Remarks to the Pelican Institute’s Solutions Summit
Thank you very much for that kind introduction! It is great to be with all of you at the Solutions Summit. To be clear, it would be a lot better to be with you in Louisiana; I couldn’t help but notice that the Pelican Institute concluded a recent Summit with “a cocktail reception and a toast to freedom while enjoying the sweeping views from atop the Baton Rouge Hilton.” I have to say, that beats a lukewarm coffee and toasting my wife to surviving another day of “remote learning,” while enjoying the not-so-sweeping views from our living room.
For those of you who don’t know, I was a Louisiana resident once upon a time. After graduating from law school in 1997, I moved to New Orleans, where I lived literally around the corner from Commander’s Palace, worked for a federal judge, and took in all Louisiana had to offer. I thought at the time, and I’m hard-pressed to rebut myself now, that it was one of the best years of my life. Something about Louisiana just drew me in. The people I met were the salt of the earth — unlike here in Washington, they weren’t so much concerned about what you did for a living as what your favorite restaurant was. The places I saw were unique — from Ponchatoula during the Strawberry Festival to the Abita Brewery in Covington. Even the law was different — I found myself learning terms derived from the Napoleonic Code like “prescription” and “redhibition.” To me, virtually everything about Louisiana was unique — “lagniappe,” you might say.
Obviously, that’s a feeling that millions of people the world over share. Louisiana has been a top tourist destination for many years for good reason. And you have to be a real Yankee curmudgeon not to break a bit of a smile when you hear terms like “Mardi Gras” or “JazzFest.”
But of course, the very title of this event suggests we’re gathered here for more than sentimentality about a state we love. There wouldn’t be a need for a Solutions Summit if every economic issue had already been addressed. Sure, the state has a lot going for it. But for those like you, who have been entrusted by the people to lead, inertia isn’t an option. Nostalgia isn’t a strategy for long-term success. More than ever, state and local leaders need to be proactive to help create jobs and attract talent and capital.
So far, so good. But how?
Before getting into particular ideas, I think it’s important to spend a minute exploring how the pandemic has changed the way we live and work — and will live and work going forward.
For one thing, I believe there is a much broader appreciation today of the importance of innovation in helping society function compared to one year ago. I can’t tell you how many conversations I’ve had where I’ve heard some variation of the following, and often have uttered myself: “if this pandemic had hit 10 or 20 years ago, I don’t know how we would have managed.” One year ago this month, hundreds of millions of Americans shifted to working from and staying at home. Many wondered, myself among them: how would people do their jobs? How would kids learn? How would patients needing to avoid exposure get the health care they needed? How would we stay connected with each other? And perhaps more mundane, but still worth considering: How would we entertain ourselves?
And now we know the answers to these questions, one long year later. Technology, reflecting years of innovation and hard work, stepped into the breach in a big way. In an instant, it became common practice to think of the word “Zoom” as a proper noun. Indeed, I feel like I’ve used a couple dozen video platforms over the past year. And they’ve enabled me to do countless meetings with people across the country and around the world — something that couldn’t have happened had I been stuck at home in the analog age. Basic functions like buying groceries (or “making groceries,” as some of my New Orleans friends used to say) can now be done on an app, which is a remarkable convenience. Thanks to broadband connections, patients and health care providers can benefit from telehealth. Kids have been able to download lesson plans, upload homework, and connect with teachers remotely. And streaming has become mainstream for so many, with shows like “Tiger King,” “The Last Dance,” and “Queen’s Gambit” becoming the new “water cooler” topics.
Needless to say, not everyone has been fortunate enough to take advantage of all of these tools. They may not have access to technology, or they may not be able to afford it. Needless to say, we need to change that.
But that underscores the basic point of my remarks today: we need to make sure that innovation finds a home everywhere. It helps local economies grow. And it ultimately helps everyone benefit from what I’ve called “digital opportunity.”
So how do you help forge a forward-thinking state? I don’t pretend to have all the answers, but here are a few suggestions.
First suggestion: policymakers can pave the way for job creation by making it easier to create jobs. There is an iron law of incentives: the harder it is to start and operate a business, the less likely it is that people will start and operate a business. This seems obvious, but it’s not obvious to some, and it’s harder to avoid this trap than some might think.
Part of the solution is to make basic reforms to the process of corporate formation. How easy is it to start a business in the state? Are there a lot of hoops to jump through? How easy is it to access capital? Are there unusually onerous tax, insurance, or other requirements that make entrepreneurs disfavor your state compared to others? The easier it is for an entrepreneur to make the transition from idea to implementation, the more likely it is that they’ll execute and eventually start hiring.
