Recently on EconTalk Russ Roberts talked with Duke University’s Mike Munger about permissionless innovation. The discussion focused on Mike’s recent essay on permissionless innovation, in which he claimed that “permissionless innovation, a strong presumption in favor of allowing experimentation with new technologies and with new business platforms that use those technologies” is the most important, fundamental idea in political economy.
In the discussion with Russ and the essay, Mike quotes the late 18th-century German philosopher Friedrich Schiller, who uses a particular dance form called the English dance as a metaphor for society:
I know of no better image for the ideal of a beautiful society than a well executed English dance, composed of many complicated figures and turns. A spectator located on the balcony observes an infinite variety of criss-crossing motions which keep decisively but arbitrarily changing directions without ever colliding with each other. Everything has been arranged in such a manner that each dancer has already vacated his position by the time the other arrives. Everything fits so skillfully, yet so spontaneously, that everyone seems to be following his own lead, without ever getting in anyone’s way. Such a dance is the perfect symbol of one’s own individually asserted freedom as well as of one’s respect for the freedom of the other.
The metaphor is beautiful and powerful. The English dance is an open-style form in which multiple couples dance in intricate patterns by following a specific series of steps (call those the formal rules of social order). But the dancers are not automata — each one follows the dance steps, the formal rules of social order, but does so in his or her individual way. Informal norms are also part of the broader institutional context, but they are less relevant when focusing on the beautiful pattern that the dancers create. The formal rules suffice to create the beautiful order, the criss-crossing patterns that, when seen at a systems level (as the spectator in the balcony sees the dance) looks like a beautiful and detailed design. Yet there’s no direct, individual intention of achieving that system design. The dancers have two objectives: to enjoy dancing with his/her partner and with other friends, and to stay out of each other’s way. The film clip above, from the 1995 BBC production of Pride and Prejudice, shows Elizabeth and Darcy dancing to Mr. Beveridge’s Maggot, a 17th-century English country song, at the ball at Netherfield (Jane Austen and Schiller were contemporaries).
Schiller (and Mike and Russ) points out a fundamental aspect of complex systems: at a system level order emerges from the interaction of individual actions and choices within an institutional context. The formal rules are designed, as are the steps in a dance, but the precise outcomes cannot be designed or determined in advance. They emerge from interactions and not from individual intentions. Within the formal rules people have latitude to determine how to act and what to do. As Schiller says, everyone follows his or her own lead. As Adam Smith says in the “man of system” discussion in Theory of Moral Sentiments Part VI, each person has his or her own “principle of motion”. Another Scottish Enlightenment scholar, Adam Ferguson, made the same point when he said that social outcomes are “the result of human action, but not the execution of any human design” (as Russ pointed out in the discussion). The principle Schiller identifies here is spontaneous order, unplanned order, order without design.
How does this concept relate to permissionless innovation? Within an institutional context, beautiful, pleasing, and harmonious social order can emerge. But what if the rules are too restrictive? What if the rules stipulate that only certain forms of dance are allowed and others are forbidden, either by the state or by incumbent dancers who have a vested interest in the existing dances and the political power to maintain the status quo? That restrictive institutional framework forecloses avenues of innovation that could produce beautiful, pleasing, and harmonious social order in ways that officials cannot predict (since it’s a complex system).
In such a restrictive environment British society would never have evolved to adopt the closed-form of dance such as the waltz, which became increasingly popular over the 19th century (although it had its origins in the 16th century in Austria). This clip from the 2009 production of Emma illustrates the point (at 1:07): Frank Churchill and Emma are planning a ball and trying out the dance floor. Emma very clearly expects an open-form “test dance”, but Frank innovates (as is his wont) and spins her into a quick, sloppy waltz.
The dance metaphor holds. Institutions shape incentives, including incentives for people to create new ways of making others happy, whether through dancing or through economic exchange. Permissionless innovation is the presumption that it’s OK to experiment with discovering new ways to make others happy.