Regulators have never exactly been the friends of small business.
In fact, the more highly regulated an industry, the more commonly it's considered inefficient. More regulation means added bureaucracy, and added bureaucracy means inefficiency. Inefficiency hurts a business's bottom line.
In recent decades, it's been rare to see a company plow into any extraordinarily regulated industry with expectations of skyrocketing growth. In finance, health care, mass transportation, travel, and hospitality, breaking in hasn't been seen as something a college student hacking out of a scrappy startup incubator can do. Rather it's something a wealthy, well-structured, perhaps equity-backed corporation, willing to hire lobbyists and a staff of compliance specialists, can do.
That tide changed about five years ago. It was still the early days of the second San Francisco startup boom, but already a little company comprised of three friends wanting to facilitate people renting out their couches and extra rooms had gone through alpha-startup-accelerator Y Combinator and started amassing outside funding. A Cornell hospitality student was rethinking ride-sharing, and building a service, called Zimride, to allow students to efficiently carpool. And two serial founders, after joking about making their cab rides home from big nights out "classier," hacked together a sort of dial-a-limo service for their friends.
Right around 2010, something collectively seems to have clicked. The idea of software having the ability to "eat" established industries was becoming well accepted in Silicon Valley, and started worming its way into the broader zeitgeist. Entrepreneur and venture capitalist Mark Andreessen would soon write in the Wall Street Journal, in a piece called "Why Software Is Eating the World," that "with lower start-up costs and a vastly expanded market for online services, the result is a global economy that for the first time will be fully digitally wired--the dream of every cyber-visionary of the early 1990s, finally delivered, a full generation later."
These aforementioned young men may not have intended at the start to take on huge, established, intensely regulated industries. But--with the help of lots of advisors and huge amounts of venture-capital funding--they did. These companies are now Airbnb, Lyft, and Uber. They are precisely the companies that butted up against--and now are either fighting or ignoring--countless regulations around the globe, to the point that they are known for this particular new brand of antiestablishment audacity.
There are plenty of other fast-growing startups entering high-regulation markets. And plenty are having trouble surviving. Sidecar and Hailo--competitors to Uber and Lyft, with slightly tweaked business models--have found global expansion difficult. A whole slew of health-care and health-insurance startups have floundered. This makes it all the more remarkable that Uber is currently valued at roughly $40 billion, and Airbnb is valued at about $13 billion.
They hardly seem like underdogs anymore. (And they know it: At a large startup celebration just this past week, Uber founder Travis Kalanick acknowledged that his now-massive company may no longer qualify as a "startup.") It's unfortunate that they are the centerpiece of a lot of our thinking these days about how regulators work with--or don't work with--small companies. Earlier this week in Fusion, Felix Salmon, urging for a global technology-regulation overhaul, used them as prime examples, and wrote:
We're long overdue for a regulatory revolution. It won't come from Silicon Valley, home to techno-libertarians like Thiel, who see all regulation as unwarranted meddling in private affairs. It might well, on the other hand, be born in Europe, which has long since realized that a lot of regulation belongs one level up from the nation-state. If there is to be any effective regulation of global technologies, from genome engineering to Google, it's going to have to take place at a supra-national level. Indeed, what we really need, to borrow a concept from Silicon Valley, is a global regulatory platform.
But what if every city, state and country were able to compile its regulations on a global regulatory platform? At that point, a company which complied with one set of regulations would automatically be deemed to be in compliance with identical regulations in all other jurisdictions. And a huge part of any company's regulatory headaches would disappear.
My hope for the next few years, then, is that we see a regulatory revolution commensurate with the technological revolution that is going to happen anyway. There are lots of governments and organizations which should at least be talking about such a thing, including the UN, EU, US, G-20, and many others. The idea would not in the first instance be to build a massive new global bureaucracy, but rather just to build an extensible platform which existing regulators could plug into.
In this new world, sharing-economy companies like Uber and Airbnb could be regulated sensibly, in a way that recognized their global clout without trying to make them fit into 20th-Century structures. Both companies, I'm sure, would be ecstatic to be able to work within a single global regulatory regime. They could agree to do things like collect local taxes, comply with privacy regulations, and have clearly-defined avenues for redress when things go wrong. Uber could implement externally-defined vetting requirements for its drivers, and agree to rules surrounding the registration and ownership of the cars they drive; Airbnb could agree to a maximum number of homes that could be rented out by any one individual.
It's a pipe dream. A fairly worthy pipe dream, but a pipe dream.
He's essentially arguing that regulators, by building a single, global, regulatory platform, can speak to the new wave of technologists on their level. But in order to do this, they can't fake it: they need to actually exist on the same level--with access to the same concerns and the same information--as the technologists.
But politics, like academia, moves slowly. It has always been populated by the elder gentlemen of society--and, sure, read that as largely older white men, in the case of the modern United States.
Early in his piece, Salmon notes the apt, tongue-in-cheek, set of rules proposed by Hitchhiker's Guide to the Galaxy author Douglas Adams, including that "Anything that's invented between when you're 15 and 35 is new and exciting and revolutionary and you can probably get a career in it," and that "anything invented after you're 35 is against the natural order of things."
The youngest U.S. Senator is 37 years old. (That would be Tom Cotton, a Republican from Arkansas.) More than half are older than 60. The U.S. House of Representatives is only slightly greener: Nine members are currently younger than 35. More than four times that number are in their 70s or 80s.
It's not numbers alone that make a flexible global regulatory platform impossible. It's the scope of regulations Salmon is proposing that makes the concept itself border on absurd. There's no replacement for local regulatory measures (say, you could at one time Uber a motorcycle on Paris's tiny, urban corridors, but not on Milwaukee's massive highways) by global fiat.
Salmon's original scope of argument is solid--he essentially is saying that it's unsafe and a little crazy that no international body has regulatory authority over ethical issues involving artificial intelligence or genetic engineering. And these are important issues. But bringing in some of the fastest growing companies ever, and using them as examples of regulatory areas that could be eased by a single world regulatory platform, is neither helpful, nor necessary.
Remember, after all, we are still in a time when most Airbnb listings in New York City are illegal, as Salmon points out. And is Airbnb pulling out of the business? Far from it. If one of the biggest hospitality markets in the world can't effectively regulate those three friends renting an air mattress, who's to say they'd listen to the One World Government, should it magically appear?