Derek Khanna - What’s Stifling Innovation?
2014-08-03 · Guest: Derek Khanna (Former Republican staffer and technology policy expert) · 52:38
Legalizing cell phone unlocking and copyright reform
Bob Zadek interviews Derek Khanna, a former Republican staffer and technology policy expert, about his successful campaign to legalize cell phone unlocking. They discuss the intersection of copyright law and regulatory capture, the concept of “creative destruction” in the economy, and why the Republican Party needs to embrace “permissionless innovation” to appeal to younger voters and foster economic growth.
Topics: Cell phone unlocking, copyright law, innovation, regulatory capture, creative destruction, technology policy, Republican Party, permissionless innovation, Tesla, Uber
Speakers:
- Bob Zadek: Host
- Derek Khanna: Guest
- Rand Paul: Senator (Clip)
Introduction [00:00]
Bob Zadek: Hello everyone, welcome to the Bob Zadek Show every Sunday at 9:00 AM. I am your fired-up host, Bob Zadek. Thanks for joining me. 800-345-5639 to join the conversation. Why am I fired up, you ask? Four days of liberty at the Cato University annual week of discussion and lectures. God, was that fun. Four days of Jeffrey Miron, economics professor rockstar at Harvard University; Randy Barnett, law professor who led the charge against Obamacare before the Supreme Court. What a week it was. Happy to be back. Thanks so much for listening. We are the only live libertarian talk radio show on the air all weekend. The show of ideas, not attitude. No sirree, Bob. Thanks so much for listening.
Today’s show could accurately be subtitled “One Person Can Make a Difference.” Today I am happy to spend an hour with Derek Khanna. Derek is a young GOP activist. Derek spent roughly the year of 2012 laboring in Washington for the House Republican Study Committee, which publishes issue position papers on various issues of importance to Republicans, indeed to the country. And most importantly, most importantly, Derek almost single-handedly enabled everybody listening to this show, indeed everybody in America, to get far more pleasure at a far lower cost with far more freedom from your cell phone. Next time you hug your cell phone and thank God that you have it and enjoy the low cost and flexibility, you have Derek to thank.
As you will learn, Derek was able to persuade the White House, Republicans, and Democrats to take a position adverse to that of big business. Derek led the charge against the croniest of crony capitalists, “Big Cell” as I can call it, and won, and all of us are the beneficiaries. Derek will help us understand how the croniest of crony capitalists is that sinister rodent, Mickey Mouse. Derek, thanks so much for joining us this Sunday afternoon.
Derek Khanna: Thanks for having me on. That was quite an introduction.
Bob Zadek: Well, I’m fired up, Derek. I can’t help it. A week of libertarian lectures and there’s no holding me back.
What is Cell Phone Unlocking? [01:30]
Bob Zadek: Now Derek, the accomplishment that I will spend some of the time on this show discussing, because it has profound implications, dealt with the issue of cell phone unlocking. Now first, tell us about what cell phone unlocking is and the history of how you took on so many established forces and actually, one person who had right on their side, carried the day and won over the White House, the GOP, and the Democrats to the profound and long-lasting benefit of all of us. What is cell phone unlocking and why do people who are listening to this show care about that?
Derek Khanna: Great, so let me start there before we start using terms that users may be unfamiliar with. So phone unlocking basically means taking an AT&T phone to Verizon or T-Mobile or Sprint. Now, it’s a little bit more complicated because the phones sometimes differ on technology, but assuming that you can go from one network to the other, you have to unlock the phone—essentially remove the protection that the phone has just to be locked to one carrier. And that technology is very common in pretty much every other country around the world. Actually, when you get off the airplane in Europe, they’ll sell you a SIM card, you just pop it in your phone and you can have a local phone number in the EU and text people and get internet for a pretty reasonable rate. So that’s what phone unlocking is.
