Lowering regulatory barriers for startups in exchange for access to data?

Nick Grossmann posted this very interesting piece: “Here’s the solution to the Uber and Airbnb problems — and no one will like it” that’s full of points worth discussing. I don’t want to butcher his arguments or put words in his mouth, so please do read it. It isn’t long, and worth the read. And while you’re at it, I also recommend skimming Kim-Mai Cutler’s piece (also linked from Nick’s post) “Uber, Airbnb And The Conflict Between Policy’s Ratchet Effect And Tech’s Accelerating Speed“.

These are just two articles that tackle one of the huge, intricate, complex issues of our days: How regulation can keep up with the speed and scale of tech companies; How we can harness this speed without giving up hardwon freedoms and societal benefits; and a ton of other related, much more nuanced questions.

Or as Nick puts it:

This is yet another very early round in what will be a long and hard war — not just between Uber and NYC, or Uber and other cities, but between every high-growth startup innovating in a regulated sector and every regulator and lawmaker overseeing those sectors.

Part of this debate is a fairly straightforward one of ideology: Where on the liberal vs strong-state spectrum do you fall personally? This is a questions of philosophy rather than fact, so hard to “solve” but important to acknowledge.

That said, there are a few elements in Nick’s post that I’d like to comment on by way of reflection, and Nick’s article is just eloquently written so it’s a great backdrop for my reflections.

Exchange data for lower barriers to entry?

Nick proposes a model where the requirement to meet regulation upfront, that creates a high barrier to entry, is swapped out for a model that lowers the barrier to entry in exchange for access to data (meaning government gets access to startup data):

Rather than seek onerous up-front permission to onboard, users onboard easily, but are then held to strict accountability through the data about their actions

This is certainly an interesting point worth discussing. Especially since we certainly see that historically, regulators have had a hard time dealing with – let alone embracing – new technologies, especially if it moves and scales as fast as the internet.

So revisiting existing regulatory systems, and asking which aspects of them might still make sense and which ones are just there through systemic corruption (in the sense that Larry Lessig uses the term), which parts just foster rent-seeking behavior over societally beneficial and/or innovative changes.

However, the debate about deregulation, especially in the more neoliberal tradition of the Silicon Valley sense (Californian Ideology, anyone?), tends to focus on the relationship between startup and government. And I think it is very useful (and in fact, absolutely essential) to also consider that a lot of regulation comes from a place of protecting consumers and employees, as well as third parties – in other words: Regulation often focuses not on the relation between startup and government, but exactly on all other relationships at play, in a much more systemic manner.

Back to Nick, and the historic perspective on why it might make sense to revisit the “traditional” model of regulation:

The reason for this makes lots of sense: when today’s regulations were designed (largely at the beginning of the progressive era in the early 20th century), we didn’t have access to real-time data. So the only feasible approach was to build high barriers to entry. Today, things are different. We have data, lots of it. In the case of the relationship between web platforms (companies) and their users, we are leveraging that data to introduce a regulatory regime of data-driven accountability.

Now, I don’t fully buy the implication that it was an intention to create high barriers to entry but that that might be simply a collateral of a regulatory framework growing more dense over time. That said, the point Nick makes here is excellent: We now have all that more-or-less real time data. What can we do with it? Can it be used to revisit and reshape the regulatory process and framework? If so, how?

An obvious question to explore would be how government and governance processes would need to change.

But it’s the part about introducing a regulatory regime of data-driven accountability that strikes me as genuinely fascinating and worth exploring. Could this work? What could it look like? There’s certainly something there, something big, some shape in the fog we should explore and figure out.

For now, though, especially in this concrete example where the case number is n=2, this isn’t the main point, is it? Rather, here the question at hand might be more: How do we treat startups in the big picture?

And here I’m going to go on a bit of a tangential rant, if you’ll forgive me; and I hasten to add that this goes way beyond Nick’s and Kim-Mai’s arguments, and much more into the territory of conversations we have in the industry all the time:

First, I don’t believe that startups should get a lot of special treatment in this particular scenario. Rather, everybody should play by the same rules, otherwise we’re all screwed. Just because a business chooses to manifest in the shape of “startup” rather than “life style business” or, y’know, just “business” shouldn’t give carte blanche to ignore laws, regulations, responsibilities. Already startups can get away with a lot of things no other business could: Not following through with promises to existing customers because of pivots. Ignoring (often with full consent by the staff) workplace setup and work time regulations, etc. And I don’t even want to condemn this – as long as everybody consents, it’s mostly all good. But startups already have a lot of leeway in the way they operate, do they really need more?

Second, how would stricter (data driven or not) accountability for startups be enforceable? If something big (metaphorically speaking) blows up and/or creates huge external costs (like, or much larger than, the alleged side effects of Uber increasing Manhattan car traffic by 7 percent, or Airbnb contributing significantly to residential housing shortage (for context, again, jump on ofer to Kim-Mai Cutler)) – there’s no realistic chance that the startup that caused this (hypothetical) mess would be able to really take responsibility. They might collapse under the sudden financial burden and go belly up; but at that point the damage would be done and the victims, whoever they might be, would not be helped in any meaningful way at all.

Let me be very clear: I’m not shooting down the idea of data-driven accountability – in fact I can’t wait to dig more into this. It’s a fascinating approach. I’m just not convinced that in the cases discussed here it would meaningfully change anything: If a company chooses to unilaterally ignore regulation upfront, I don’t see how it would not do the same for later regulations in the shape of data-driven accountability, too.

Or to jump back to Kim-Mai Cutler’s piece once more:

“There’s a real difference of ideology here,” said a source close to De Blasio’s impact study. “You have a company that believes that the free market will essentially correct any negative externalities. What if there are so many drivers that nobody can make a living or that there are so many drivers and vehicles that we have unbearable congestion? There is a world in which Uber is still making money while our traffic moves at five miles per hour.”

And that’s what it boils down to, isn’t it? A question of ideology/philosophy. I, for one, think any business, startup or not, should play by the rules – it’s legit to work towards changing them (as long as you play fair), but as long as the rules are in place, we should all play by them. And maybe, just maybe, even go the extra mile of taking on a socially responsible position beyond the text of the law.

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