I was honored last week to attend the Fourth Annual Law & Entrepreneurship Retreat, hosted by Gordon Smith at the BYU Law School. It was a wonderful collection of legal scholars who focus aspects of their teaching and scholarship on legal issues affecting entrepreneurs and innovation. Several of the papers and much of the general discussion considered innovation, particularly whether we can or should attempt to regulate innovation and related risks. The economic crisis provided the general context for this discussion; should we restrict or monitor innovation in the financial industry and, if so, how can we perform those tasks effectively?
I was struck by several things during the conference, including the universal and recurring nature of the innovation conundrum. I realized as we were debating solutions to abuses of credit derivatives that the proposed subject of regulation was novel, but the problem was not. We struggled with governing “the marriage of steam power and iron rail” in the late 1800s (see sample of related text here); it is a habitual problem in the biotech, energy, intellectual property and other fields (see here, here and here); and the problem is not confined to the United States (see here).
The recurring Hobson’s choice lies in the nature of innovation itself—to innovate is to create something new or different. As one commentator observes, “Genuine novelty knows no rules. We cannot reduce to routine what we do not know. Yet of course we cannot resist trying.” (See here at 1.) And innovation is often a very good thing (see here). So the challenge is to mitigate the negative side effects of innovation without stifling it altogether. (For a discussion of the regulation choices and challenges in the financial product context, see here, here and here.) Certainly easier said than done.