Bob Zadek: So phone unlocking allows you to take a piece of hardware, your telephone, and to free you so you can use any provider’s services. You’re not locked into the services of the provider which was installed in the phone when you bought it. Now, it seems so obvious. It’s your phone. Why shouldn’t you be able to pick the provider? So, what was the reason that cell phones were locked to begin with?
Derek Khanna: Well, they’ve always been locked by the manufacturer, but the issue is whether or not the consumer could unlock it. And it’s always been on very complicated territory under US copyright law, which is one reason why technology is so available around the world and so important to competition in other wireless markets, but yet most consumers don’t even know about it.
Copyright Law and Regulatory Capture [03:51]
Bob Zadek: And copyright law—just so our listeners and our friends out there understand—copyright law has been around since we have had a country. It is specifically provided for in the Constitution. And copyright law, intellectual property law—copyrights, patents, trademarks—copyright law is a government-created monopoly. If you invent something that is new and you publish your invention, you tell everybody exactly what it is and how it works, then the government says nobody can use your intellectual property without paying you a royalty. And copyrights are not forever, but copyright laws have a finite period so that after the period expires, the copyright, your invention, is in the public domain and anybody can use it for free. The reason we have copyright laws is without it, there would be no incentive to invent anything, because if you spend a lot of your time and intellectual energy inventing something and somebody else could just copy it—a free rider—there’s no incentive to invent. So the founders long since believed that to give an incentive to the marketplace to create things, we have to protect it for a limited period of time with a monopoly. And just as an aside, the formula for Coca-Cola is not patented. Anybody, if you knew what it was, could use that formula for free, because Coca-Cola says we’d rather not publish it and we’ll run the risk of somebody figuring out what it is, but we don’t want to make it public. So that’s the law of copyright in a nutshell. Sorry, Derek, let’s go on.
Derek Khanna: Sure, if I could just jump in there. One important thing to add is that copyright law, in opposition to patent law for example, copyright law is strictly about incentivizing content creation. The word the founders used was actually “the sciences,” but by that they meant the creation of content: writing, books, maps, now music. And so it’s very unusual, it’s actually basically an accident, that a law designed to foster content creation is now being used to protect the monopoly profits of big mobile companies. There’s no real connection in the law about why the consumer unlocking their phone should be under copyright law.
Bob Zadek: So now we have “Big Cell”—a term I’ve just invented now—Big Cell, because we have big everything else, so why not have Big Cell? So now we have Big Cell who takes advantage of copyright law to prevent a consumer who owns the hardware, the cell phone, from picking the carrier of their choice. Let’s go on with the story, Derek, and let’s see how you made the world a better place for all of us.
The Librarian of Congress and the Ban [05:21]
Derek Khanna: Sure. So in 2012, I was in Congress. I worked for a group called the House Republican Study Committee, which is a caucus of about 170 conservative guys, Tea Party type guys. And we were working on different policy ideas on technology and put out this big report on how to reform US copyright law. And one of the things that we argued was that copyright law is increasingly being misused by special interests that can kind of co-opt these mechanisms that, again, we both support copyright, we want to help content creators, but it’s being misused by these companies who see this as a regulator in the middle of the night that they can take advantage of. And about a month after that report, the Librarian of Congress decided to ban phone unlocking in the United States. And in practice, that made it a felony punishable by five years in prison for a consumer to unlock their phone device. And that was because the big phone companies had lobbied the Librarian of Congress. And so it was basically exactly what we were talking about: a regulator that no one had ever heard of, the Librarian of Congress, adjusting a law that few were aware of that impacted the market in a way that no one was really sure was going to happen.
Bob Zadek: And of course, if we stop the story right there, what we have is we have a very significant item of regulation, actually legislation, a very significant item of legislation becomes the law simply by dint of the pen. Remember, “I have a phone and a pen”? Interesting dichotomy, a phone and a pen. So the Librarian, by a stroke of the pen, says to every American: “That cell phone you own, if you want the freedom to use it as you wish, no sirree, Bob, you cannot use it that way.” So now we have Big Cell gets to the Librarian and, using the crassest form of crony capitalism, gets protection from consumers—perish forbid—changing carriers on the phone they own.
