Deep Dive Episode 51 – Emerging Tech and Regulation
This Deep Dive episode brings you the audio from the final panel at the Pepperdine Law Review’s 2019 Symposium “Regulating Tech: Present Challenges and Possible Solutions”. In this panel, leading thinkers from across the emerging tech space discuss the regulatory environment for everything from drones to autonomous vehicles.
Operator: Welcome to Free Lunch, the podcast of The Federalist Society’s Regulatory Transparency Project. All expressions of opinion are those of the speakers. On March 1st, RTP cosponsored a symposium at Pepperdine Law School with Pepperdine Law Review titled Regulating Tech: Present Challenges and Possible Solutions. On today’s show, we bring you Panel 3, which was titled “Emerging Technology and Regulation.” We hope you enjoy it.
Prof. Gregory McNeal: Good afternoon, and welcome back to our third and final panel of this symposium. This panel is our Emerging Technology panel. I’m Greg McNeal. I’m a professor here at the law school. I’m also, just a little side trivia tidbit, I’m also the co-founder of a technology startup, a software company. So this is a topic that’s near and dear to my heart, emerging technology and the regulation of emerging technology.
We’ve got a great final panel of experts assembled for you here. Our experts include individuals with a background in autonomous vehicles, drones, smart cities, robotics, artificial intelligence, air taxis — there’s just a great ton of knowledge up here. And hopefully, we’ll be able to address all of those topics in the time that we have. Can we hit on all of those topics, guys?
And so let me introduce each of our panelists. From my left, your — we’ll just go from here that way, so I don’t have to figure out right to left. First is Bill Goodwin, Head of Policy, Regulatory, and Legal at Skyryse. He previously served as the Head of Legal and Policy at AirMap, a startup that I’m familiar with. That startup powers the future of low-altitude flight. Prior to joining AirMap, he was an attorney at an international law firm, Morrison and Foerster, and a member of the firm’s Unmanned Aircraft Systems Practice Group where he counseled clients regarding some of the unique product liability, licensing, and regulatory risks that arise in the drone context.
To his right, your left, is Ryan Hagemann, Senior Fellow at the Niskanen Center. Ryan previously served as Senior Director for Policy there. His research specialties include regulatory governance of emerging technologies, robotics and automation, privacy and surveillance, and issues at the intersection of sociology, economics, and technology.
To his right is Brooks Rainwater, Senior Executive and Director of the Center for City Solutions at the National League of Cities, one of my favorite organizations, actually. I really love the National League of Cities. I think they do great work. If you ever want to get involved in sort of interesting matters related to municipal policy, you should just check out the stuff that the National League of Cities does. They do amazing things throughout the country. And so Brooks works also within, and I’ll say at the Center for City Solutions. He drives the organization’s research agenda, community engagement efforts, and leadership education program to help city leaders create strong local economies, safe and vibrant neighborhoods, world-class infrastructure, and a sustainable environment.
And finally is Caleb Watney. Caleb is a Fellow at R Street Institute, leading projects on emerging technologies, including autonomous vehicles, artificial intelligence, drones, and robotics. In this role, he regularly meets with policymakers, files regulatory comments, writes op-ed pieces, and manages a monthly technology policy working group. I don’t know — if you’re anything like me and you’re a law student sitting there, I would be sitting there being like, “Those are the jobs I want to do. That sounds really cool.” But I’m a policy geek, so that’s just how I’m going to geek out.
Anyway, so the way the panel is going to go is in the exact same order that I introduced them, so we’ll start off with Mr. Bill Goodwin. Go ahead, Bill.
William Goodwin: Thanks, Greg. I appreciate the opportunity to be here, obviously, with such an interesting group of folks. I was a little bit dismayed as a sometime colleague of Greg’s at AirMap that he was so much more enthusiastic about Brooks than he was about me.
But that’s okay because we are former coworkers.
Prof. Gregory McNeal: That was intended.
William Goodwin: Yeah, so I actually am not an academic, obviously. I work in-house as in-house legal at AirMap, in-house legal now in policy at Skyryse. And for those of you who haven’t had the great blessing of being an in-house lawyer, you learn very quickly that your brain is effectively atomized, and you learn only to speak in slides. So of course, I have some slides that are very crude that will help guide my comments. And just to make sure that we don’t get lost along in these slides, we also have an agenda, which is, of course, what you need for any good meeting in a business context. And that’s where we’ll start.
So first on the agenda is the introduction, which I’m doing now, but I want to make sure we didn’t miss it. But I wanted to provide a quick snapshot of what I’ll chat about, then do an issue-spotting exercise, which I think will be particularly fun, hopefully, for the law students in the room, and then talk a little bit about the impacts of emerging technology on places specifically. So I’ll just narrow the scope of the emerging tech that I’m interested in, do a quick case study on aviation drones, and then come up with a recommendation that I have for how emerging technology should be regulated. And then in the remaining 90 seconds, the remainder of the panelists can give their remarks. So it’ll be perfect.
So before we get to the issue-spotting, just a quick introduction. The thesis that I’d like to advance is that emerging technology, specifically when it engages places and influences where we live, or move, or find our being, has a unique obligation that it imposes on the technology companies, one that they have largely abdicated today. But as we move from a world where software can largely operate independently of the physical environments that are ultimately affected to a world where the software innovations move into heavily entrenched, heavily regulated industries like we’ve seen in the transportation space in a variety of disruptive technologies, and we’re seeing across a lot of heavy, industrialized companies across various types of industries, the obligation will shift in a dramatic way on those companies to account for the impacts they have on the places where they operate. So that’s my attempt at a grand, overarching thesis.
The issue-spotting exercise, I think, should be fun. I’m not going to attempt a video, but for context, these two pictures come from a video from a major manufacturer—I don’t see exactly who, though. It probably is clearly indicated there—who has a particular viewpoint on the future of transportation. In this particular case, there is a pod that’s being lifted by a drone. Those two things are intended to be independently operable. And it’s picking someone up off a golf course. So very quickly, this drone, a human-sized drone, has been summoned to a golf course to pick up an affluent gentleman.
Can anyone spot any immediate issues that this might raise? Feel free to call them out.
Audience Member 1: Golf balls hitting drones.
William Goodwin: Golf balls hitting drones. That’s actually the first time anyone has called that out specifically, but I’m really glad you did because then I don’t have to call it out. He literally summoned his flying drone to a golf course where people actually drive small objects like could get sucked into rotors hundreds and hundreds of yards, oftentimes without the courtesy of yelling, “Fore!” Any other key considerations? Yeah, in the back.
Audience Member 2: Well, there are rules with airspace and, thereby, who controls the airspace around the golf course.
William Goodwin: I love it. I love it. Fast-forwarding to the end. Who does own the airspace? We’re no longer operating at 10,000 feet or 30,000 feet where there are clear federal rules that govern how flying things should operate and who manages them. We are in a golf course where, already as we’ve determined, they’re accustomed to a certain amount of airspace management; typically, for small round objects, but air space management, nonetheless. And they probably have a perspective as to whether or not they own their airspace.
We’ll jump ahead to another picture that’ll be useful for the issue-spotting exercise. I love this snapshot. So anyone want to call out issues that might crop up in this context here that are of unique — and I should say, we’re looking for issues that are of uniquely state and local concern. And I totally missed this in my introductory remarks, but I think what we’re trying to discuss here is the relevant level for adjudicating disputes or regulating these types of emerging technologies. Sure.
Audience Member 3: Noise.
William Goodwin: Noise, right there. Not just the noise of the aircraft to the people underneath it, but look at the altitude of that vehicle. It is sufficiently lower than the top of what have to be $3 million penthouse suites. I mean, I’ve just been scrutinizing the New York rental market recently, so those have got to be very expensive places. And I’m pretty sure the noise issues are going to be significant once you get down to the level where these people are operating. Any other issues that folks want to call out?
Audience Member 4: Privacy.
William Goodwin: Privacy. That is a fantastic one. Again, look at the all-glass walls on those penthouse suites. I’m pretty sure that there isn’t a very efficient federal regime to govern condo complaints when someone says they are firmly convicted that the guy in his flying car is operating very slowly right around bath time in the evening next to their condo. That just doesn’t sound like something that the FAA’s well equipped to handle when it comes to deciding whether or not there’s a privacy concern. Any other issues that folks want to flag? Sure.
Audience Member 5: Well, if I can actually go back to the prior slide…
William Goodwin: Sure.
Audience Member 5: One issue that came to my mind was you talked about air space, but what about the ground space, the real estate. Is it trespassing? Is there a license that’s required?
