{"id":28356,"date":"2023-01-06T23:24:44","date_gmt":"2023-01-06T23:24:44","guid":{"rendered":"https:\/\/mailinvest.blog\/index.php\/2023\/01\/06\/ftc-proposes-banning-non-competes-which-would-unleash-innovation\/"},"modified":"2023-01-06T23:24:44","modified_gmt":"2023-01-06T23:24:44","slug":"ftc-proposes-banning-non-competes-which-would-unleash-innovation","status":"publish","type":"post","link":"https:\/\/mailinvest.blog\/index.php\/2023\/01\/06\/ftc-proposes-banning-non-competes-which-would-unleash-innovation\/","title":{"rendered":"FTC Proposes Banning Non-Competes, Which Would Unleash Innovation"},"content":{"rendered":"

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from the let-the-innovation-flow<\/i> dept<\/h3>\n

For years<\/em>, I\u2019ve been highlighting the overwhelming evidence that non-compete agreements are horrible<\/em> for innovation<\/a>. There are multiple studies on this, which show how much of Silicon Valley\u2019s success can be attributed to an almost accidental interpretation of the California business code that outlawed non-compete agreements, while other studies have strongly suggested that a big part of the collapse of the Detroit auto industry could be pinned on Michigan switching from not allowing non-competes to allowing them.<\/p>\n

About a decade ago, I got into a weird sort of circuit, giving presentations to (mostly) European policymakers and execs, trying to explain to them the \u201csecret\u201d to Silicon Valley\u2019s success, and much of the presentation was about the non-compete story. But, of course, the underlying thinking behind it is more important (and more nuanced) than just \u201cnon-competes are bad.\u201d <\/p>\n

Instead, it goes back to much of what this site has always been about: the importance of knowledge and information sharing, rather than hoarding. What the details of various studies have shown is that innovation occurs through a combination of idea sharing among people all working on big breakthroughs. The combination of different viewpoints, and different perspectives, often is what leads to the big breakthrough (at which point various competitors can innovate on top of the big new thing). The lack of non-competes is just an enabling tool in making that happen, because it allows the cross pollination of these ideas as people switch companies.<\/p>\n

Non-compete agreements, however, not only stifle that sharing of information, but they contribute to company stagnation. It limits the important flow of workers from one company to another and generally makes it more difficult to bring in necessary new ideas and perspectives. As I\u2019ve said, they\u2019re the DRM of human capital: trying to lock up information because of a very narrow, scared, protectionist view of the world.<\/p>\n

That\u2019s why I was excited a year and a half ago when the Biden Administration released an executive order tasking the FTC to explore banning or limiting non-competes<\/a>. I was concerned about whether or not the FTC actually has the authority to do this (rather than Congress), but the underlying policy idea is a fantastic one for actual innovation.<\/p>\n

So, it\u2019s exciting to see that the FTC has now proposed a rule to ban non-competes<\/a>. I still think this is something that would be much better if it were done by Congress, but the underlying policy is good:<\/p>\n

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The Federal Trade Commission\u00a0proposed a new rule<\/a>\u00a0that would ban employers from imposing noncompetes on their workers, a widespread and often exploitative practice that suppresses wages, hampers innovation, and blocks entrepreneurs from starting new businesses. By stopping this practice, the agency estimates that the new proposed rule could increase wages by nearly $300 billion per year and expand career opportunities for about 30 million Americans.<\/em><\/p>\n<\/blockquote>\n

I\u2019m less concerned about the wage increases (not saying it\u2019s a bad thing, but it seems secondary to me) as compared to the innovative breakthrough this could lead to instead.<\/p>\n

Of course, now it has to go through a comment period, and I\u2019ve already seen some traditionally corporate think tanks claiming this will make companies invest less in workers, but that\u2019s hogwash. Again, California (and some other states) have banned non-competes for ages, and California has been home to so much innovation over the past half century\u2026 and that frequently includes worker training. I know of no tech companies that freak out over worker training out of fear that an employee might take that to a competitor.<\/p>\n

Instead, it\u2019s often the opposite. Companies know that because employees can go elsewhere, they have to up their game in providing the kinds of tools and services that support their employees\u2019 career growth over time to keep them<\/em>. In other words, the lack of non-competes can actually create more incentives to invest in worker training as part of a larger effort on retaining employees (I\u2019ll note that my very first job in Silicon Valley was\u2026 creating a worker training program to help a large tech company better retain employees through facilitating a clearer career growth path).<\/p>\n

Either way, I imagine someone will challenge this rule should it go into effect, and I do fear that the courts today would toss this rule out and say it\u2019s beyond the FTC\u2019s authority. And, relatedly, I do worry that if the FTC thinks it has the authority do promulgate rules like this one, even if for a good reason, it could start to roll out many other such rules, perhaps in support of more problematic policy goals. But, really, that\u2019s even more reason for Congress to act and make this the law of the land, and enable much greater innovation.<\/p>\n

\nFiled Under: congress<\/a>, ftc<\/a>, information sharing<\/a>, innovation<\/a>, non-competes<\/a>
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