The Campaign for Unlocking [06:41]
Bob Zadek: So Derek, we have the Librarian now criminalizes using your phone the way you want. How does the story continue?
Derek Khanna: So as for myself, that report we wrote on copyright became extremely controversial. Actually, the organization had to take it offline, it received that much controversy. And I left Congress shortly thereafter. And I decided that this was one issue that we really needed to put our foot in the ground and say, “You know, we’re not going to take it anymore. This is absolutely ridiculous.” And I know a lot about the wireless market in particular. There’s over 100 wireless carriers in this country, and if this ruling was allowed to stand, it would have just decimated the wireless industry because it’s very difficult for a new wireless carrier to compete with AT&T and Verizon and T-Mobile if they can’t have access to the premier phones.
So I started writing about this issue and advocating on this issue and giving speeches on this issue. And I teamed up with an entrepreneur out of San Francisco named Sina Khanifar, whose company had offered unlocking for consumers and they had actually been shut down. So he had a lot of personal knowledge of kind of this problem and how it was affecting innovation in the free market. And so he created a White House petition and we teamed up on that effort. And the White House petition process is sponsored by the White House. Anybody can create a petition, whatever they want. But the White House had just raised the total to 100,000 signatures. So you had to get 100,000 people to sign on a White House website, to give their email addresses, which a lot of people didn’t want to do, within a month. It was a very short time span. And no one had ever been able to hit 100,000 signatures, the new requirement to get a response from the White House.
Bob Zadek: It should be mentioned just as an aside that Obama, when he—in his approach of having a “transparent,” lots of laughs there, a transparent administration—he promised, he famously promised that if petitions are submitted to the White House with—what was the original number, Derek? I think it was 10,000, but I don’t recall. With a certain number of signatures, the White House promised to read the petition and to act upon it. And what happened was the White House got so many petitions they couldn’t do it, so they upped the ante to 100,000. And notwithstanding that much higher bar, Derek was able to, in a very short period of time, accumulate well above the 100,000 signatures.
Derek Khanna: That’s correct. And during the whole campaign for that month, we did a lot of television, a lot of media, a lot of writing, a lot of speaking. But I went back to a lot of people I knew in Congress and said, “This is a real opportunity for Republicans to lead on this issue. I mean, Republicans got elected saying that they cared about the free market, they got elected saying they cared about getting the economy back on track. Let’s actually fix this problem.” And I heard over and over again from members of Congress and their staff, “Gee, you’ve got to be crazy to expect us to take on the big phone companies.”
Bob Zadek: So this was a question of the regular people—this is ground-up as ground-up as one can be—this is at the top pushing pressure on Congress was Big Cell, and Congress, Democrats and Republicans, were caving into Big Cell. But we have Derek and 114,000 approximately other people pushing from the bottom up, putting pressure on Congress, all the while Big Cell is showering Congress with money and threats and whatever Big Cell does to get their way.
Derek Khanna: Absolutely. I mean, AT&T and Verizon are each top ten lobbying companies in Washington, D.C. So we were taking on two of the ten biggest lobbying entities in Washington, D.C. And on our side, you know, I’ve never lobbied, I’ve never taken money from any company, no tech company lobbied on this issue, no phone company lobbied on this issue. There was no money behind our effort, there was no organization behind our effort. It was simply a matter of people rising up, particularly digital people, tech people, who—just a truly grassroots movement that said, “This is ridiculous.”
I think it was one of our advantages, though, was that it wasn’t big business versus big business, you know, he said she said. It was 114,000 average people who had no money, had no financial stake, just saying, “Fix this problem.” And the phone companies had basically no argument except they said this was going to hurt them. So when I talked to Congressmen, I said, “What would you do if somebody in your district was arrested and sent to jail for five years for using technology that you can get in 196 countries around the world? I mean, what would your response be?” And they said, “Well, that’d be crazy.” And I said, “That is the current law. And even if no one gets arrested under this phone unlocking ban, it has an impact upon the free market. It drives down competition and it destroys the resale market.” So no one has to get arrested for it to actually shore up the profits and basically be corporate welfare for the big phone companies.