William Goodwin: Beautiful. I love it. I love it. That also applies in the, usually — in the next image, I use that to say where is this thing going to land because all these issues come into question. And that, actually, is a perfect transition. Once you get down to the ground, there’s a world of police powers that exist. There’s a lot of case law, actually, around takeoff and landing. There’s civic ordinances, and then there’s a host of other laws that come into play. Noise ordinances are actually in place in every major city in and around the world. There are regimes for adjudicating disputes about all sorts of different issues.
But just a fun flag I would throw out there at the end: Think about how boring this guy must be that he’s customized his notifications to make sure that the city planning department will be able to notify him about a bike path that he’s never going to go on because he’s in a flying car. I just love that. You’ve got to imagine that some designer thought that was a great thing to add to this video. So I think what I’m trying to get at is that the impacts of a lot of emerging technologies that we’re seeing that affect us where we live and where we move aren’t necessarily local and the types of impacts that have to be adjudicated at a local level, the disputes that are going to arise, the rules that want to promulgate, the types of ways we want to think about how these technologies should impact us.
And another great way of thinking about that besides flying cars is a quick snapshot of what life is like when you have bike-sharing gone horribly wrong. This is one of — I’m sure folks have seen these circulating on the internet. There was a surge in China in particular, but in a variety of different municipalities antedating the scooter craze, where folks realized you could slap a GPS device that had connectivity on a bicycle, and all of a sudden, you could share bikes everywhere. The markets were massively saturated.
Cities across China were significantly disrupted, even though they already were accustomed to having lots of bicycle traffic. And you had somewhat dystopian scenes like this with civic authorities impounding bikes by the tens of thousands and creating these bike monsters, which I think is, again, just intended to give you a visceral illustration of where this impact is felt. This impact is felt at the city level, and necessarily so because of the nature of the technology. This picture is intended to give us a sense of how quickly our city and landscape could be impacted by these technologies.
Nuro, a company that I love, decided that autonomous cars are way too tricky. They’re going to have autonomous delivery robots that will bring you groceries to your door. Right now, they have a single partnership with Kroger that is operational in, I believe, three neighborhoods around Phoenix, might be Tempe. They just raised a billion dollars. So they’re going from impacting three neighborhoods to likely a very dramatic impact on cities in and around the United States, and possibly around the world. And the scale and the pace at which these devices are going to impact the places where we live is going to be enormous. And the capacity for that change hitting communities very quickly is really limited only by the availability of capital.
I’ll skip to the end here to give everybody else a lot of time, but I do love this particular image because it illustrates the nature of even less disruptive technologies and how you have to recognize who’s going to be encountering them. This is a real, non-staged image. Those are Starship robotics delivery bots, so a smaller version of the Nuro bots that I showed on the previous slide. What I love about this is that these are relatively small, but they are also just small enough to be below knee height on a senior citizen who clearly does not think that they are necessarily adding a lot of value to his life.
However, these robots are operating at scale at George Mason University today. There’s a pilot, and they’re serving tens of thousands of people fresh, piping hot burritos, or whatever it is that they put inside those tiny robots. So don’t underestimate the pace at which these technologies will start to impact the places where we are, and then try to remember these images when you think about the nature of the impacts on folks.
So we’ll skip largely through the case study in aviation except to say if you don’t arm communities with the tools and the regulatory responsibility to embrace and welcome new technologies, you end up in a familiar story. Does anyone know what this is a picture of, besides Greg? San Francisco, yes. And what do you think the pins represent? There’s a tipoff because it’s aviation. They’re heliports.
As we all know, when you go to San Francisco, the most dominant feature of the skyline is the ubiquitous helicopters that fly all over the Bay Area. Everyone remembers that. You’re singing Tony Bennett up there on Nob Hill, and then there’s a couple dozen helicopters in transit, right? No. There are heliports everywhere, and there are no helicopters operating in San Francisco. Why? Because the communities in which those helicopters could have operated shut them all down.
So the physical infrastructure is there, the places to take off and land are there, the technology, in this case, a 50, 60, 70-year-old technology, cannot operate. And this is the future that we’re much more likely to see if we don’t empower communities to welcome technology and address and mitigate the real negative externalities that happen, as opposed to advocating for a simplistic federal homogeneity for emerging tech.
And then I think we can probably skip to the end, but — oh, one last great number. Anybody have any ideas what 40,000 and 1.1 could possibly represent? This is a totally meaningless number, of course, to anyone, but if you guess this, I will actually give you 100 bucks. Yeah?
Audience Member 6: For every 40,000 people, there’s going to be 1.1 robots?
William Goodwin: Oh, I love that. No, that’s the best example that someone came up with. No, 40,000 on the left-hand side represents the number of flights that the national airspace sees on a daily basis, at least commercial aviation. Obviously, we’re not necessarily counting every general aviation flight. That’s 40,000 flights. There are millions of people that are flying around on a daily basis. Huge, huge. That’s a multi-, multi-billion-dollar industry.
The 1.1, on the other hand, is the Department of Transportation’s estimate of the number of billions of car trips that happen per day. So just think about the relative scale of those two industries. And then that 1.1 number doesn’t count, for instance, the number of scooter trips or bike trips, or the other types of transportation that operate at a radically different scale than you see traditional aviation. And that happens in a framework that is overwhelmingly dictated and governed by local authorities, for good and for ill. I don’t want to claim that every local authority has the most enlightened response to scooters arriving, or Nuro, or Starship robotics cool delivery robots.
However, I do know that notwithstanding the challenges of operating in a heterodox regulatory environment that is dictated sometimes even down at a block-by-block level, cars operate at a scale that massively exceeds what you see in aviation, massively. And they do it, even though when you’re in that plane flying in your unfiltered airspace 30,000 feet up, if you look down, it looks like a horrifying patchwork quilt of private property rights, speed limits, curb restrictions, the types of things that are only going to continue to grow as cities’ ability to articulate and capture the preferences of the people that live there and impose those preferences on the people who are driving and operating there.
Notwithstanding all those facts, the scale of these industries is — they’re not commensurate at all, and the scale of growth is not commensurate at all, which is why you can see scooter companies and other transportation companies explode into being and operate at millions and millions of rides within a year of being as a category, as a class, whereas it takes decades in order to bring innovation, including safety and more efficient operations, into areas that operate within relative homogeneity at the federal level.
And I think that’s the end of it, but yes, so the solution that I’ll just leave everyone with is regulatory sandboxes, which in some cases are literally sandboxes. This is a picture of Arizona, and there are folks in Arizona doing great work trying to create regulatory sandboxes to allow emerging technologies to thrive. So the work that the State AG’s Department and Solicitor General’s Office have done in Arizona has allowed fintech, for instance, to experiment with new technologies that otherwise the FCC wouldn’t have allowed to exist.
Similarly, Arizona is a hotbed where millions of miles have been driven for autonomous cars. Unlike, for instance, in an industry that is largely governed by federal authority drones, people measure their successes by literally single flights saying, “We did an individual flight that went beyond line of sight,” and people cheer, whereas companies like Waymo actually talk about transiting, going millions of miles autonomously, not disengaging.
Again, this scale is not in any way commensurate. I think it should suggest to us that the regulatory sandboxing model, a federalist model, is one that will help emerging technologies thrive, and come into being, and scale much more effectively and much more efficiently than a federal model. I think that’s it. There you go.
Ryan Hagemann: Hello, everyone. Sorry to let you down if you’re fans of PowerPoint, but I’m not actually giving a PowerPoint presentation. I just figured that since Greg and Bill stood up here, I might as well, as well. And I’m pretty sure Brooks is going to be up here too, so I don’t want to be just with Caleb if he decides to stay too.
Caleb Watney: Well, I want to sit here.
Ryan Hagemann: So expectations have been set. So thanks, Bill. That was actually really great. And I think it sort of tees me up for a little bit of what I want to talk about by taking a big step back, actually, and looking at federal regulations as they relate to new emerging technologies. Mr. Alford, when he was speaking, really alluded to what I think is one of the quintessential problems that we have with regulating some of these new technologies at the federal level these days. And it’s this idea of the pacing problem, as it’s often referred to.
And generally speaking, this is what we talk about when we discuss the nature of incremental improvements in the law and the regulatory apparatus and the exponential increase and improvement in technologies that we see. The gap between those two, that disparity, is the pacing problem, this idea that the law has a very difficult time keeping up with new technologies, primarily because the law is beholden to institutional anchors and forces that new technologies are not. An entrepreneur working in his or her garage to develop the next killer app isn’t actually weighed down by all the baggage that comes along with trying to change basically any rules currently in the Federal Register or trying to pass a new bill in Congress.
