2002, we find the sector contributed 19% of measurable economic gross output growth, or more than 582 billion 2013 dollars. For the period 2002-2007, we find the sector contributed 9.3% of gross output growth, or more than 340 billion 2013 dollars.”)
26 Richard Florida, “The Troubling Decline of American Business Dynamism,” The Atlantic City Lab, July 31, 2014,
27 Ryan Decker, John Haltiwanger, Ron Jarmin & Javier Miranda, “The Role of Entrepreneurship in US Job Creation and Economic Dynamism,” Journal of Economic Perspectives, Vol. 28, No. 3, (Summer 2014): 4,
28 Robert J. Samuelson, “Where have all the entrepreneurs gone?” Washington Post, August 6, 2014,
29 Ian Hathaway & Robert E. Litan, “Declining Business Dynamism in the United States: A Look at States and Metros,” Brookings Institution, Economic Studies at Brookings (May 2014),
30 Ian Hathaway & Robert E. Litan, “The Other Aging of America: The Increasing Dominance of Older Firms,” Brookings Institution, Economic Studies at Brookings (July 2014),
31 Quoted in Rick Newman, “What Obama gets wrong about corporate America,” Yahoo Finance, August 4, 2014,
32 Lindsey, “Why Growth Is Getting Harder,” at 18.
33 Also see: Steven Globerman & George Georgopoulos, “Regulation and the International Competiveness of the U.S. Economy,” Mercatus Center at George Mason University, Working Paper, September 18, 2012, at 4,
34 Jason J. Fichtner and Jakina R. Debnam, “Reducing Debt and Other Measures for Improving U.S. Competitiveness,” Mercatus Center at George Mason University, Working Paper, November 13, 2012,, (“Regulations have been historically biased toward existing technologies and increasing regulatory burdens on new entrants to a sector. This negatively impacts growth, and increases prices for consumers.”)
35 Quoted in Robert J. Samuelson, “Where have all the entrepreneurs gone?”
36 Hathaway & Litan, “Declining Business Dynamism,” at 1.
37 Chiara Criscuolo, Peter N. Gal & Carlo Menon, “DynEmp: New cross-country evidence on the role of young firms in job creation, growth, and innovation,” Vox, May 26, 2014,
38 Maureen K. Ohlhausen, “The Internet of Things and the FTC: Does Innovation Require Intervention?”
39 Sherzod Abdukadirov, “Evaluating Regulatory Reforms: Lessons for Future Reforms,” Mercatus Center at George Mason University, Working Paper, May 29, 2014,; Joshua C. Hall & Michael Williams, “A Process for Cleaning Up Federal Regulations,” Mercatus Center at George Mason University, Working Paper, December 20, 2012,
40 Richard Epstein, “Can Technological Innovation Survive Government Regulation?” Harvard Journal of Law & Public Policy, Vol. 36, No. 1, (Winter 2013),, (“What is at stake in this area is nothing less than the question of how to preserve technical innovation in the face of wall‐to‐wall regulation. The prognosis is grim. Unless we reform agencies like the FDA and their procedures and operations, this country will suffer from a long‐term drag on innovation that could, if the trend is not abated, lead to long‐term mediocrity, as inventors and scientists flee our shores for friendlier environments. The pace of regulation is one of the central issues of our time.”)
41 Adam Thierer, “Sunsetting Technology Regulation: Applying Moore’s Law to Washington,” Forbes, March 25, 2012,; Patrick McLaughlin, “A Solution to the Old Rules vs. New Tech Problem,” The Hill, July 8, 2014,
42See Susan E. Dudley and Jerry Brito, Regulation: A Primer, 2nd ed. (Arlington, VA: Mercatus Center at George Mason University, 2012).
43See Thierer, Permissionless Innovation, at 74-78.
44 Stanley Fischer, “The Great Recession-Moving Ahead,” a conference sponsored by the Swedish Ministry of Finance, Stockholm, Sweden, August 11, 2014,
45 Joel Mokyr, “The Next Age of Invention,” City Journal, Winter 2014,
46 Ibid.
47 Adam Thierer, “The Debate over the Sharing Economy: Talking Points & Recommended Reading,” Technology Liberation Front, September 26, 2014,
48 Adam Thierer, “Slide Presentation: Policy Issues Surrounding the Internet of Things & Wearable Technology,” Technology Liberation Front, September 12, 2014,
49 Jerry Brito, Eli Dourado and Adam Thierer, “Federal Aviation Administration: Unmanned Aircraft System Test Site Program Docket No: FAA-2013-0061” (Public Interest Comment, Mercatus Center at George Mason University, Arlington, VA, April 23, 2013),; Eli Dourado, “The Next Internet-Like Platform for Innovation? Airspace. (Think Drones),” Wired, April 23, 2013, Adam Thierer, “Filing to FAA on Drones & ‘Model Aircraft’,” Technology Liberation Front, September 23, 2014,
50 Adam Thierer and Ryan Hagemann, “Removing Roadblocks to Intelligent Vehicles and Driverless Cars,” Mercatus Center at George Mason University, Working Paper, September 17, 2014,
51 Adam Thierer, “Problems with Precautionary Principle-Minded Tech Regulation & a Federal Robotics Commission,” Medium, September 22, 2014,

The opinions expressed here are solely those of the author and do not necessarily reflect the views of the Cato Institute. This essay was prepared as part of a special Cato online forum on reviving economic growth.

Adam Thierer is a senior research fellow at the Mercatus Center, George Mason University and author of Permissionless Innovation: The Continuing Case for Comprehensive Technological Freedom (2014).