Political Success and the White House [09:41]
Bob Zadek: Now Derek, what’s maddening to me as you tell this story, what’s maddening is here you have the Republicans wanting to position themselves as free market, competition, little guy, anti-crony capitalist. They hope to position themselves, and here they have the chance of a lifetime, and yet you had a fight and fight and fight to win them over. They didn’t naturally just gravitate towards you. You needed 114,000 signatures. What are these guys thinking? Here is an issue that is so pure and so consistent with how they present themselves to the public, or would like to, and yet you had a fight like the blazes to get them in the program.
Derek Khanna: Well, we would eventually get a lot of support from Republicans, but that would be later on. But my answer is, I mean, you’re out in California, so I’m sure this technology stuff comes more naturally to you. But in Washington, D.C., they’re pretty far behind the times on technology. I mean, a number of Congressmen still don’t have a Twitter account. This technology stuff goes over a lot of people’s heads. And that’s one of the biggest problems here is that when you have Congress, I mean, you have executive regulators making decisions that impact technology that few in Washington are really familiar enough with the subject to properly oversee it or properly implement it. It really creates a situation where big companies can take advantage of that information imbalance.
Bob Zadek: So how did you finally carry the day? When did you know you were on the road to success?
Derek Khanna: Well, we got 114,000 signatures on the White House petition, but to be entirely frank with you, I was hoping Republicans would support us first and I didn’t expect the White House to come out and support because the Librarian of Congress, even though it has “Congress” in the name, is actually appointed by the President. And this process is an executive rulemaking process. So basically we were asking the President to decide that his own department screwed up. And I know enough about Washington to know that that’s a very unusual situation to happen. But when we got 114,000 signatures, I actually got a phone call from the White House the day of, and they told me on the phone, they said, “We want you to know that we’re going to be releasing a statement in the next ten minutes, and the White House agrees with your petition. In fact, we would go further.” And that was really the start of the cascade—the White House giving credibility to this issue and saying that they would support legislation, the Federal Communications Commission initiating an investigation into the matter and eventually forcing the phone companies to allow for consumers to unlock, and even the Librarian of Congress was forced to issue his own statement. And that really provided a lot of momentum, and very soon thereafter we had Republicans jump on. Congressman Jason Chaffetz tweeted me immediately after the President and said he’d be introducing legislation. And so that really started the whole groundswell, taking something from the grassroots and actually bringing it through the legislative process.
Bob Zadek: So what the story is, is that it took the White House to drag the Republicans onto your side. How shameful is that?
Derek Khanna: I’m not sure I would put it entirely that way, but at the end of the day, getting this through, taking on big business that was fighting us every step of the way, really required Republicans, Democrats, and the White House. It wouldn’t have been possible without all three.
The Bill Signing and GOP Tech Branding [12:09]
Bob Zadek: This is Bob Zadek, I’m talking with Derek Khanna. Derek is a GOP—was a GOP staffer in Washington. He single-handedly delivered to all of us freedom to use our cell phone as we wish. The story has so many lessons to it: how one person can make a difference, the importance of technology in the American economy, and how crony capitalists can be defeated if we have the right issue. Derek took on a whole lot of very strong established people and actually won over the White House and Congress. There was a headline in a tech journal—it was in one of the tech newspapers, TechCrunch.com—and the headline tells it all: “How a Fired Republican Staffer Became a Powerful Martyr for Internet Activists.” Derek, thank you for taking the time off from your martyrdom to share your wisdom with us. By the way, one byproduct: Obama, good politician that he is, this became Obama’s bill. And there was one news broadcast that I’m just going to play the clip to show you how this became not Derek’s bill, but Obama’s bill. Raymond, if we can play clip number four.