And so the problem that we have at the federal level is that we don’t really have any system for how to think about regulating some of these really new, cutting-edge technologies. Artificial intelligence has become a really big talking point in recent years, but it’s almost a buzz word when you talk to members of Congress and federal regulators because when we say artificial intelligence, when we say machine learning, when we say neural networks, really, everyone’s just talking about the highest level abstraction you can possibly imagine. The moment you ask any specific details about how it is we’re actually going to do X, or do Y, or do Z, the entire façade just starts crumbling down because any rules that are applied very broadly to artificial intelligence, for example, could potentially also rope in your average Excel program just running macros.
So that also, I guess, speaks to one of the many problems at the federal level which is the average age of congressional representatives being somewhere between Mick Jagger and Steven Tyler. There’s not a whole lot of good understanding of how technology actually works, and that’s why you have a lot of congressional representatives really relying on the buzzwords and relying on sort of low information providers for a lot of these issues.
And that’s why, for better or worse, you also don’t see a whole lot of federal legislation that keys into specific means of regulating these technologies. Look at any of the bills that have tried to address autonomous vehicles or artificial intelligence in the last year, year and a half, over the last two congresses, and you’ll find very quickly, if you actually read the statutory text, it basically doesn’t mean a whole lot. It’s either, “We’re going to build a commission to study this further,” or it’s, “Well, we’re going to set up a federal advisory committee in Department of Commerce or the Department of Transportation.”
So this all leads me to what I really want to focus on and where most of my work focuses, which is this idea of soft law governance mechanisms. And being in a room of lawyers, I would imagine most of you are familiar with the law in general. So when I say soft law, what I’m actually referring to is this idea of a system or arrangement of substantive expectations that are not directly enforceable. So things like social norms, in your mind, you might be thinking, are a good kind of comparison here. But generally, soft law is the idea that we can regulate without actually having to pass new rules, pass new laws. And that’s problematic for a lot of reasons, but it’s also beneficial for a lot of reasons.
And I’ll give you probably the best example of soft law as I see it and the successes that have emanated from it, and that’s a document called the Framework for Global Electronic Commerce that was passed — well, not passed. It was promulgated by the Clinton administration back in 1997. And this is basically a long-form document that can be boiled down into four or five points. The private sector should lead on developing the commercial internet. Governmental involvement, where necessary, should be simple and predictable, and create an environment that’s generally conducive for commerce. Government should recognize the unique qualities of the internet.
Nothing in this document was substantively enforceable because it basically just outlined a set of policy expectations that the Clinton administration had for all of those agencies that fell underneath its purview. And that’s why when the early commercial internet appeared, you didn’t see a brand-new federal agency emerge to regulate global electronic commerce. And we haven’t really seen a whole lot of movement on formal rules governing the internet over the last 20 years or so, except for recently.
Recently, we’ve seen a lot more talk about heavy-handed privacy regulations, which you’ve already heard a lot about. We’ve already heard a lot about how it is we might break up some of the big tech companies, which we’ve already heard about. So over the last 20, 25 years or so, we’ve been running this natural experiment with this quasi-soft law document that basically outlined how the government was going to be treating the internet and which was implicitly accepted by each subsequent administration, and actually, in January of 2017, was officially reaffirmed by the Department of Commerce in the waning days of the Obama administration.
So this is sort of what I view, personally, as the best example of how good soft law can work in practice. You basically hold off really potentially bad regulations, really bad legislative efforts to kind of try to control a technology that doesn’t do well in captivity, and what you get is literally all the good and the bad, of course, that has come from the global commercial internet. Now we’re running into this problem, however, where a lot of the new technologies that are starting to bubble towards the market that have basically emerged as a result of interconnected digital technologies like the internet are running into kind of a wall when it comes to these processes, soft law mechanisms.
And the problem is that — and I think the best way to frame this for people is the way that Peter Thiel framed it back in 2015 in an interview with Tyler Cowen of the Mercatus Center. He framed it as the reason that we’re seeing stagnation in the world of physical innovation and the reason we haven’t seen as much stagnation in the digital world are the regulations. So he framed it as the world of bits versus the world of atoms. And the world of atoms has really reached something of a plateau where a lot of the recent innovations that we’ve been making in things like robotics and automation are getting to the point where they can’t operate on these soft law principles anymore, at least as I see it.
So we’re getting to a point where some sort of regulatory framework is necessary in order for us to move forward because if we can’t get over this hump, then we’re going to be running into the very problem that Mr. Alford also identified earlier, this idea of global innovation arbitrage where innovators, entrepreneurs, and the next, new cutting-edge technologies are not going to be developed here like the internet was. They’re going to be developed abroad.
And you’ve already seen a lot of this in play with things like drone research and development, or even autonomous vehicles. And if you want to talk about some really cutting-edge stuff, which is where a lot of my research recently has focused, gene and cell therapy technologies. We’re seeing a lot of really good — depending on your perspective, good. We’re seeing a lot of really cutting-edge developments come out of places like China and even Mexico, actually, because of the limited regulatory environment there.
So we’ve gotten to a point where soft law isn’t creating the sort of certainty and isn’t creating the sort of expectations that innovators and entrepreneurs need to take innovation to the next level in this country. We’ve also hit that wall in the digital economy space where we’re finding that all of a sudden, the internet is actually subject to the forces, the push and pull of political expectations and social demands. And you can only maintain this unstable equilibrium for so long as you don’t have rules that are actually buttressed by the more hard law variants that we see in traditional sectors.
So with that, I’m going to actually turn it over to Brooks because I want to only talk very minimally about this stuff. I’m really more interested in hearing some Q&As about these issues and others because I think there’s a lot more that you folks have to ask than I have to really offer in terms of answers on this front, so yeah. Thank you.
Brooks Rainwater: So I’m going to buck the trend, and I’m going to stay right here. It’s great to be with you all today. And Greg, thank you for the introduction and that you’re following our work. I hope everybody has a chance to check out www.nlc.org. The area within NLC that I oversee, our Center for City Solutions, is our research institute. And there’s about 25 people on our staff. And we’re focused on researching all of the issues that really impact cities, and both looking at the national conversation around cities as well as providing guidance and best practices for those cities.
So what I want to talk about today is the technology regulation in cities, and really think about my thesis which is that local regulation and innovation coexist and support one another. And I start with the small-c conservative principle that the government closest to the people governs best. And so if that’s where we really start with the premise, I think that when we’re talking about something like mobility and a lot of the new technology that’s coming online, whether ride-hailing over the last 7 to 10 years, or everything with micromobility, scooters, and bikes now, what we really have is a question of the commons and thinking about the traditional idea of the tragedy of the commons coined by William Lloyd back in 1833 that our public streets, sidewalks, and rights of way are shared resources.
So the question really comes down to how do we share those? Who makes those decisions? And how can mayors and council members welcome innovation in but at the same time have the ability to look at their own local context and really make the decision that would work best for their community?
And so the premise being that there’s been a lot of state-level preemption that has come down and really put the context into place that it was the state that should be making the decisions on something that used to be seen as very much a local matter, which would be our streets, would be our sidewalks. There are definitely good reasons for why different levels of government regulate, but I think the reason that we see cities regulating really comes down to three core things: health, safety, and welfare. City governments have always been charged with protecting the health, safety, and welfare of the public, and so while different cities may choose to regulate differently, I think we should respect what’s happening in one community and really think about why it is that that local governing body would regulate in a certain way.
There’s always going to be cases that come out of the mainstream, whether we’re talking about housing or other issues where there’s been some real challenges in how local governments have regulated, but ultimately, I think particularly as we’re talking about new mobility trends, the kind of push-pull that we’ve seen actually between local governments and technology companies I think has pushed the companies to come up with better products and better regulatory standards on the city space as well.
As I’ve talked to people over the years, there’s often conversation around cities not being able to react in a quick enough manner. And what I would say is if you look at the history of how cities have reacted to these new technology trends, it has actually sped up quite significantly in recent years to where we have larger and larger urban marketplaces which are where these companies really are focused. The kind of distinction, I would say, is if you look at a company like Uber, Lyft, or now with Bird and Lime and others, they’re focused first and foremost on our largest urban centers, whether here in the U.S. or globally. And so when we look globally, the megaregions are driving a big portion of our GDP. Here in the U.S., our 250 largest cities are putting out 80 percent of all economic activity.
So when I think about how this growth is happening, I want to look at some of the challenges of growth. In thinking about different things like cooption of public spaces, market failures, kind of the blurring of the public and private, and really even profits over people because ultimately, if you’re a local government leader, you want to make sure that companies thrive within your city. That is one of the core things. But at the heart of what you do every day is you’re trying to react and protect the public welfare.
And so when we get into issues like preemption, I really think, again, and reinforcing this idea of cities and the leaders there being able to govern best because they know their communities and they know what kind of commerce can thrive best, the interplay between federalism and preemption is a really critical issue. And we’ve seen over recent years, and we’ve done quite a bit of research on this, there’s been a real upsurge in preemption. I think there’s a lot of pieces that have played into this. Politics has become so divergent between our largest urban areas and our rural parts of the country, and this is played out in how many of these battles have taken shape.
