Co-founder Project 00 & Dark Matter labs, Senior Innovation Associate Young Foundation.
The below article reflects a series of learnings from regulatory futures projects Dark Matter is involved in globally with many of our partners, and builds on recent brilliant discussions hosted by Jericho Chambers and the Go-Ahead Group on the Future of Regulation.
Remaking regulation — for a contingent, contextual and connected world.
We are in urgent need for regulatory innovation. The affirmation of this sentiment is increasingly visible globally in the evolving discourse along with worldwide adoption of emerging tools such as regulatory sandboxes. But beneath the buzz, hype and coolaid are structural realities & necessities driving this trend.
1. Regulatory Explosion — we have over the course of the last few decades witnessed an explosion in Regulation and Legislation both in quantum and by a multiplicity of stakeholders beyond the national state (implications of trade agreements, global compacts etc) — a defacto and predictable response to an increasingly complex digital economy sought to be regulated by analogue means. In this world, increased regulation isn’t just a temporary challenge — it’s the new reality. Research from Thomson Reuters published in its 2013 Q3 Trust Index showed that the global increase in just “financial regulation” tracked an average of 110 regulatory changes every day in the third quarter of 2013, about double the daily updates the tool recorded during the same period in 2010. Through September 2013, the number of tracked regulatory alerts that year had already reached an all-time high of 18,986. Whilst this increasing regulatory burden does have costs — it does also provide a means to create structural lock-in and walled gardens for incumbents — a useful if expensive means to preserve growing monopolies of power.
2. Burn the Red Tape — The response to this regulatory inflation has been part knee jerk, part political opportunism and part obvious — A. “Red tape Challenges” — which has sought to specifically both reframe “regulation in political terms to a burden” and thereby mitigate this burden through targeted intervention and removal — facilitating a political back door to allow for the deregulation our societies and hard won citizen rights; B. a growing informal acceptance of “non enforcement” and noncompliance — seeding distrust in the state and capacity to operate fairly; C. the exploration of “sunset causes” on new regulation which introduce an automatic “end of life” date on new legislation — again whilst a step in the right direction — it fundamentally misunderstands the scope of the challenge — we seeking to regulate in an analogue means a digital and network economy.
3. Float to the top — increasingly every crisis — from a failing school to a corporate scandal ends with a call for Primary Legislation and a Parliamentary Commission. Whilst understandable, this short circuiting, is undermining a necessary system of decentralised accountability and governance developed over centuries to work with the complexities, variations of reality and replacing it with defacto top down control (fundamentally detrimental to all concerned). We are forcing accountability to the top and to those least capable to managing it in a complex world — and thereby driving either regulatory conservativism (undermining innovation) or a managed demise of the political crisis by a “crisis” commission (undermining public trust) — either way it represents a growing systemic inability to govern for the public interest — a deep crisis in the brewing. The systemic crisis we face, is the crisis of governance from VW to climate change, to the 2008 financial crisis. It is a crisis of a post-industrial society still governed and legitimised by analogue industrial society institutions, concepts and methods. This is not a just a crisis of government’s ability to govern on our behalf in macro sense but a systemic crisis of governance. How do we create the decentralised and distributed architecture of governance as opposed to off-loading & passively centralising governance to the illusionary legitimacy & control provided by the state in a volatile, complex, and emergent world?
4. Out of date & Out of scope — much of our legacy regulatory regimes are still framed and governing for an industrial economy or a pre- data/internet economy and the associated mindset. Further, they are struggling to address the market boundary breaking capacity of the typology of innovation we are witnessing. Is city mapper’s Service — a bus, a cab or taxi — it’s a new hybrid — which requires a new mode of thinking in terms of regulation and historic legislation wonts just do. How do labour laws apply in a gig economy, how do consumer laws apply in a co-production economy, how do we legislate social media platforms in terms of “Fake news” and electoral manipulation etc? This category busting quality of the new smart economy — in increasingly creating unfairness in the operation of existing markets whilst also stranding citizens and societal institutions exposed to exploitation and manipulation.