News Clip: President Obama is signing a new cell phone law, but it’s probably not what you think. Government and cell phones have been tangled up in all kinds of security legislation and courtroom battles in recent days, but Obama’s new law doesn’t affect any of that. Instead, the Unlocking Consumer Choice and Wireless Competition Act forces service providers to allow all phones to be available to other providers once their contracts are over.
Bob Zadek: So this became President Obama signing the bill. It should be “President Obama signing Khanna’s bill,” but it is not. So unfortunately, like many martyrs, you labor somewhere in the backwoods of obscurity, but we—me and my listeners—know Obama has stolen your thunder. So amongst my listeners, we know the truth, Derek.
Derek Khanna: Well, you know, I’m okay with anybody stealing my thunder as long as we’re getting stuff done. And the reality is this campaign had a lot of people that helped us along the way, a lot of other individuals and a lot of Congressmen, including Republicans like Chairman Bob Goodlatte and Thomas Massie. So, you know, if Obama wants to claim credit for it, that’s fine as long as we’re doing more stuff that’s free market oriented, then I’m a happy camper.
The GOP and Technology Policy [14:51]
Bob Zadek: Now Derek, there was a conference in San Francisco on the subject of the importance of technology and for the GOP to be on the correct side of this issue. There was a technology conference in the Bay Area a very short time ago called Reboot, and I believe you spoke at that conference.
Derek Khanna: Yes, that’s correct.
Bob Zadek: Tell us about the conference and what were the bullet points of what you were hoping to impart upon the members of the GOP who were here.
Derek Khanna: Well, it was a conference of a large number of what they called “conservatarians.” So it’s liberals and conservatives that agree on a series of principles and ideas coming together on technology. So it was both digital activists—those who know how to use digital tools to win campaigns, they’re trying to get the GOP up to speed on social media—and also a lot of people in the tech policy space: myself, several Congressmen, Senator Rand Paul gave quite a stirring speech, and also some startups that had been really affected by regulations and laws were there to talk about some of the issues they deal with. And I thought it was very important because there’s been a lot more attention being paid on the right to digital campaigning and social media, but in my opinion, it’s not enough, which is: yes, Republicans should probably use the tools that are going to get them elected, and that’s a logical thing. But once they get elected, are they actually going to enable free markets? Are they actually going to stand up for innovation? Because we know that’s how you get economic growth, that’s where new jobs are coming from. But yet, in the past, we’ve basically had Republicans who get elected and don’t understand technology policy. And so that’s the real important thing for me that I talk about, that I had a recent cover story about, and I think more Republicans are starting to embrace. I mean, Senator Rand Paul, for example, spoke quite extensively about Uber and Tesla and occupational licensing and addressing NSA surveillance, and we need Republicans to lead on all those types of issues.
Bob Zadek: Now, all of these issues would make wonderful, wonderful elements of a campaign platform. The very issues you mentioned, which was Uber—I’ve done a show on Uber as my listeners will recall—where Uber is simply technology which is reshuffling the marketplace, the free market, and there is of course lots of resistance by taxi cartels in various cities and by regulators who can’t stand technology getting out in front of their regulation. And the Republicans as a party have been relatively silent and not been quick to recognize that these issues are very important to consumers, to Americans, to entrepreneurs. And in point of fact, as we all know, while there are very strong cell phone lobbyists and Hollywood has a lot of lobbyists, there are no lobbyists to do what Derek has done, which is lobby for us. There is no National Association of Everyday People who is in Washington protecting us. Presumably that’s the job of our elected officials, but they don’t because they respond to the stimulus of money and power. So the lesson is that there is this great unrepresented constituency up for grabs, and the Republicans, to their discredit, are slow, but to their credit, moving in that direction. And Uber is one example. Every user of Uber loves it. The cab companies hate it. And yet the Republicans have not been strongly in favor of technology creating new marketplaces and support of those marketplaces.
