The Department of Transportation is giving away $50 million to the American city that makes the best use of new technologies to change the way we move.
The Smart Cities Challenge is designed to create a robust discussion about innovation and technology in American cities — including autonomous vehicles, and on-demand services like Uber. “We want people to be bold,” said Transportation Secretary Anthony Foxx.
Unfortunately, federal regulations make innovation difficult. With that in mind, here’s a bold suggestion, allow cities to opt out of certain federal regulations. This would encourage innovation and the use of new technologies.
If we want cities to think boldly about innovation and technology, we must also address the problems with the current regulatory framework. Historically, uniform federal policy helped to create the single market which drove American economic growth. However, more recently it is becoming apparent that such regulations are inhibiting innovation. Sergey Brin, founder and CEO of Google, has said, “Generally, health is just so heavily regulated. It’s just a painful business to be in.” The most innovative companies in America are being scared off from investing in some of its most vital industries because of overregulation.
Take, for example, the Amazon drone program. Previously regulated by Foxx under the FAA, it has now relocated to Canada. With the evolving speed of the technology, the FAA was simply too slow in creating a regulatory framework. As part of their Smart Cities pitch, Seattle, for example, could create their own regulatory framework for drones. With the approval of Seattle, the state of Washington, and the FAA, Seattle could implement their framework on a temporary basis with the possibility of permanence if deemed a success.
Making our regulatory system opt out instead of mandatory would require a change in how we think about regulation. It would mean a return to Justice Brandeis’s notion that states, or cities, should be laboratories for democracy: a recognition that innovation and the creation of new ideas are not served by a single, slow moving bureaucracy.
Implementing such a proposal would be practically straightforward, though politically difficult. First, there would need to be some agreement on the classes of federal regulations that cities could opt out of. Some regulations, such as the Civil Rights Act, would be off limits. Others, such as the drone framework, would be included. However, deciding where exactly to draw the lines would require careful consideration. Second, Congress would pass a law allowing for cities to opt out of a class of regulations, simultaneously creating a body to design the precise process for opting out.
Ultimately, an opt out system would spur regulatory innovation. For example, Seattle, if successful with drone regulation, would see their system quickly copied by San Francisco, then New York and Washington DC, before spreading throughout the country. Rather than lagging behind technological process, cities would be incentivized to create regulatory schemes that attract innovative companies and individuals.
We are losing our edge in innovation because of an outdated regulatory system. To regain our competitive advantage, we must build an environment that welcomes innovators, risk takers, and entrepreneurs. An opt out regulatory system will offer cities a chance to build that environment.
Mark Lutter is a PhD economics student at George Mason writing his dissertation on proprietary cities.