Russ Roberts: What is the most important concept in political economy?… your answer, Mike, really surprised me. What was it?
Michael Munger: Well, I would claim… that it’s permissionless innovation. Now, to be fair, I’m talking about political economy. If you had asked me what’s the most important concept in economics, I would say, ‘Opportunity cost.’ It’s a hard concept. We don’t always understand it. And the reason we use prices is as a measure of the opportunity cost of resources. But, in political economy, in the thing that we use to understand why it is that some nations grow and prosper and others bump along near the bottom of the possible range of growth paths, I think permissionless innovation is the most important concept…
I say in the essay, there’s two sources of permission that an innovator might have to get. They are different, and each of them is really damaging… One is from the government. Let’s suppose that the government does have rule of law, and the rule of law says: You need to fill out all these forms; and you need to get the permission of these experts–because they are, after all, experts, in order to go ahead with this innovation.
So, if you had asked experts in computers in, say, 1979, 1980, should we spend society’s resources on microcomputers, on personal computers? They all would have said no. Politics works at the median, and experts are inherently conservative. So, you could have rule of law but still fail permissionless innovation.
The second kind of permission that’s damaging–and it’s amazing how often we do some version of this–is that you have to get the consent of competitors before you do something that’s going to harm them.
Munger makes a persuasive argument for permissionless innovation, a term I first heard from Adam Thierer.
I basically think of it as a new way of saying what Deirdre McCloskey has been saying all along, that innovation and real progress occurs when you let people “have a go.”
In the DOD, any new idea faces the same two types of permission: from experts and competitors.
The experts will come from all the different fields, operations research, engineering, military doctrine, and so forth. They can each say that the design is not feasible, or the cost will be too great, or the performance gains are questionable. Each of these will, in effect, have a veto.
The competitors will be the already established programs, as well as the new hopefuls. Any existing program can say that the new program is seeking a requirement that it is already fulfilling, which is often broad because we try to jam multiple missions into single platforms. Any rise of a competitor system might mean reduced quantities of an established system, which leads to higher unit costs, which might spiral into cancellation.
Then in the DOD you have other considerations, from OSD to OMB, and GAO to CBO. Congress authorizes particular program line items. So if your program is threatening an inferior program that already contributes jobs and revenues to certain Congressional districts, you can be sure they will push back. Your new program hasn’t received the same kind of stakeholder backing.
I am sympathetic to the idea that permissionless innovation is the most important idea in political economy. But it is interesting to think about what that means in Government sectors like defense, because after all, we require innovation there too. Are not these sectors supposed to operate with well-defined roles and straight-line hierarchies? If we want something like permissionless innovation in Government, how do we create public accountability when the market test is lacking?
Leave a Reply