Creative Destruction and Regulatory Capture [16:41]
Bob Zadek: You have to be able to let go of old businesses, so-called “creative destruction.” And Derek, if you would, the audience might be unfamiliar with creative destruction. It is an important Austrian economics concept. Tell us about creative destruction and how it plays into this.
Derek Khanna: Okay, I’ll give Economics 101. I’m sure many of your listeners know, particularly out in California, but economic growth comes from figuring out new ways to do things that people hadn’t thought of before that are more efficient for the economy—so-called innovation: new products, new services that are better than before. And the economist Joseph Schumpeter came up with the term “creative destruction,” which is basically new companies coming in the fore, providing new services, and forcing incumbent firms to innovate or die. And the “die” part is very critical, which is that if you’re not allowing for old companies that refuse to innovate to die, those old companies are going to stay on and hold on to old market models, and we’re going to be continuing to be using vacuum tubes when we could be using transistors. And the list goes on and on. So you want that churn in the economy, and you can see that properly functioning where the Fortune 500 over the past 80 years, I think there’s only about 12 companies that are still on the Fortune 500. So you have this churn in the economy.
But what seems to happen is these big companies, when they start facing a challenger, particularly disruptive innovation—so small challengers with a perhaps inferior product but gaining in market share—when they start realizing that they’re in trouble, instead of innovating because that’s hard, they often just come to Washington, D.C. and open a lobbying office and lobby Congress for a law or regulation to protect their market model. And we see that happening more and more every day, and actually innovation is slowing down in this country, and I would argue as a direct result.
Bob Zadek: And so what happens is when companies can’t compete on the merits, when old industrial companies are losing out and they cannot compete on the merits—they offer an inferior, overpriced product and simply don’t know how to come up with a better product—they run to Washington or to state houses and seek governmental protection so they are kept on life support artificially, which means everybody in America pays out of their own pocket just so an inferior product can not be competed out of existence. And we need the opposite.
Now Rand Paul, Rand Paul has recognized the importance of this. Raymond, if we can play clip three.
Rand Paul (Clip): I think Republicans can only win in general if they become more “live and let live,” “leave me alone.” The “leave me alone” Grover Norquist will talk about this sometimes, this “leave me alone” coalition. But the coalition in order to work—and this is what a lot of people don’t realize—they say, “Oh well, we want Republicans just to be the pro-choice, pro-gay marriage party.” It may not be that, but it may be that there will be people in the Republican Party who have those positions and some who don’t, and that we kind of all get along because we believe in limited government and then we acknowledge, you know what, maybe the federal government’s not going to be involved in some of these issues anyway. And I think that “live and let live,” “agree to disagree” kind of amalgamation of people in the party will allow us to be big enough to win. And I agree with you like on young people, but I think also some other libertarian issues like the right to privacy, the NSA overzealousness and overbearing NSA. Young people are concerned about the cell phone, that’s the main thing they deal with every hour of every day. And I think if we became the party that is going to protect their privacy, I think you could get a large switch of Republican votes.
Bob Zadek: So Rand Paul recognizes—notice his reference specifically to the cell phone—Rand Paul recognizes that government must take a step back. He summed it up beautifully: “Leave us alone.” Stay out, let us grow the economy, let us innovate without having government cooking the books as if you have a sporting event when the team that’s losing gets the referee to skewer the result in order to favor the inferior team. It’s just not how we have grown in the past and how we can grow in the future.
Now Derek, your sweet spot of course is technology. And what are the frontiers of technology and what position would you want actually both political parties, but in this case the GOP because you’re involved, how might the GOP take positions that favor technology and therefore favor everybody listening to this show?