Another part of the solution is to avoid looking at the new through the prism of the old. Here’s what I mean. One of the biggest flashpoints in today’s digital economy is how old rules should apply to new ways of doing business. Entrepreneurs, especially online entrepreneurs, are constantly coming up with new ways to benefit consumers. The most successful ones disrupt incumbent businesses. But often they don’t face the same regulatory landscape that incumbent businesses do. When that happens, the government’s instinct is to apply legacy regulations to these newer companies. Sometimes, startups are slowed down by those regulations. Sometimes, they’re stopped altogether. That’s bad for consumers.
An innovation-focused state should try to avoid shoehorning new services into old regulatory frameworks even if it’s a poor fit. Instead, the government should ask whether consumers are benefiting from these new services, products, and modes of distribution. If they are, and if there’s no systematic evidence of fraud or misrepresentation against consumers, the government shouldn’t erect artificial roadblocks to competition — and certainly not for the purpose of benefiting entrenched interests.
That means, for example, that someone renting out their home on St. Charles Avenue during Mardi Gras via Airbnb may not have to abide by the longstanding rules of the hotel industry. That means that Tesla may not have to pay middlemen (car dealers), and instead should be allowed to sell directly to consumers. These steps may not be easy or popular given the incumbents — you’ll probably hear from angry hoteliers and car dealers — but it’s critical to if you want to embrace innovation as a good thing, not as a threat.
A final aspect of the solution when it comes to job creation is to keep the barriers to entry low for anyone looking to work. If you’re looking to perform a service and it’s not inherently dangerous or complicated, you should be allowed to do it. Here, I have in mind primarily occupational licensing schemes. Let me tell you a little story on this front.
Elias Zarate is a barber in Memphis, Tennessee. His mother was killed by a drunk driver when he was 10 years old. His father abandoned the family a few years later. Elias never had a chance to finish high school; he had to drop out and work to support himself and his younger siblings.
His passion is barbering. In 2017, he started working at a higher-end shop in downtown Memphis. He was building a client base and improving his reputation — until a state inspector stopped by and fined him $1,500 for cutting hair without a license. Later, he was called to a hearing in Nashville in which he was told that Tennessee requires barbers to have a license, which requires going to barber school, which in turn requires a high school diploma.
The state at first rejected Elias’ appeals and upheld the fine, tacking on an additional $600 for court costs for good measure. His reaction: “I was devastated. I felt like everything I had struggled to build had been snatched from me in the blink of an eye.”
As I mentioned earlier, this situation involves occupational licensing. However well-intentioned — and all too often, it’s not — it’s bad for service providers and consumers alike. People who want to offer a basic, non-dangerous service — haircuts, guided tours, flowers, you name it — can’t do what they want without the state’s permission. These hurdles disproportionately hurt minorities, those who have lower incomes, those with less education, and military spouses who often move from state to state. And studies have shown that occupational licensing often doesn’t even benefit consumers with higher quality or safer services.
Well, in Elias’ case, I wanted to do something. And so I did. After a little finagling, I actually met Elias and his wife in April 2018, thanks to the Beacon Center, a free-market group in Tennessee. And I contributed to his GoFundMe. I wrote about his case in the Memphis Commercial Appeal. I tweeted about it. I spoke about it, preaching from what little pulpit I have.
And the icing on the cake came last summer: After two years of litigation, Elias won his case against the Tennessee Board of Cosmetology and Barber Examiners (a government entity whose name alone should convince you of the wisdom of limited government). A court held that it was constitutionally irrational for the government to require barbers to have a high school diploma, especially when they don’t require one for cosmetologists.
There are a lot of Elias Zarates out there, some of whom may be in Louisiana. To the extent you can end occupational licensing schemes like this, it’ll help many people succeed. And they may well turn into the small-business entrepreneurs of the future.
So that’s the first big point: making it easier to create jobs and to work. Second big point: make your state a sandbox for innovation, and market it as such.
There have been a few jurisdictions that have done interesting things along these lines. A great example is Wyoming. Many think of Yellowstone and cowboy ranches when they think of Wyoming. But increasingly, they’re thinking about innovation. That’s in part because, in 2019, the Wyoming Legislature passed a law creating what they called a “financial technology sandbox for the testing of innovative financial products and services” in the state. It explicitly targeted new and emerging technologies like blockchain. This past fall, the Wyoming Banking Board voted to approve the application of Kraken, a cryptocurrency exchange, to become a special purpose depository institution. In English: Kraken became the first cryptocurrency firm in America to become a bank. This decision sent a signal to other financial entrepreneurs: Wyoming is offering a place for me to create something special. Last year, I had the chance to sit down with Mark Gordon, the Governor of Wyoming. He described his vision of making Wyoming a hub of fin-tech entrepreneurship. I look forward to seeing that vision become a reality in the years to come.
A sandbox can also be created at the local level, and perhaps no better example exists than in the sand and sun of South Florida.