And ultimately, I think the more that state governing bodies can work with local governing bodies to make sure that we’re not putting ceilings instead of floors on regulatory laws, so it still gives you the ability to innovate within your own community, that preemption isn’t necessarily a bad thing. It’s just how it’s been used in recent years that has really led to some challenges because I do believe that layers of regulation make sense. I think that states should be looking at things like safety. I think that when you’re looking at autonomous vehicles or many other new technologies that cities aren’t going to be able to regulate these things on their own, nor should they, that there’s a clear delineation between city, state, and federal government on how you regulate these new technologies.
But I do think that as we’ve seen many of these preemption battles play out in states that special interests have had a little bit more of a say than I think they should. And I go back to this premise that if the largest marketplaces that companies are focused on are within our urban areas, the idea that the rural component of the state is kind of driving that regulation, to me seems a bit of a challenge. That’s not to say that everybody shouldn’t be involved and have this conversation, but I would always go back to the localist approach and put the city first.
And to that end, it’s interesting that you mentioned Arizona before because I think that there’s been a lot of really fascinating things happening in Arizona, a lot of innovation that’s been driven by Governor Ducey and others that have thought about how you can welcome these companies in and kind of drive technological innovation. On the other hand, I think that you also see some challenges, and particularly in the autonomous vehicles space having the first death of a pedestrian with Uber. And why I bring that up is because Waymo has been doing amazing things in the state. And so it makes me wonder from the safety regulation standpoint, do you have some actors like Waymo that are just doing a really good job with their autonomous vehicles in a different way than maybe other companies are? And what is the state component on how they would regulate that?
And it gets to the interplay of what we’ve seen in Colorado. When ride-hailing first came online in Colorado, Denver was obviously the core marketplace, but there were a lot of other places where Uber and Lyft started to operate. And the state did preempt the localities from having ride-hailing legislation within their own cities, but it was really a two-way conversation. So the state worked together with Denver and many other cities to find regulations that worked for both the state level to make sure that you had that broad economic marketplace that they were looking for, but it also took into consideration many of those city-level issues that they were having.
And now you’re seeing further innovation where Uber is working directly with Denver and the public transportation agency there to really think about how it’s a first mile/last mile solution, both with their vehicles as well as bikes and other micromobility companies that they own. And so I think as you build these relationships between the layers of government, you can actually have better outcomes. And so that’s arguably, I think, what everybody wants. I may have a bias and say that cities are where innovation happens, but I do think that all layers of government working together can create better outcomes. So with that, I’ll pass it over to Caleb. Thanks a lot.
Ryan Hagemann: Will he stand, will he sit?
Caleb Watney: See, Brooks came up with a novel innovation. He said you could give your speech while still sitting. And since I’m going to take advantage of that innovation, there is going to be spillover effects from his innovation that I’m going to benefit from.
No, but thank you all for having me, and thanks to all the other panelists. I think there has been a really interesting conversation, and I hope that my speech can kind of connect some of the dots in sort of when is federalism versus preemption warranted for emerging technologies? How should we think about that?
But I want to start off with a discussion of what I think are the two forces shaping competition between different regulatory jurisdictions. How do jurisdictions act when they’re in competition with one another? And so the first of these forces is one that’s already been discussed. Mr. Alford brought it up, and that’s information arbitrage. And the basic idea is that innovation can flow across borders to the jurisdiction where it’s most welcome.
There’s been a lot of really good, interesting examples of that recently. Obviously, drones have been brought up. You’re seeing Canada, Australia, Switzerland being some of the main places where drones are being tested and deployed before the United States because their regulators have been more open. Similarly, you saw a couple of years ago when the FDA was sending cease and desist letters to 23andMe, they moved to the U.K. in response to that.
And this is also a force that can act within a country, as has been mentioned several times, Arizona has been the leader in autonomous vehicle deployment and testing, partially because Arizona has differentiated themselves by having the most welcoming and friendly innovation framework for autonomous vehicles. And so that basic force of innovation arbitrage, you could kind of think of it as an anti-regulation force pushing in one direction in the sense that innovation’s just going to move to the jurisdiction where it’s most welcome.
The other force and the one that pushes in sort of the opposite direction is one I haven’t exactly heard of a good name of before, so if you guys have input afterwards, please let me know. I’m going call it a regulatory heckler’s veto. And the way to think about this is when you have a technology where a large portion of its value derives from being heavily networked, it has large network effects, then any of the sub-jurisdictions within the market who has a sufficiently large market share can veto the current regulatory equilibrium and make it higher, and the entire market has to shift to that new equilibrium.
Ryan Hagemann: It’s called California.
Caleb Watney: California. Yes, that’s a great example.
Brooks Rainwater: You don’t need a term. It’s what we’ve got here.
Caleb Watney: It’s California. And California has played this role in a lot of ways. I mean, as we were talking about with the privacy debate earlier, it doesn’t really matter what the average Michigan citizen or the average Illinois citizen wants. Suddenly, all of their companies and internet services that they’re using are being dictated by the California privacy bill because, obviously, these companies want to serve California citizens. It’s easy for them to have one product that they take and roll out to an entire market, and so they take whatever is the highest one, and then they just roll that out to the entire marketplace.
And so this regulatory heckler’s veto, again, it kind of pushes in the opposite direction of innovation arbitrage. You could consider it a pro-regulation force in the sense that there’s almost always going to be some jurisdiction within a marketplace that has higher than average regulatory preferences, and then that ends up dictating what the entire equilibrium is.
And so I think when you put these two forces in contrast, where does that get you? And when I’ve tried to think it through, I think you basically end up with an equilibrium where, as a new technology is being initially developed, it can be developed almost anywhere, like it’s almost certainly going to happen because all you need is one jurisdiction to allow it. The innovation can move there, and it can be developed. But then as the technology grows and matures, it starts to be offered in a variety of different areas. It grows in market share and particularly if it relies on strong network effects, then almost anyone can regulate it. That’s kind of the basic equilibrium.
I mean, you might see companies respond to that in different ways. Obviously, if GDPR were 10 times worse than it is today and being restrictive, there comes some tipping point where companies just stop offering the products. But within certain realms, they’re basically going to meet whatever the highest regulatory standard is and offer it across the market.
The other way you might see people respond to these two forces is through preemption deals. You almost see similar dynamics in some of the trade negotiations. So it might be narrowly within one country’s self-interest to have tariffs, but it’s in the overall market’s best interest to not have tariffs if it allows easier flow of goods and services. And so all the countries basically come together, tie their own hands, preempt themselves, and then you allow free flow of goods and services, and everyone ends up better off.
I think that this framework can also provide some guidance for us as we’re thinking about when and how is it appropriate to have preemption or not for emerging technologies. So if we’re using the example of the internet, for example, you’re looking at something with incredibly strong network effects, something where that heckler’s veto is always going to be a looming issue and is also a very developed market. It obviously has global reach. And so you might look for stronger preemption on things like privacy. Or something like autonomous vehicles where it’s still fairly in the early days, but because so much of the value of autonomous vehicles comes from its ability to be used across state borders, you might want to think about preemption there so that you can make sure you’re not losing out on all these huge network effects.
However, on something like drones where it seems like most of the use cases are local, obviously, you’re seeing wedding photographers — they don’t gain more benefit from their photography if people all over the world are using drones. Or similarly, if you’re having transportation between a warehouse and a particular house within a city, again, that’s a very local issue. It says within state borders, and it’s not an issue that really benefits or gets weakened from use of drones in other areas. So that might be an area where we look to push more on sort of the global innovation arbitrage point, look maybe to have more federalism.
But you can imagine a future in which the drone market matures a lot. Suddenly, you’re having cross-state supply lines carried by drones, and then it would matter a lot more whether or not there was this sort of interoperability you could use drones cross-state. So that’s kind of the framework that I’ve been using to think about when and how preemption versus federalism is appropriate, but I would love to get more thoughts from the audience and hear from my fellow panelists.
Prof. Gregory S. McNeal: So what I told the panels was before I went to Q&A, I wanted them to have Q&A for each other. And I was honest with them, I said, “That would be a lazy way to make sure, I, as the moderator wouldn’t have to come up with a question.” But I actually came up with one. And so what I was trying to do as I was taking notes was try and have a sort of question qua comment that would pick a fight with everyone simultaneously. I’m going to see if I’ve managed to do it. So I’m just going to throw it out on the porch and see if the cat licks it up.
