Fernando Fischmann

Uber, Permits And SF Self-Driving Cars – There Must Be Space For Innovation To Occur In

20 December, 2016 / Articles

Uber is testing its self-driving cars in San Francisco, San Francisco and the state of California are demanding that they stop. This wouldn’t normally be something for an economics column except that it’s a neat example of the way in which the modern economy is so grossly over-regulated. That then has horrible knock-on effects upon innovation, thus productivity increases and so how rich the future is going to be. What is being missed here by the system of regulation is that a free market economy works by allowing people to experiment. That’s just how we find out what works, what combinations of technologies manage to meet some human need? And if we drape the ability to so experiment with regulations, permits and permissions, then we’re at best going to slow down the process and thus delay that greater wealth stemming from the improvements. And it’s possible to make the argument that this is at least part of the story behind the slow productivity growth of recent years. Indeed I would make that case, I’d say it’s certainly part of it.

But this is the situation we’re in:

Uber is at it again. The company, famous (or notorious, depending on your point of view) for flouting regulations as it built its disruptive, multi-billion-dollar business, rolled out a fleet of autonomous cars in San Francisco this week despite an explicit warning from the Department of Motor Vehicles that testing on public roads was illegal without a permit.

DMV may have said that but it’s not entirely obvious that it is true:

The dispute centers over the definition of autonomous. California defines autonomous vehicles as having technology capable of “operating or driving the vehicle without active physical control or monitoring of a natural person.” The California DMV believes Uber’s cars are equipped with technology that allows them to operate autonomously, regardless if someone is in the driver seat.

Uber’s Mr. Levandowski likened its vehicles, retrofitted Volvo XC90s, to Tesla Motors Inc.’s “autopilot” feature, which can take over some steering functions from the driver when activated but shouldn’t be entirely relied upon. Mr. Levandowski argued that if Tesla’s technology doesn’t require the permit, nor should Uber’s.

It’ll be interesting to see how that pans out but that’s not my point today.

The DMV cease-and-desist letter said that under the California Vehicle Code, an autonomous vehicle must have a permit to ensure that “those testing the vehicle have provided an adequate level of financial responsibility, have adequately trained qualified test drivers on the safe operation of the autonomous technology; and will notify the DMV when the vehicles have been involved in a collision.”

If it’s not an autonomous vehicle in that sense then perhaps it doesn’t need to have all of those things? But again, that’s not really the point at issue here for me. What is is the basic process of innovation and thus productivity rises.

There are two ways that we can all become richer. The first is that we simply use more resources. More energy, more people, dig up more iron, more cement and just build more. OK, that does make us richer. That’s also the only method of economic improvement that the Soviets managed over the 70 odd year lifespan of their economy. Over the same period the market based economies were doing that and also growing total factor productivity. This is really just learning how to create more value out of the same resources. Could be that we create something new of higher value, could be we just work out how to make more of the same from those same resources. And this is the secret about why the market economies were and are so much richer than the non-market ones. We do this tfp improvement, they don’t.

We also know, in logical terms, where this tfp improvement comes from. Technology is a moveable feast, it changes over time. We need some method of testing through what we can create that people want at each stage of that changing technology. Absolutely no point at all in inventing the mobile phone in 1930, the rest of the technological base wasn’t ready for it. Later it’s produced quite a boost in living standards. OK, that’s great, but at the heart of this is that we’ve got to have the experimentation of the available technological space. And it isn’t what can we do alone, it’s also trying to explore what people want done. Many could see that mobile phones were going to be useful but who knew that billions of people wanted to send cat pictures to each other?

Which is where the regulatory structure becomes important. We need to leave the space for that experimentation to happen. We cannot have a society in which it is necessary to get a licence to do anything or something. Cannot allow the bureaucracy to insist that we may only do what they permit. Because this is the whole point of the free market process, trying to find out what can be done. And do note that if a bureaucracy could do that then the Soviet system would have worked.

Do note that I am not trying to insist that there should be no regulation. I’m just fine with the idea that a car driving on the streets should have insurance, that it will report accidents. But then we already have those things–you must have insurance and if you have an accident then that’s a police matter. So we’ve got those rules already, for all cars on the streets. Which is exactly as it should be. It’s just fine to have some over-arching set of rules like that. “All X will be Y” is not our problem. It’s when we start to say that if you’re doing X in a manner that is new or different then you’ve got to get that special permit that is the problem. Because we’ve just dragged our moment of potential innovation into the maw of the bureaucracy.

We also need to note one more thing about this innovation and productivity increases. Sure, this isn’t the case here, Uber is a large company, but we do know that most innovation comes from new companies, from start ups. Exactly the people that we shouldn’t be burdening with the bureaucracy.

So, to repeat, the most important thing for the future wealth of the country, of our children, is that there is continued innovation and thus productivity rises. That means that we’ve got to leave people the space to do the experimentation which leads to those things. Get the bureaucracy, the permit demanders, entirely out of the system otherwise we’ll be condemned, for yet more years, to the slow growth of recent times.

The science man and innovator, Fernando Fischmann, founder of Crystal Lagoons, recommends this article.



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