At 5:41 PM on December 4, 2020, a San Francisco Bay Area investor tweeted the following: “ok guys hear me out, what if we move silicon valley to Miami[?]” Three hours later, the Mayor of Miami, Francis Suarez replied by quote-tweet: “How can I help?” As CNBC later reported, this “set off a firestorm of activity.” Entrepreneurs, investors, and other creators started to talk about Miami as an alternative to the traditional locales like Silicon Valley and New York.
For some, the talk became action. For instance, Keith Rabois is a prominent tech investor who’s been involved in successful companies like Airbnb, LinkedIn, Lyft, PayPal, Square, and YouTube. On January 4, 2021, he tweeted “I have met more interesting new people in Miami in 3 weeks than all of 2020 in the Bay Area.” He’s certainly not alone in his enthusiasm. Mayor Suarez explained the phenomenon this way: “I think the ‘How can I help?’ tweet was sort of an earth-shattering moment because people were like, ‘Oh finally, an elected official that gets it,’ that understands that having companies that are building wealth and creating high-paying jobs is something that benefits a city.” There’s no reason why Louisiana, why New Orleans, why other parts of the state can’t draw this talent and capture this enthusiasm as well.
There is a case to be made that we are entering an era of what I would call “digital federalism” — the idea that states and localities can make themselves more appealing to job creators, and by doing so compete successfully with other states and localities for scarce talent. I would argue that this trend is being driven, and will continue to be driven, by a few key factors.
For one thing, the pandemic has illustrated to many employers and employees alike that many jobs can be done from anywhere. This means that innovation need not any longer be limited to a few places.
For another, tax policy at the federal and state level has illustrated the advantages of particular jurisdictions. For instance, Congress’ limitation of the state and local tax deduction and Florida’s lack of a state income tax make the Sunshine State more appealing than high-tax states like New York and New Jersey.
Additionally, lifestyle is increasingly important to many people. This may mean better weather to some, a more laid-back atmosphere to others, or a more affordable place to raise a family to others still. However people perceive it, there’s a growing perception that if you have a strong Internet connection, you can do your job anywhere you want.
That brings me the third major point: broadband needs to be ubiquitous across Louisiana and across the country. You can’t have a 21st century economy without 21st century digital infrastructure. If people are going to move somewhere, they want to know that they’ll have a reliable connection to the outside world from their new location.
That’s especially true if they’re going to start a business. I saw a good example of this during a visit to West Virginia back in 2017 with Senator Shelly Moore Capito. We visited Capon Springs, a small town that didn’t have broadband. I remember meeting a resort owner who increasingly was having trouble attracting customers. The natural beauty of the setting was a draw, but in the evenings, guests wanted to be able to check email or stream Netflix. By contrast, we also visited Wardensville, just 15 minutes away. Wardensville is connected with optical fiber. This greatly helped one business I visited. It does transcriptions for video appearances on cable news networks, requiring the download of a huge amount of video. With reliable, high-capacity fiber, they can do that seamlessly. They hired numerous people from the local community college and were looking to expand into a second building. Two nearby towns, two different fates — attributable in part to the digital divide.
During my time at the FCC, we made closing the digital divide our top priority. And we got results in this area, with millions more Americans having access to broadband when I left in 2021 than had it in 2017. But there is still more work to do. We set up the Rural Digital Opportunity Fund, a $20 billion program to narrow this gap, and Phase I of that auction concluded just before I left. It will connect over five million Americans with high-quality service. But Phase II of that program will be important in filling in partially-served areas — areas where you may have broadband, but your neighbor down the road doesn’t.
Here too, a state has an important role to play. Remember, the biggest roadblock to broadband deployment in some cases is that there simply isn’t a business case for private companies to build in certain locations. To the extent Louisiana can adopt forward-thinking regulatory reforms, that could make a big difference in helping make that business case. For instance, dig-once policies can ensure that conduit can be laid cheaply when a road is being dug up for repairs. Quicker and cheaper access to utility poles owned by municipalities is a huge factor in speeding up deployment. And it helps to streamline the process for wireless infrastructure, so big towers and small cells alike aren’t stuck in regulatory limbo indefinitely. These reforms may seem arcane, but they can be critical drivers for the construction of next-generation networks.
Aside from regulatory reforms, a state can choose to allocate public funds to help connect those on the wrong side of the digital divide. For example, if the Louisiana Broadband Office uses state funds to essentially match the funding that will flow from Phase II of the Rural Digital Opportunity Fund, that would be a powerful combination to help connect residents of the Pelican State.
Speaking of Pelican, I don’t want to test my host’s patience, so I’ll wrap it up. In sum: Make it easier to create jobs and to work. Create a sandbox for innovation. And ensure that everyone has access to the Internet and other next-generation technologies. These are a few basic tools that Louisiana might consider in making the bayou just as much a hub for innovation as the Bay Area and Boston. As I know well, Louisiana already has so much going for it, drawing on its rich history. An economy focused on the future as well as the past would be a powerful combination, and would empower entrepreneurs to “laissez les bon temps roulez.” Here’s hoping it comes to pass!