So we’ve heard some discussion here about the idea of regulating the internet and its bits versus bites versus atoms, right? And so I like to think about it as it’s easy to have a set of hands-off rules when we’re regulating cyberspace. But when we’re regulating meatspace, it’s all of the sudden a different thing because the thing that’s flying isn’t flying through the air metaphorically; it’s flying through the air, like a drone, and it can hit you in the face, right? That has very different consequences. Someone surfing the internet on their cell phone doesn’t have an impact on you even if they’re watching videos of drones. But the drone flying over your head very much might have an impact, even if it doesn’t hit you. It’s the sound, it’s the noise, it’s the nuisance, the other types of issues that come up.
And so I’m reminded of the issues that came up locally, particularly Santa Monica was the hotbed of scooters when scooters started. And scooters raise, I like Brooks’s framework: health, safety, and welfare problems. They raise issues in the physical world that Bill described. I think soft law wouldn’t work. I’m picking fights, right? It’s great. We as scooter companies will all agree that we’ll be really about where we park our scooters and stuff while we throw as many scooters onto the street as possible. So failure of soft law impacts people in meatspace, not cyberspace.
So that would make an argument in my mind that maybe cities should have some role. But then you have cities that do absolutely insane things, like what we saw in the Uber examples where they would do protectionist activities to protect the unions, the taxi unions. Or they might make a set of rules that would limit the number of scooters that could be on the roadway, and you knew the number was arbitrary because it was 800. It wasn’t 801, it wasn’t 823. It wasn’t based on any data. And you’d go to the public hearing, and you’d say, “Where’d you come up with the number?” They’d say, “We just needed a starting point. And so my intern came up with the number. Just said 800 sounds pretty good.” Was there any data to generate this number?
And so it reveals the failures of the cities. But worse than that, there’s the patchwork of regulations problem where if I’m riding my scooter in Santa Monica that has a limit of 800 and then I cross the border into Venice, which there’s no geofencing of the scooter. There’s no line on the road, all of the sudden I’m in LA. And now there’s 799 scooters in Venice and there are a 1,001 or whatever LA’s rule is. How can this possibly be regulated across borders? All of this just suggests to me, and I’m like as federalist as they come, that these are all just — each one of these new sets of regulatory regimes is a barrier to innovation. It’s a barrier to a market and that you should federally preempt the whole thing.
Bill has never heard me say that in my life. So why shouldn’t we just preempt the whole thing and have one big federal regulatory regime? Not all of this soft law garbage. Not all of these cities are where innovation happens. Cry me a river, Brooks. Really.
Brooks Rainwater: I left it on that slide for a reason.
Prof. Gregory S. McNeal: I needed to remember what you said.
Ryan Hagemann: So is the question for each of us to respond to why —
Prof. Gregory S. McNeal: — I didn’t really have a question.
Caleb Watney: — You’re just kind of spewing.
William Goodwin: Well, independent of the pseudo-question, I do think it is a good opportunity to — where I will actually object to something that Caleb said. Which is I actually believe that there is a bit of a slippery slope when we start talking about network effects as a good that should be protected in regulation. And I’m going to give you an example. We’ve talked about scooters a lot as a good example there in a physical space. Let’s leave aside the digital space where I think the questions get a lot trickier. But just in the physical space, people complain about the fact that laws may change from city to city. But I think that that is — and this goes against the thesis that cities are places where innovation happens, but I think that it’s actually inherently what we should expect because cities are different places.
So take yourselves out of Malibu, which is a very nice place, and go with me to another very nice place, Lake Como. And I will tell you that if a bunch of scooter companies go to Lake Como — I once went to the world’s greatest conference —
Prof. Gregory S. McNeal: — This is in Italy. It’s very, very fancy.
William Goodwin: — And there are a number of small, isolated communities around this incredibly beautiful lake. And one of the things that’s most toxic is that you have people who ride really obnoxiously loud motorbikes, clearly never heard of a muffler. And then they try to rumble into these small towns. And a number of them have attempted to ban motorized vehicles. Why? Because it is essential to the quality of life and what is the economic basis of all of these towns, namely the tourism, to not allow something that in the interest of, say, the scooter company that’s renting those scooters would make a lot of sense. It is in the city’s interest and the broader economic community to say, “Hell, no, there’s no scooters.”
And I actually think that that is a good that should be respected. But I think we can go one step farther. It doesn’t have to be the city that makes a decision. It should be the individuals within the city using voluntaristic methods to come to that conclusion. And only using the city as a regulator of second-to-last resort as it were when their attempts to address those issues fall short of achieving the goals that they’re trying to accomplish. I kind of rambled that sentence on at the end there, but I found a stopping point.
Caleb Watney: So I don’t think my argument would be that there never can be a role for local sound prohibitions, like they’re time, manner, and place restrictions that we tend to find appropriate. We don’t allow you to just blare a siren at night for no reason, and there’s probably good reasons for that. I think one good test for kind of how strong are the network effects and are they worth protecting is are you in a situation where the highest regulatory standard becomes de facto – the national standard or the standard within the state. And so if you’re finding that there is a lot of differentiation by cities and products are being carefully tailored to those cities, then that’s maybe an indication that the network effects really aren’t that strong.
Now, on the other hand, you can find that sometimes cities can write themselves out if they try to have too strong a regulatory standard. So obviously if there is a city that just said, “No, we’re not going to have any roads here because we hate motorized vehicles so much,” and they bashed up their own roads and had all highways diverted, that would eventually end up hurting the city. I mean, if they did that without any sort of recourse for another way around for hitting the highway, then there would be larger commerce issues going between states.
But, yeah, I guess my point here would be not all network effects are strong or protecting, but there are some easy tests you might have for determining that.
Brooks Rainwater: I think I’m going to come back to what you —
Prof. Gregory S. McNeal: You’re coming around to my preemption?
Brooks Rainwater: Because I think you gave a great example of what happened in Santa Monica where the challenge was that you had so many scooters on the street that they were crowding sidewalks so that if you were handicapped, you couldn’t get by on your wheelchair. People were tripping over them. They were being thrown everywhere kind of helter-skelter. So ultimately, yeah, I think it is somewhat arbitrary to put a 700 or 800 cap on it, but I think there are already communities that are regulating in a good way, like where I live in Arlington County right outside of D.C. The initial cap, I think, was around 1,000 and each scooter had to be driven three times a day I think was the minimum. And as they could show that those scooters were getting three rides a day, they’re going to expand that cap over a period of, I think it was either six or eight months.
And so you’re starting to see best practices that are rising in cities and communities nationwide that are, what I would argue, is that’s where you’re seeing that innovation happen, and that should kind of feed the larger state, the larger national conversation around how these things should be regulated.
Will you have challenges with that? Yes. Absolutely. But again, I would go back to the fact the companies themselves need these marketplaces in the same way that people within these cities need these goods. I think fundamentally things like scooters and ride-hailing are good. I think they’ve created a better marketplace for cities and allow people to get around in better ways. And so it’s not a question of whether they should be there or not. It’s a question of how they are there.
Prof. Gregory S. McNeal: Just a little side note, what was most fascinating to me when I went to the Santa Monica hearing on scooters — before becoming a law professor, I worked in city government. I worked in a municipal law department, and my PhD is in public policy and administration. So I had this background in city government, and I was amazed that the city had a mobility expert, and two other staff members — so the mobility expert was testifying, and she had two other staff members that worked with her. That’s not true of every — and some NLC cities are pretty small. But Santa Monica is not, by any means, one of the biggest cities in California. But nevertheless, has a mobility expert who — she was talking about the technology, and knew the technology, and knew the capabilities of the technology; was talking about GitHub and data sharing, and the kinds of stuff you definitely wouldn’t expect a member of Congress to be making references to GitHub and standards for data sharing and data portability. And I just thought that that was really fascinating.
Brooks Rainwater: I’d actually love to ask Caleb a question. We talked about it a little bit before we started, and it gets at what — I love your term, too, the regulatory heckler’s veto. So my question to you would be how does that play out versus agglomeration effects? Everybody laughed about the example of California, but so much of the technology industry is here. And it’s in Silicon Valley, and it’s in San Francisco. And San Francisco is one of the most highly regulated cities in the country, if not the world. So how would you see that playing out because people continue to be drawn to San Francisco and Silicon Valley?
Caleb Watney: That’s a great question. So if you look at the literature on agglomeration effects, they seem to be incredibly robust and they can persevere through all sorts of tampering and bad laws. I mean, you just look at housing pricing in San Francisco right now and the fact that it’s still innovation capital of the world, is it a testament to how strong agglomeration effects are. So I would almost say I would think of agglomeration effects as this exogenous force, where just for almost random reasons, particular cities become clusters of talent that has sort of a self-perpetuating cycle. And that certainly increases the veto power that any jurisdiction has. So the fact that California has more veto power than, say, Missouri is partially a function of the fact that they have these large agglomeration effects. But I guess that’s how I primarily view them.
