Government Regulation Stifles Innovation

Question: Will technology reshape capitalism in the future?

Peter Thiel: Technology and capitalism are very much linked.  I would frame the link a little differently.  I think that capitalism probably works best in a technologically progressing society.  In the developed world, technological progress means that you can have a situation where – where people – where there’s growth, where there’s a way in which everybody can be better off over time.

If you have technological progress, that will encourage more capitalist system.  On the other hand, if you don’t, if things are stalled, you end up with much more of a zero sum type thing, where there’s no progress and basically everybody’s gain is somebody else’s loss.  And that, I think, tends to encourage a much less capitalist system, and that’s where you sort of get a you know, what are often called a bull market in politics, but politics becomes more important, people become more interested in using the government to get things for their particular interest group and the whole thing can sort of spiral downwards instead of – and become a vicious cycle where more government regulation leads to less technology, leads to demand for even more politics to redistribute the pie that’s no longer growing.

We have seen technological progress in the last few decades in computers, the internet, and we’ve seen a lot less in areas like transportation.  So you know the fastest airplanes was the Concord in 1970 they’ve gotten slower over the last 40 years.  Medicine, healthcare has seen some progress but it’s been pretty limited the last 20 years where the development of new drugs and treatment seems to be badly stalled.  Energy is an area where there’s been very limited progress and the actual cost of oil was $3.00 a barrel in 1973, and today it’s around $85 a barrel, even inflation adjusted, the real prices have gone up because somehow we have not been making enough progress in developing the technologies for alternative and cheaper types of energy. 

As a Libertarian, I tend to think it’s interesting at least that a lot of these sectors correlate with places where there’s heavy government regulation.  A government is not regulated – the computer industry where the internet they thought that, you know, Bill Gates working with his computer in his parent’s garage was not a really interesting or important thing, not worthy of scrutiny or regulation.  It didn’t matter.  That’s been the same perspective people had, by and large had with respect to the internet since the mid-90’s and so we’ve had a lot of progress and innovation there.

Health care on the other had has been subject to massive regulation and strangely had the most progress in some ways where you have cheaper treatments at better quality in things like cosmetic surgery and things like that which are less regulated and again deemed to be unimportant by the government. 

So I think the regulatory load on technology has gotten to be quite high and there is this very important question of how much progress we’re likely to see in the next few decades.

From my perspective, the critical thing is actually to figure out a way to get the technology engine restarted.  I think that we would like to have less government regulations to enable that.  And if it gets restarted, you can have a more capitalist-type system.  But I do think that if technology is stalled out, we will probably see at some point a resumption of the trend toward more government even though it’s more unlikely, in my opinion, to fix things.

Recorded November 15, 2010
Interviewed by Victoria Brown

Directed / Produced by Jonathan Fowler

There has been lots of innovation recently in areas without regulation—heavily regulated fields like transportation, health care, and energy have been much slower to progress.

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