Derek Khanna: Well, I mean, Uber is banned in a number of jurisdictions, specifically cities where Republicans have had difficulty competing historically. Republicans should be championing that issue in every city across the country because, quite frankly, nothing else Republicans are doing is resonating with young people. But the polling data is pretty absolute here: that these types of issues, standing up for free markets and innovation, actually polls very well with young people. So Republicans should be talking about this in every city across the country where they’re banned, cities like Austin, Texas. And we just shouldn’t tolerate from our Republican elected officials enacting cronyist policies. Particularly as we go into the 2016 cycle, I mean, some of these guys have some explaining to do. Governor Rick Perry, if he runs for office, you know, they banned Tesla from selling cars to consumers. Now Tesla, of course, had government subsidies and handouts and I get those criticisms, but in Texas, it’s illegal for Tesla to sell cars to the consumer through a Tesla dealership. They can’t even tell you how much the car costs.
Bob Zadek: And that’s a Republican governor. And also I should mention that Chris Christie, who is a classic RINO governor, but Chris Christie also was unsympathetic to Tesla and I should mention, therefore, sympathetic to Big Auto because he was protecting the franchise network. My listeners will remember that about two or three months ago I did an entire show on Tesla and the fight they were having in overcoming archaic franchise laws that protect automobile franchisees. But here are two issues that the Republican platform should be: not supporting Tesla per se, but rather supporting innovation. Because Tesla, the two industries or the two companies that Derek have mentioned are both technology-driven: Tesla and Uber and Lyft and the others, they’re all technology-driven. And if Republicans became the party of innovation and technology, if that became the mantra, if that became the platform, instead of abortion and immigration and all of this self-destructive, self-destructive, outside-the-mainstream approaches, if all they did were embrace technology and innovation and if all they did was take a position that says, “We oppose any policy that protects the old and stifles innovation,” they would grab the young people, it would be a policy that’s good for the country and that’s good for every single one of us.
Derek Khanna: Absolutely. And it would accomplish a lot of Republican goals. I mean, the economy is growing on a good day at just under 2%, which is anemic. And the American people are being told, you know, basically this is just what happens in a developed country, you stop growing. But yet as a tech sector, you see growth at about 7.8% GDP annually. And so the solution is: have more things growing at 7.8% GDP more, allow more things to innovate. And then gradually the overall GDP for the United States is going to grow closer to 7.8%. And if the economy grows at 0.5% GDP more—relatively marginal—it takes care of most of our long-term debt and deficit problems. So these are really things that Republicans need to embrace. And these things are bigger than just one company. I mean, I like Tesla, I would love to drive a Tesla, but it’s not about Tesla. I mean, they’ve done studies on this that say that these type of rules add about 12% to the cost of buying a car. So every American in this country is paying a 12% tax, not to the government mind you, not to create social services that you may or may not want, but just to crony capitalists, to people who are getting rent from the economy. And I would actually argue that those types of laws are the reason why you’ve had almost no innovation in the automobile sector in the United States. Because one of the ways you can measure innovation is how many new market participants you’ve had. And the car market, of course, is a massive multi-trillion dollar market, the second most expensive thing anyone buys. Well, in that market, the last new entrant to enter the American car market, an American company, an American car company…
Bob Zadek: …was Chrysler.
Derek Khanna: …was Chrysler Motors, 1936. And then Tesla. The fact that there have been no successful new entrants in that market in 75 years tells you everything you need to know. Something’s wrong there. Something is not working properly.
Bob Zadek: And the weird thing about it, as I discussed on my show when I covered Tesla, the weird thing about it is it’s not an issue—well, of course there’s large, the entrance into the market is very expensive, we know that because of the manufacturing needs, a lot of which can be outsourced. But the real bar to entry is the established franchise system, which operates as a terrible—witness Tesla—as a bar. So it is the delivery system that prevents new cars from entering the market, not the cost of building the car itself. And just imagine if we didn’t have this artificial franchise system protected by laws in all 50 states and by federal law, so that you can’t—in the Tesla case, Tesla in most states is denied the right to sell cars other than through a franchise dealer. They can’t have a Tesla store the way Apple has an Apple store. Imagine if Apple were required to sell their products only in Best Buy and only through other dealers. That’s not the Apple model, but that’s the Tesla model. And Uber is the same thing. The resistance is the established industry that’s at risk, in this case the cab industry, which has cartels in most American cities where you have to pay to play and therefore you can’t just get a driver’s license, put an app on your cell phone and you’re in business, which is the Uber model. It’s those bars, those bars to technology that hurt every consumer in America. There is no natural enemy to technology other than the established businesses. But Americans all benefit. So if the GOP would simply say, “We support any legislation that will bring new and better products to Americans at a cheap price and provide choice,” how could that not be a winning platform? And just get rid of the social issues and support sound economic policy.
