With lockdown beginning to be eased, we know we’ve got a mountain to climb to get the economic recovery going as quickly as possible over the coming months and years. But with social distancing likely to be mandatory for at least the next few months, if not years, certain sectors, and innovators within them, could be damaged permanently unless they are able to rapidly adapt to the new conditions.
It’s clear that if we want the UK economy to survive Covid-19, we’re going to have to get inventive and allow people and businesses to innovate their way through it. Innovation is crucial to economic growth – in fact, it may be the most important single factor. But too often the government and society at large exhibit an overly cautious approach, emphasising the need for businesses and individuals to get permission or a licence before they can do or sell something new.
Take the hospitality industry – it’s the UK’s pubs, cafes and restaurants who will be perhaps the worst impacted sector. Apart from takeaways, they’re currently shut to the public, and long-term social distancing will inevitably limit the number of customers who can be served at one time inside. Margins are already tight, operating as they did pre-pandemic will doom many of these firms and millions of jobs with them. But we know that transmission outside is negligible, so such firms could easily safely serve many of their customers outside.
Unfortunately, in order to make use of the pavement, each cafe, restaurant or pub has to apply for permission to their local authority, with costs of £200 to £300 for every few tables and a wait time of at least one month and up to three months.
It’s a similar picture with beer gardens – these need a separate licence if the alcohol is served from an external bar. However, if the beer is stored and served in the pub and then brought out to the beer garden they don’t, as it’s covered under the pub’s licence. The fact that in both cases the beer garden is contiguous with the pub doesn’t matter. With such silly regulations, the omens don’t look good for trying to set up beer gardens in Britain’s public parks over the summer as some have suggested.
This is absurd – in terms of the cost, wait time, and unnecessary complexity. But it’s probably inevitable if innovation is seen as something suspect, which firms and individuals need permission to do.
What we should have instead is a system of permissionless innovation, whereby the government or relevant regulatory agency sets the ground rules and firms and individuals are then free to play around and experiment. Rather than applying for permission to serve customers outside, the government, or in this case the local authority, should issue simple guidance and rules about what is and isn’t acceptable. Firms can then read this and work out what they can and cannot do and experiment within these limits.
This means no cost in terms of time and money in applying and waiting for a permit or licence to be granted. Rather than enforcing standards via permit and red tape, the government should fine firms that blatantly disregard the rules, but allow all other firms to do what they want.
Permissionless innovation is usually a term just applied to the internet, where light-touch regulation has allowed a vast ecosystem of digital firms to spring up and countless innovations to be made, but it’s a term that can be applied much more widely. Not just to restaurants or pubs serving customers outside, but to any area.
Take e-scooters for example, as the Adam Smith Institute recently argued, the UK has been behind other countries in making them legal on roads and pavements. While most European cities allow them, the UK is only now considering it due to the pandemic. They are treated as if they are a dangerous innovation, despite all the evidence that they are no more harmful than bicycles and the fact that they already have to meet stringent product safety law in order to be sold in the UK.
As we’re learning in this pandemic, there is no such thing as zero risk – it’s all about balancing the costs and the benefits. We are overly cautious in how we treat new innovations, and this means that businesses and individuals are unnecessarily burdened and discouraged from experimenting. This inhibits both competition and variation, which is bad for the consumer but also for producers, as a less innovator friendly economy is also a less wealthy one.
In order to get the economy going at full steam after the pandemic, we need to abandon the overly restrictive precautionary principle of the regulatory state and adopt a mindset of permissionless innovation. This will free innovators and individuals to experiment and discover the new products and ways of doing things that consumers want and deliver the economic prosperity we all need.