“Entrepreneurial law”?

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In his paper entitled, “Entrepreneurial Law,” Viktor Mayer-Schönberger makes the following statement:

“Most legal scholars believe that the law should be reactive, slow, and predictable, in order to decrease uncertainty.  By contrast, I suggest that the law should be used proactively as a mechanism of entrepreneurial facilitation.  Legislators intent to stimulate entrepreneurship should seize potential opportunities to create regulatory tensions that entrepreneurs can exploit to upset existing markets with radical new offerings. … Law can and should be used repeatedly and in an iterative and adaptive way if necessary.  In short, policymakers desiring to facilitate entrepreneurial activity should use the law in an entrepreneurial fashion, acting swiftly, risking errors, and adapting fast to changing circumstances.”

I’m going to offer some thoughts, and then I’d like to hear opposing views.  My take on this is that it is the same confusion about the difference between “legal risk” and “business uncertainty,” but in reverse.  Now, Professor M-S is suggesting that what we need is more legal uncertainty.  I fail to see how this helps.

In class yesterday, we discussed the fact that the “rules” entrepreneurs do not feel constrained by are largely the “way things are being done” in the particular area in which they want to do business.  There is nothing – except for market demand – that says they have to follow those rules.  If they disregard them, or do things differently, it’s a risk – but only a business risk.  They might be hugely successful, moderately successful, or they might founder – and for any number of reasons.

The point is that they are free to disregard the business “rules.”

That is NOT true of laws.  Entrepreneurs are not free to disregard the law, any more than anyone else is.  Having one regulatory structure in which entrepreneurs are trying to operate, and then changing that structure “iteratively,” “adaptively” and “repeatedly” would simply mean that one’s business was (potentially) lawful one day, heavily regulated the next, and illegal the day after that.  (And yes, I realize that even the most ambitious legal system does not change that quickly, but you take my meaning.)

In such a system, the only actors who would benefit are those who have influence with lawmakers.  This will almost never be entrepreneurs and innovators – particularly disruptive ones, who are seeking to launch a product or a new business model for which the market is unknown, or apparently very small.

An entrepreneur who operates outside of established business parameters is a renegade.  An entrepreneur who operates outside the law is a criminal.  (And of course, we do have those.  Think about it …)

But perhaps I am giving Professor Mayer-Schönberger’s article too “crabbed and literal” a reading.  I welcome thoughts from the class.  Can you perhaps think of examples where the ability to change the legal structures quickly would be beneficial to existing and aspiring entrepreneurs?

7 thoughts on ““Entrepreneurial law”?”

  1. I agree with the concept that an iterative law would only be bent to the powerful to stifle innovation. One need not look any further than 17 USC, which has been cobbled together by legislators working under the influence of the MPAA, RIAA, and other powerful lobbies. There is no reason why DVDs and CDs should be treated differently, but the law “adapting” to this differences has allowed rent seeking behavior by the power interests and left start-ups and others out.

  2. I agree with Professor Hollis. The problem is that Professor M-S would like the law to essentially be more innovative than technology itself. My take on entrepreneurs is that they want to do something different – something that the markets have not seen. Maybe they want to improve on something or develop a brand new product altogether. Although Professor M-S has a noble idea that the law should be more “proactive,” it is really just a pipe dream. “Iterative change,” for the sake of change, is an extremely imprudent concept.

    We have seen the results of government attempting to be more proactive (e.g. Solyndra) and the problem is that many business people, let alone government officials, cannot predict the future. Granted, laws can be written to make the legal side of entrepreneurship easier, but they cannot (and should not) artificially create markets for the entrepreneur. Proper utilization of the law is about mitigating risk, but uncertainty is left to the entrepreneur.

    • Billy said: “Granted, laws can be written to make the legal side of entrepreneurship easier.” I don’t know how I feel about that statement, but it got me to thinking that there is a lopsided legal incentive system for the entrepreneur. While the entrepreneur bears all the risk, he only “is entitled to” part of the reward, since his income would be taxed. To be consistent, it would make some sense to mitigate entrepreneurs when they fail. The obvious unintended consequence of such a scheme would be that many companies would be set up for the purpose of failing, similar to the fake play in the Producers, if the incentive was too large or the risk too mitigated. It would also be hard to deny investors from remedies when their stocks fell. It may turn that to be consistent, there should be less of a disincentive to succeed.

  3. I believe that taking a proactive legislative approach only hinders innovation by attempting to predict a possible exploitation where innovation may lie. Even if the regulation seeks to protect certain valued interests that may almost certainly be harmed by potential future behavior, the risk of impeding on free market innovations does not outweigh a possible harm that may be done. I believe laws affecting business should for the most part be reactive. More time than we would like to believe the free market will figure it out and when it doesn’t the legislatures only then should act to “right the wrong”. There are countless examples that bolster each argument; an area where I think proactive legislation may be proper is in environmental law. Many of those externalities are often unaccounted for.

  4. I do not think that the law should adapt for entrepreneurs or attempt to make it easier to be an entrepreneur. First of all, I agree with above statements regarding the inability to do so, the lack of political will to help a small amount of people and the inability of the law to predict future behavior. Also on the less legal side, I think that what has made entrepreneurs special is their willingness and ability to work within the framework of the law to innovate and create something new and challenge the system that exists. It has also been the individual entrepreneur that takes the risk of their new venture, not risks in policy and law making which could even harm society as a whole if a risk does not pan out. Being an entrepreneur is not for everyone and in fact not for most people and I think our current system demonstrates this.

  5. I have a bit of a problem with economists who believe the law should be a proactive body of regulations to foster and promote entrepreneurism. Legislators and policy makers are not the individuals we should be trusting with creative and innovative approaches to our nation’s economy. Instead it should be the entrepreneurs themselves, the brilliant college drop-outs, the gifted programmers and the right-idea-at-the-right-time-in-the-right-place businessmen who direct and guide the innovations and advances to come in America’s socio-economic future. Laws should not encourage entrepreneurial investment within certain sectors of the marketplace – instead that investment and growth should occur naturally based on genuine entrepreneurial spirit and business model ideas. While I do believe the law should be flexible and quick to react to newfound entrepreneurial ventures and newly created markets – American business law should not take the lead on innovation, it should follow our nation’s brightest most innovative business minds.