Permissionless Innovation [18:57]
Derek Khanna: Absolutely. They actually did a focus group after the 2012 election on kind of what went wrong, and it was put on by the National College Republicans with a well-known pollster called Kristen Soltis Anderson. And she said that young people didn’t vote Republican because they believed that the party had simply nothing to offer them. And she concluded that there’s a brand, and that brand is that the Republicans are not in the 21st century. But one interesting thing that they said in that report was from one of the participants. She said, “I think that the Republicans should kind of figure out what barriers to competition there are and work to reduce those barriers.” And it’s like such a simple observation, I feel like every member of Congress should have that framed above their desk. That is their job: get more competition, more innovation, more free markets. And those types of ideas actually resonate with young people. What doesn’t resonate with young people is cronyism, the Ex-Im Bank, picking winners and losers, government bailouts, just more of the same.
Bob Zadek: Occupational licensing, a show and a topic which has been the subject of many shows that I have done over my six years, which is occupational licensing. How so many Americans need to get a license. I despise, I despise the word “license.” “License” suggests permission, governmental permission. “Oh government, may I please be permitted to braid hair? May I please be permitted to organize and to make a floral bouquet or to decorate somebody’s apartment?” This whole concept of licensing, that you need to, as a supplicant, beg permission to earn an honest living. I can’t even say the words without the veins bulging in my neck. And those issues will resonate so strongly. “We support the right of people to earn an honest living without barriers.” That’s such a winning platform, and the Republicans have so far just left it on the ground, ignored it as a platform.
Derek Khanna: Absolutely. I mean, the term that they use in Silicon Valley is “permissionless innovation.”
Bob Zadek: Now explain that. That’s an important concept. Explain the concept of permissionless innovation.
Derek Khanna: So the idea of permissionless innovation is, you know, you have an idea, you gather your friends together, you bang out an iPhone app or a new website and you launch in the morning. You don’t have to ask anyone for permission or get some sort of a license or hire a lawyer to figure out what the regulatory environment is or pay off your local city council member or something nefarious. You can just launch your idea, and it’s not a guarantee that it will succeed—I mean, most of these ideas fail—but you can launch an idea and it may become the next Twitter, or it may become the next Friendster and go out of business. But the idea of permissionless innovation is creating an environment where you can kind of let that happen. And for most things on the internet, those examples are basically permissionless innovation. When Mark Zuckerberg created Facebook, I think he just launched it without asking anybody for permission. But if you want to create a new car manufacturer in the United States, oh boy, that is the opposite of permissionless innovation. I mean, you’ve got to get a gaggle full of lawyers before you even get an engineer on your team.
Bob Zadek: Boy, do I like, as a campaign phrase, does that sound cool: “Permissionless.” The very term “permissionless,” I want to tattoo it on my arm. What a world without permission. Oh my goodness, where do I sign? So permissionless innovation is the opposite, for the most part, of what we have in the American economic system today, where you need permission, a license, to do anything towards earning a living. Derek, thank you so much for sharing your wisdom with us. Derek, how can people follow you if they wish to follow your writings?
Derek Khanna: Easiest way is to follow my Twitter account, which is my name: @DerekKhanna.
Bob Zadek: Thank you so much for sharing your wisdom with us, Derek, and keep on fighting the good fight.
Derek Khanna: I will. Thanks for having me on.
Bob Zadek: Bob Zadek thanking you for listening. Had a wonderful time sharing my hour with you. Hope to speak to you next Sunday. Have a good day.