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Why Entrepreneurs Say Rules Shouldn’t Apply To Them

Want to know which of your teen-agers might grow up to become a successful entrepreneur? Look at their SAT scores and their rap sheets.

That’s the implication of some widely discussed research published three years ago in The Quarterly Journal of Economics, one of the most respected publications in the field. The authors conclude that “the combination of ‘smart’ and ‘illicit’ tendencies as youths accounts for both entry into entrepreneurship and the comparative earnings of entrepreneurs.”  In other words, those really bright—but sometimes bad—boys and girls you remember from high school are most likely to succeed as entrepreneurs.

That may account for the fact that successful entrepreneurs appear to be particularly prone to breaking or ignoring rules.  The founders of Uber and Airbnb have repeatedly flouted regulations and laws around the world.  Uber is constantly being sued by cab companies, taxi commissions and municipalities that argue that the ride-hailing service doesn’t play by the same rules as other transportation providers.  Airbnb plows ahead despite cries of “foul” from hotel industry groups, neighborhood associations and cities that charge hotel taxes. As the columnist who writes under the name Schumpeter for the Economist puts it, “It sometimes seems as if the best way to identify a hot new company is to look at the legal trouble it is in.”

Entrepreneurs argue that if they always followed the rules their companies would never get off the ground, depriving the public of life-changing products and services. Undeniably, the world needs entrepreneurs. The world’s population would be much less safe, less wealthy, and less happy if entrepreneurs had never existed or had been forbidden to operate.

Political and legal arguments around entrepreneurial rule-breaking have been around for centuries, but more recently the issue has caught the attention of ethicists, people schooled in the philosophical, religious, and legal methods for defining rational constraints on behavior.  Those who believe that entrepreneurs should be allowed to bend or ignore rules predicate their arguments on the assumption that entrepreneurs, in general, create value and improve people’s lives. They therefore deserve a certain amount of leeway in delivering their innovations. But beneath that overarching argument are at least seven related arguments—some principled, some practical—that make that case for entrepreneurial rule-breaking:

That was then; this is now. On this view, entrepreneurs can reasonably ignore rules that are outdated or have been superseded by the facts on the ground. Scooter rental companies often ignore helmet laws as not applying to their offering because such laws were created before the advent of the electric scooter. Entrepreneurs also often wave away labor laws as outmoded, particularly overtime laws and, more recently, laws that apply to contractors.

Double-binds aren’t binding. Entrepreneurs, when confronted with two irreconcilable rules or regulations, are justified in ignoring one or the other. Entrepreneurs in the cannabis industry, for example, often face conflicting municipal, state and federal laws regarding marijuana. Uber has used the conflicting rules that apply to limousines, taxis, and an individual car owner’s right to offer strangers rides in their cars as justification for breaking one or more of these rules.

The greatest good for the greatest number is what counts, literally. This is the familiar utilitarian position. The magnitude of the benefits delivered by any entrepreneurial innovation should be balanced against the magnitude of its harm. Medicines come with side-effects; happiness comes with costs; rules hold back progress. Determining whether it’s permissible to break a rule then becomes a math problem: does the action produce the greatest good for the greatest number? If the answer is yes, then the action is ethical. (Jeremy Bentham, one of utilitarianism’s founders some 200 years ago, devised his “hedonic calculus”—think “hedonism”—for making such judgments.)

It’s a free country. Or at least it should be, according to Libertarians, who believe in absolutely free markets. Business is inherently competitive and therefor naturally incentivizes entrepreneurs to deliver more value at lower cost. Provided nobody is hurt in the process, businesses should be allowed to break rules that stifle competition. It has long been thought that Libertarianism is the reigning ideology in Silicon Valley, but a recent study conducted by Stanford researchers casts serious doubt on that assertion.

Seek forgiveness, not permission. This is something of a mantra among entrepreneurs. It encourages them to break rules in the belief that we’ll thank them later. It’s less a strictly ethical argument than it is marching orders for those who see boundary-pushing as essential for doing great things. It’s echoed in the title—and unpacked in the pages—of Reddit founder Alexis Ohanian’s book “Without Their Permission: How the21st Century Will Be Made, Not Managed.”

Let the buyer beware. Many entrepreneurs and business leaders maintain that it is not their responsibility to tell the whole truth or to explain potential consequences if they are creating net positive value for society. For instance, many ads and webpages lure people into behaving or acting in ways that they would not have otherwise, but that is the consumer’s responsibility as long as there are no overt lies involved. Mark Zuckerberg’s defiant decision not to police false political advertising on Facebook is, no matter how outlandish, assumes that utterly unfettered speech outweighs the harm of misleading material and that it is up to users to separate the wheat from the chaff.

If it’s okay with God or Grandma, then it’s okay with me. If you can justify your action to your God then you are being guided by the wisdom of the ages, which transcends all earthly laws. John D. Rockefeller used this argument to justify strong-arming his competitors into selling their oil companies to him. Another variation to this form of entrepreneurial morality permits any activity that your grandmother would approve of.

Some of these arguments are more persuasive than others. But they all agree that the benefits of some entrepreneurial activity justify the breaking of rules and regulations. Every society lets their entrepreneurs break rules—even North Korea where weekend flea markets flourish in spite of laws preventing private business. But what ethicists and policy makers alike cannot agree on is how far we should be willing to let entrepreneurs go. With entrepreneurs’ ability to instigate far-reaching societal changes—for better or worse and faster than ever—now is the time we need to figure out how much leeway, practically and ethically, to give entrepreneurs in the anticipation of the innovations and benefits we expect them to deliver. As yet, there’s no calculus for that.

Read More: Forbes