Prof. Gregory S. McNeal: Not seeing anything else from the panel, I’m now going to open it up to questions from the audience. Just remember you need a microphone before you ask your question. And so looking around . . . it could be a comment, too, as you know because I led with that example of not really asking a question. Just saying what I wanted to say. Go ahead. This looks like a comment.
Questioner 1: I think Tom already indicated exactly how to convert a comment into a question.
Prof. Gregory S. McNeal: So you think.
Questioner 1: Caleb, I wanted to address your network effects factor. As I think about it, I think that it doesn’t make any sense. That what you’re really talking about is the extent to which any particular technology — what it costs that technology to comply with multiple — with a patchwork of regulations. And I don’t think that maps perfectly onto network effects. For example, drones and scooters have no network effects to speak of. But the fact that they can cross jurisdictions creates a sort of regulatory problem.
On the other hand, there’s plenty of technologies that will allow you to identify where a user is coming from. And you may have a lot of network effects and you may have a perfect ability to serve up a — to comfort with certain regulations for users from one jurisdiction, and it really doesn’t cost that much more to also comfort with regulations from another. I think that’s the thing that mediates, not so much — some of that will map onto network effects but not consistently.
I do think that you’re right between the push/pull between the two effects you identified. But I think the third thing is really this cost of compliance with multiple things.
Caleb Watney: Yeah.
Questioner 1: And of course that will also depend on the type of regulation. Sometimes that will be, again, like the number of scooters regulation. No problem complying simultaneously. No spillover effects there, whereas that wouldn’t be the same for other types. The only other thing I wanted to add—I can’t remember who raised this—was I don’t understand exactly why we care so much about attracting innovation. I mean, I understand why certain jurisdictions do for very — they want tax base, or something like that. But why does it really matter where the technology is developed if it can be deployed everywhere? And if you think there’s some — if you’re a city or a state or whatever and you think there’s some risk to the process of developing the technology, what you do is you sit back and you say, “Well, we don’t want it here. You develop it there. All of your pedestrians will die. Eventually, they’ll get the right technology and then we’ll implement it here.” I mean, I’m not sure what you get by being the place where the technology is implemented. You want to be able to use it. But it seems like a marginal addition to be able to be the place where it’s implemented.
Caleb Watney: Um . . .
Questioner 1: Don’t you agree?
Caleb Watney: Thank you for your comment. This is still a model I’m trying to work through, so I appreciate your feedback. I think you’re probably right in the sense that there is a missing variable there. I would say it’s not just network effects interacting by itself. There’s another interaction variable that I’m probably missing, which is the cost of differentiating your product across regulatory jurisdictions. So if you were to multiply the network effects times the cost of differentiation, it’s probably closer to what you want to get to.
William Goodwin: But also to your question about does it really matter where a technology is deployed, I think that actually — underneath my comment which I started to allude to there, as much as I am a federalist, it doesn’t mean I have this unshakable confidence in the expertise of localities to deal with emerging technologies. Or that their prudence in determining whether or not they should even be a guinea pig for a new technology makes any sense at all.
My background prior to law school was state and local political consulting in and around the political networks that influence developers. And you would be horrified, or perhaps not surprised, at how many cities love to play developer, including here in California for a long time with redevelopment money. And they’d declare parts of the city blighted and then pick and choose market winners. And that kind of activity, I think, illustrates perhaps what you’re getting at which is there isn’t a necessarily good reason to welcome an emerging technology. And I think it’s perfectly rational for some places to say, “We’re going to take a wait-and-see approach.”
Conversely, though, I do think that if you are a savvy community, like Arizona seems to be, and you think that you can attract a longer-term, for instance, industrial presence or attract more corporate headquarters and avoid, for instance, the second-class citizen of the world status that LA now has in terms of corporate headquarters and the attending effects on your talent pool and tax base, etc., that seems well within the province of a locality to try to decide. Because I think they’re going to be closer to the answers to that question, however impaired that decision may be, than any federal authority, again, trying to pick winners and losers where the problem only escalates.
Prof. Gregory S. McNeal: This is where I’ll reveal my true opinion about the federalism stuff, which is responsive to your question. This is where I think the economists, who argue that each new restriction in each new jurisdiction is a barrier to commerce and trade, and therefore, we should preempt it all and get rid of it, get it wrong because it rests on the assumption that the system that’s implemented at the federal level or at the state level is the market-efficient, optimal outcome. Whereas, there’s no guarantee that you’re not going down a regulatory blind alley there.
And so if we’re going to take a drone delivery example, or something, if Palo Alto wants one set of rules for drone delivery and Mountain View wants another and Berkeley, California wants to just outlaw it completely—which is what they’re apt to do at Berkeley, right?—then they won’t get their deodorant delivered within a couple hours, which they’re not using deodorant anyway. And so they’re all just going to continue to be stinky and the drone will fly over Berkeley. And the people in Berkeley will be stinky until they can’t stand being stinky anymore. And then they’ll change the law and they’ll order some stuff. And we’ll get to a market-optimal outcome through the competition across those jurisdictions. And it’ll be regulatory competition for the right outcome.
Whereas I think what the economists do a lot of times looking at this is they say, “Well, there is some efficient outcome that I can graph and curve and give you some fancy math, which is all letters, and look at the way that this should be as the outcome. And then in the abstract, federal preemption or state preemption will be the right way to do it. But it doesn’t actually really work out that way, which is why my preference would be for the patchwork. Because I think the patchwork actually leads us to a public law conversation about the correct outcome.
William Goodwin: And I’ll just piggyback on that, just to pile on a bit. I think the allure is very strong if you both want the freedom maximizing side and economic maximization. So one of the areas where I was somewhat dismayed I saw Tyler Callen (sp) last summer published a piece saying that he thought we should federally preempt all occupational licensing regimes at the state and local level. And he had literally one line in his post that he said, “Because I can’t think of any good reason why a state or locality should need to have their own independent occupational licensing scheme.” That was the sum of the argument. Which he couched it in freedom terms, and others often couch that plea for federal preemption in economic terms – you’re restricting the economic liberty of people and those economic goods that would result.
But the net result is the same. That you grow the administrative state and you empower a small fiefdom of experts in Washington D.C. to make all these decisions about our lives. Where in point of fact, the reason I become a strange friend to Brooks over here, is that I think cities with all their defects and their warts and the limits of somebody who rose up from city government, for instance, was deputized as the assistant city manager for a special projects and now he’s in charge of drone policy, that isn’t an optimal — from an expert perspective, an optimal way to come up with the right policy solutions. But it’s so much more intimately associated with the actual people that are going to be affected. You’re much more likely to see market-based solutions and voluntary solutions emerge and be the principles that are adopted by the city than you’re going to see at the federal level.
Prof. Gregory S. McNeal: Let me just get — now I’m fired up. So let me give another example. So Bill brought up the example of automobiles, terrestrial transportation, versus aviation, which is such a great example because aviation is federal preemption. So aircraft takeoff and land only with the permission of the federal government with a federal regulatory regime that certifies the aircraft down to the stupid fact that there are ashtrays in a brand new airplane that’s produced today. Why are there ashtrays in a brand new airplane that’s produced today when federal regulation say that you cannot smoke on an airplane and you haven’t been able to do it since the ‘80s? Because some federal bureaucrat somewhere said, “Well, someone might smoke and if they do smoke, they’re going to need an ashtray to put it out in. So we’re going to put an ashtray in there.” And then some other bureaucrat said, “But we’re going to seal the ashtray shut so people don’t think that they can smoke inside the aircraft.” And this is running it out of a federal agency.
Brooks Rainwater: I was actually thinking that exact thing when I was in the bathroom on the airplane over here. [Laughter] Because I tried pushing — as a smoker, I tried pushing it open and it didn’t — I was confused.
Prof. Gregory S. McNeal: So now you have these new aircraft drones that are flying, right? And you have to figure out where drones are allowed to take off and land and where they’re allowed to operate. But drones are not airliners operating at 10,000 feet. Drones take off and land from sidewalks and fly next to your face and next to your home. And so what happens? All the lobbyists in the drone industry get together because all of the cities — Brooks just creating all of these nightmares for the poor drone companies – good for you. So all of the sudden all of these cities say, “Well, we don’t want you taking off next to my outdoor vineyard or next to my restaurant or flying over my school.” And the whole drone industry goes, “Ahh! Patchwork quilt of regulations! How am I ever going to know how to comply with it? We need a single rule to handle this.” Right?
And so what do they do? They go to the Congress, and in Section 2209 of the 2016 FAA Reauthorization Act, they direct the FAA to create a process for creating restrictions around places in the United States where drones can and cannot fly near. Now, in your normal town, city hall does this and says, “You can park here and you can’t park there. You can’t sleep on that curb.” There’s an entire city apparatus that handles this. In the wisdom of the industry and the federal preemption approach, there’s one bureaucrat in one office at the FAA who’s going to figure this out for the 15,000 rulemaking jurisdictions in the entire United States. And guess how much progress has been made on figuring that out to date? Zero progress. Nothing. They can’t even figure out the shape of the table for the room where they’re going to have the meeting to discuss the process by which they’re going to figure out the process.
So anyway, there’s a reason we have billions of automobile trips on the road today. It’s because we have a federal framework for the automobiles and the way they work. But when it comes to Caleb’s point, the time, manner, and place of those operations where the technology meets meatspace, where it’s going to actually impact someone, the time, manner, and place decision is left to those people and elected officials closest to the people, which are the local officials, to make the decision about whether you want cars parked overnight on the road or whether you want a drone there on the road. It’s the time, manner, place. Go ahead, sir. I know you were waiting patiently.
Audience Member: No worries.
Prof. Gregory S. McNeal: I told you I was fired up.
Audience Member: You got me fired up.
Prof. Gregory S. McNeal: I’m filibustering for the microphone really, though. That’s all I’m doing. Here it comes.
Questioner 2: You got — oh, she handed it over to me. Look at this. Living dangerously. So you got me fired up because if you view it — want to go mono e mono with horror stories of regulatory jurisdiction, let’s go. Throw down. Okay? There are 30,000 jurisdictions in the United States that issue something called a Cable TV Franchise. That is completely — that is a vestigial organ. There’s no reason for it. All your health, safety, and welfare justifications are totally handled by other roles routinely administered by public works departments. And in fact, this is a rent-seeking device that quite regularly comes out of the local jurisdictions and, in fact, they do illegal, unconstitutional things. And out of the City of Los Angeles, preferred communications for the City of Los Angeles is now a prevailing, federal, Supreme Court precedent saying that the City of Los Angeles did violate civil rights in seven different ways in giving out monopoly cable franchises. That can’t be done. This is a very — unfortunately, there were no sanctions, there was no injunction. This is an ongoing problem that’s, to this day, a problem in terms of competition at the local level.
But cities routinely engage in rent-seeking that is not health, safety, and welfare. It’s just rent creation and rent distribution, and it causes great inefficiencies that can be, in the right circumstance, preempted by federal jurisdiction. And about 15 years ago, California had a question about regulating cellular, a California jurisdiction for regulating cellular. And the network issues came up and I engaged on that. And I had a little bit of a debate with an economist—I don’t know what happened to—an economist named Peter Navarro, who is writing some crazy pro-regulatory stuff that California had to regulate cellular because the feds couldn’t do it. And he was completely wrong. I came to a Brandeisian position, or a non-Brandeisian position, on that. Because the economy is scale network economy so they were obviously pronounced. And it makes no sense to have that kind of a Byzantine system for — and a fragmentary system for regulation. And so we have federal regulation of cellular.
But we actually had a crisis in this country with this. And there’s this wonderful paper by Prescott (sp) and Alanian (sp) and a third author a couple of years ago that looked at zoning regulations, which is a classic nimbyism at the local level. It specifically looked at state zoning and said that fully one half of the missing income, this crisis in income inequality that’s been seen in the stagnation of median incomes in the United States over the last 40 years, fully one half of it could be explained by land-use laws that keep people in low-wage jurisdictions from moving to high-wage jurisdictions.
Look at Silicon Valley in the United States. See what we’ve done with land use at the local level. Go to Shenzhen, China and see their Silicon Valley, and see what they’ve done with land use. And you’ll be shocked to know that a communist government has been vastly more efficient in allocating scarce resources in that particular context. And that’s the nimbyism of localism. So I’m very much sympathetic to the laboratories of democracy rationale and competition between jurisdictions. And of course, there’re many things—health, safety, and welfare—that can be better done and should be left, and there should be competitive world between jurisdictions.
And I think states can — they’re not competing for the products; they’re competing for the innovators. They’re competing for the entrepreneurship to bring in in Arizona and so forth. And I think that certainly a very powerful argument. But this is a tradeoff where you do have to look at the particulars of the situation, and I think in a lot of cases for new technologies that some federal preemption will be better. Not perfect. There’s no nirvana either side. But as I say, if you want to give horrors of federal mistakes, yes, you can do that. And we should do. We should have alcohol to help us along in those discussions. [Laughter] They’re going to go on for a long time. They’re going to get better as you go so you need to drink.
But there’s also problems with local jurisdictions. And you know it. Anybody who’s honest knows there has to be a restriction, a constitutional regime that limits the rent-seeking. And what you have, sometimes you say, “Well, California’s doing well. They have a lot of regulation.” They have the natural resource curse, if you want to get to it. A lot of oil rig states do a lot of terrible things, and they grow and they prosper. And people move there, by the way. So by a lot of metrics, yeah. But political scientists know there is a natural resource curse. Lots of bad things happen when there’s too much at stake for the ruling regime. And sometimes that can be a problem, even in California, even in countries like this.
So I think it’s a very nuanced question. I mean it really is something that — by the way, I did get a lot out of this panel, I think. You have great arguments either way. But I just wanted to add some extra —
Prof. Gregory S. McNeal: So I take the question as do you want a drink? [Laughter]
Questioner 2: And what’s your answer?
Prof. Gregory S. McNeal: Of course. So I would say that I think I agree with a lot of that because — just for me because I was fired up to fire up the firing up. I agree with a lot of that. There are interesting corner cases, for example, on cellular that I think maybe Brooks might want to talk to, which is the location of the cellular towers themselves and the impact that might have visually on a community. And that is land-use and zoning being used as a back doorway of regulating the technology itself. But let’s kind of have some reactions to this because I think this is an area where we probably have agreement with Tom —
Questioner 2: I know I talked too long to begin with, but on that point and cellular sites, yes, of course there have been federal rulings on this, both from courts and the FCC, that with some kind of aesthetic concerns, certain regulations are perfectly permissible. Williamsburg, Virginia has a right to limit satellite dishes even though it’s anticompetitive in a real sense. But other communities don’t because they don’t have the same aesthetic concerns. That’s a federal rule.
Now, what I wanted to mention, too, was now we do have an extraction problem very similar to the cable problems, the franchising issues, on 5G. And there’s a trade general article a few months ago where the City of Sacramento was reported to have gotten a private company to come in and very efficiently start the process of this huge 5G densification. They’re going to have 10X base stations. This is the huge payoff local cells. And so you get all of these new cells going in. So you’ve got lots of new antennas, and there’s a permitting process. Now there’s a question of what are the fees? And a lot of cities maintain, “We just want to get maximum value for the community.” And they mean by that highest dollar cost in terms of what the fees are to gain access to public rights of way.
That is completely wrong. That is anti-consumer and hostile to the citizens. That is a rent-seeking device to monopolize that market. What you want to do is have costs equal to marginal costs so that the public disruption and the resources taken by the competitors are rationally allocated. But you want competition. And I was just going to say in Sacramento, what they did was they got a private firm to come in — it was privatization. They contacted a private firm. One-stop shopping. The new firms rise and whoever can come in and get permitted. This firm charges the fees and splits the fees, I don’t know, 70/30 or something with the county. And so they didn’t say who set the fee in the article. I emailed the author and said, “Who sets the fee?” He said, “I’d have to ask. It never came up.” Well, obviously you have a private company setting the fee, it’s going to be a monopoly price. This idea that there’s this extraction taking place is visible. That has to be stopped for efficiency, for consumer welfare or innovation. If you can do it with a federal rule, I’d think I’d probably be in favor of federal preemption if the cities can figure out a way to have some more pro-consumer attitudes on that.
Prof. Gregory S. McNeal: So let’s go to the panel. So Brooks, so this question is largely wrapped up in rent-seeking and the permit power of cities. It’s a little bit about a heckler’s veto. . .
Brooks Rainwater: On the whole, I think I would say democracy is messy. And I think that, ultimately, there’re kind of challenges at every level of government. Just as you can give the stories about what’s happened with cable franchise fees, I could talk about high-speed broadband internet and the fact that states like Tennessee have stopped Chattanooga from being able to expand its municipal broadband into neighboring jurisdictions. Even though on the whole, the neighboring jurisdictions were quite conservative and wanted to be able to tap into this arguably municipal resource that could help them.
And so I think that, yes, there are challenges with cities on rent-seeking. But I think there’s also examples where if we could all agree that we should just get rid of non-competes overall, the states that are doing that could be leading the way for creating so much more economic value. So ultimately, let’s think about where this is happening best. There will be challenges at every level of government. But it doesn’t seem to me that cities are kind of the piece that’s creating the most friction.
Caleb Watney: I think that’s a good point. The thing that I kind of wanted to go back to a little bit is hopefully the framework articulated can help us also know which layer of the technology to regulate at which level, right? So using cars as an example, the National Highway Traffic Safety Administration relates everything related to the safety of the actual automobile because that’s both where the large network effects are and where it’s most costly to differentiate across different jurisdictions. And if you were to take that to a drone example, I think you totally limit time, place, and manner restrictions on an individual level. A city is obviously going to know where would be the most disruptive places to have drones flying around at night. D.C. has a rule saying you can’t park here a scooter on the National Mall. That seems fine, but that’s going to differ from city to city.
But if you had cities trying to regulate the actual manufacturing requirements of what these scooters or what these drones were looking like, that would start to disrupt the network effects and the costs of differentiation across jurisdictions. And so I hope that it can not only help us determine what technologies to preempt versus not, but also the types of regulation to preempt versus where to allow federalism.
Prof. Gregory S. McNeal: I think we have time for one last question qua comment. There’s one up there. The microphone is on its way.
Questioner 3: Thank you. It’s been my experience, I’m sure many of yours as well, that regulatory law always is very slow to catch up to technology. And I’m from the city of San Diego. I work downtown where about a year ago, a little more than a year ago, the dockless bikes magically appeared on the streets one day, followed shortly by the thousands of Bird scooters. They seem to be everywhere. And the City of San Diego and the Mayor’s Office and the city attorney had zero regulations whatsoever. They just let them show up one day. And now we’re a year down the road, and of course there’s been car accidents, personal injury matters, etc. and they’re now realizing they need to regulate these scooters. It’s primarily scooters in San Diego.
So my question for the panel is this, how do we ensure that the law keeps up with the technology and we have efficient regulations from the start of these great, new technologies that we’re seeing in many different aspects of our society rather than just lagging behind. Because right now, it’s turned into kind of a huge mess and debate. The primary users of the scooters in downtown San Diego are millennials that live downtown, and of course, there are older people like myself and business owners and property owners that hate the scooters and want them gone completely. So now there’s this huge tug-of-war, and it’s getting very political as opposed to having a good, efficient regulatory system in place when these technologies start.
William Goodwin: Yeah, so my response to that is everyone wants to give their power to the ring of power. They want that magical expert to come up with an efficient governance scheme, and even better that that scheme be in place prior to an emerging technology coming into existence. That’s a great vision, but it’s a great vision that will result in those emerging technologies never coming into existence. So my admonition to you is not particularly comforting, but it is a recommendation that you have to embrace the political. And I would much rather have the political be a local political dispute than what we have at the national level. The last thing I want is a national scooter policy. I mean, god forbid. The homogeneity of modern America is bad enough as it is. The last thing I want is some version of communist capitalism that gives us all a pseudo-efficient bland America where —
Prof. Gregory S. McNeal: — The Feinstein-McConnell scooter bill?
William Goodwin: — everywhere you go you have access to just the right amount of scooters is exactly the kind of dystopia that I fear. Rather, I think that we should be encouraging communities to engage and take ownership of these issues. And better yet, the actual individuals subordinate to the political jurisdiction to come up with solutions and remedies and then find, first, local attempts at solutions. Yes, there are many enormous costs. I mean, I led with the example of the obvious rent-seeking that folks engage in. One of the best examples that I was ever involved in locally was a client of ours who had been recently shut out of a local trash market. Sent me to a hearing about some complaints that had been raised about a competitor. And it was a landfill hearing on a Wednesday night, and if you’ve ever known that you’ve made wrong choices in your life, it’s when you’re at a [SCQAMD] hearing on a Wednesday night at 9 PM thinking, “Where did I go wrong?”
But it got worse because a bunch of, in this quasi-judicial proceeding, a bunch of folks came up to testify that know, they lived right next to the landfill, and they couldn’t smell anything, and they never heard the competitor’s trucks. They must be really quiet trash trucks. And every interview would end with, “And who do you work for?” And they’d say, “The trash company.” And it was an example of exactly what you don’t want to have happen at the local levels. So I yield to no one my fear and concern for the capacity of rent-seeking.
However, that’s where the battle should happen because I can wake up — because I haven’t gone to bed at 8 PM on a Wednesday, but I can go to that hearing and I can influence the outcome. I can’t influence almost anything in Sacramento and certainly nothing in D.C. So let’s be aware of ceding our authority to the ring of power and embrace the political fights which are messy and they’re unfortunate. But I think that’s what we need a lot more of.
Ryan Hagemann: I would agree wholeheartedly with Bill. I will caveat what I’m about to say by noting that I made a promise to myself that, not so long ago, that I would never come in specifically on these scooters because I just don’t care to. So as a general matter on the issue of how it is you plug that discrepancy and the pacing problem that you identified, I agree with Bill wholeheartedly. What you really want to do is you want to focus on regulatory regimes that exist at as local a level as humanly possible because they afford greater responsiveness to local, political machinery and the local population. And so the feedback mechanism is much shorter so you can actually get more flexible rules that respond to demands at a much greater speed than you can, say, through any standard APA rulemaking process at the federal level. Especially when considering the disparities in the amount of power and influence and resources that are required in order to lobby at the federal level versus the local level. I think it just makes natural sense that — if it was me, I would have a piece of federal legislation that would basically say, “For all new emerging technologies that have no existing federal agency apparatus to oversee their operation, automatic authority just evolves to the states where, then, empowered to further empower municipalities if it’s a Dillon rule state. If it’s a home rule state, then to the municipality go forth.”
Brooks Rainwater: So I think this may be something where we all agree because what you both are saying just makes a ton of sense. I think also, as we think about emerging technologies, the venture capital field model actually takes into consideration the legal and political arbitrage that’s going to happen in any given city because they are thinking that you’re going to go into some cities where you might drop 600 scooters and the city just takes them all and impounds them. Or fine you every day because you’ve gone in and kind of broken the law. And so I do think that the law is catching up rather quickly, and I think that we probably need to have it catch up even quicker. But having this happen and kind of play out within the city context will ultimately get us to a better place.
And I also would just mention a quick aside that it was probably about five years ago when I was at a rather large tech firm that is in the autonomous vehicle space. And one of their key people made the comment that, “We’re going to put these cars on the street and then we’re going to figure out the legal implications afterwards.” And so I think this has been going on for quite some time.
Prof. Gregory S. McNeal: Anything?
Caleb Watney: Yeah, the other thing I would add, just as I’m thinking, there can also be, I think, fruitful ways for maybe the federal government to incentivize experimentation without necessarily dictating a model. Because you also run into the problem where oftentimes, like local regimes can get very stuck in their ways. They don’t want to change. Nimbyism is a great example. And if you’re concerned about the fact that we don’t know what one model is the best to impose over an entire country, you can incentivize experimentation, right?
So you’ve seen bills to kind of do that with bail reform. Criminal justice is inherently very local level. But you’ve seen a couple bills to basically provide money and incentives to states to experiment with removing cash bail or replacing it with something, or seeing if there’s a better way to target it to actually assess the risk that’s happening. And I think you could imagine something similar happening for urban housing reform, for emerging technology, legislative frameworks.
And that also kind of gets back to the idea of how early are we in the technology’s development? I think if you had a general timeline of very emerging technologies versus mature technology, probably on average emerging technology, all else equals prefer a federalized approach because we just don’t know. But then again, as it gets more mature and as the heckler’s veto issues start increasing, then that may be a time to reconsider.
Prof. Gregory S. McNeal: I guess I’ll just offer you a little bit of hope on the way that this worked out. You mentioned that businesses and others in the community have been concerned about the way scooters were deployed and the way that it occurred. If you imagine an alternative scenario where, prior to anyone in the city of San Diego ever seeing a scooter, a scooter company went in and sat down with the government and got the regulation — or the government started to deal with regulations prompted by the most interested party who cared the most about scooters, the population who had never seen them and the company planning to deploy them, what would that regulation look like? As opposed to now where people have seen the negative externalities of the technology and may actually have something to say about where the technology will be and whatnot.
So you might actually now with democratic participation, interested constituents get a better, more optimal outcome than you otherwise would have. A few people along the way have been hurt, and hopefully the tort system is going to allow them to recover further injuries along the way. But you might get a better regulatory regime now with the lessons learned than you would’ve had we had ex ante regime that was put in place by only the interested party who cared to show up at the hearing when nobody else knew the thing that was coming.
Well, hopefully you’ll join me in thanking our panelists.
Head of Policy, Regulatory, and Legal
Technology Policy Executive
Senior Executive & Director, Center for City Solutions
National League of Cities
Director of Innovation Policy
Progressive Policy Institute
Professor of Law and Public Policy, Pepperdine University
Federalist Society’s Pepperdine Student Chapter
Pepperdine Law Review