5. Unlocking the opportunity. Finally, and perhaps most critically we are witnessing a failure to understand and accelerate the possibility & growth offered by new technology. How can smart outcome driven legislation unleash product and service innovation; how can real-time compliance reduce risk but facilitate greater innovation; what does real-time data driven regulation mean our historic economies from Freight to Real-Estate; how does smart regulation open the unprecedented capacity for contingent, contextual and connected regulation and public interest Governance. To place this opportunity most literally — what would happen for example, if we no longer planned cities zonally through static and analogue means but instead re-imagined “planning” through real-time data driven outcomes, pricing & impacts — this is increasingly a possibility, a reality which has the capacity to drive the total reinvention of our cities in ways yet only imagined in architectural manifestos. What is clear, is we need to shift from regulating the ghost of the industrial economy to the reality of network economy if we are unlock its benefits and mediate its impacts and potential damage.
The Path Ahead.
1. Beyond burn the red tape. We go beyond the “Burn the Red Tape Narrative”. Public sector innovation — has in the Anglo-Saxon economies been reduced by political ridicule to ineffectiveness by purposefully and wilfully ignoring the history and necessity of regulatory and institutional Innovation as a key symbiotic partner of innovation growth in our society and economy. A reality eloquently articulated by Professor Mariana Mazzucato in her book the entrepreneurial state — unwinding this myth is essential to unleashing the full capacity of our 21st century economy. Embracing the 21st Century economy needs us to embrace with full gusto the need for real structural public-sector innovation & the associated rebuilding of Statecraft. This future needs us to both reimagine the institutional infrastructures of regulation & public interest governance in a fully digital, connected and data driven age but also our tools, means and capacities to implement it on the ground; how do we publicly consult a smart green “paper” & its algorithmic policy, how do we drive accountability into machine learning driven policy; what do we verify real-time compliance etc and the most importantly transforming them into interventions & experiments in the real-world.
2. Building Capacity and Capability. Achieving the above requires us to invest in rebuilding the public sector and addressing the lack of capacity and capabilities. This will require a net growth is the public sector — let’s just accept this — it’s a necessity, as we seek to transition from one regulatory institutional regime to another — the biggest transformation for over 100 years. The social and economic benefits of this will be relatively unmeasurable, whilst creating secure landscape for investment and equitable and inclusive markets and societies for all our futures.
3. Building New Structures of legitimacy and public trust across the system. If we are to create a new regulatory regime capable to operating the volatile, complex and emergent world, technological optionality is not sufficient— we will need to build a decentralised and distributed regulatory regime — which by necessity needs and requires rebuilding trust and legitimacy beyond the apex of parliament — a decentralised and distributed architecture of legitimacy, accountability and trust for the public interest. The pathways to this are both complex, cultural and sequential but fundamentally critical to driving a meaningful inclusive regulatory future.
4. Regulation & Shared Governance. Increasingly, we are recognizing regulation for an ever-evolving Smart 21st century Economy will not only change the technology of the governance for public interest but also the fundamental organisation — we will rely on a hybrid of Data and algorithm transparency, high level codes of compliance & accountability, continuous agile iteration of smart parametric regulation and smart compliance bots, etc. But perhaps most fundamentally this is a future which will require more shared and open models of co-governance — between the “state or other Public Interest actors” and the wider innovation economy — transcending the passive aggressive relationship we have become accustomed to. This shared governance model is essential if we are to proceed and support the unboxing of innovation and experimentation into the real world, unleashing it from the ivory laboratory, with all its possible unattended consequences. This future requirement builds on the direction of travel offered by Regulatory Sandboxes increasingly across the world but perhaps sees them as essential reality of the 21st century as opposed to a temporary bridge.
5. Cities as Spaces for Regulatory experimentation. In a connected reality, where traditional markets & service boundaries are being unbundled, re-bundled and the externalities are not linearly predictable— cities, as places of massive regulatory intersection present themselves as crucial landscapes for experimenting and developing the future of public interest Governance and institution regulatory infrastructure. Place Based Regulatory innovation and the development of new public “Offices for Regulatory Experimentation” will be critical instruments in developing this future.
Together, this proposed stack of intervention provides a framework for driving the structural regulatory/institutional innovation vital to achieving the scale of progress necessary both in terms of unlocking “growth” but also addressing the wicked challenges facing us in our survival as a civilisation, if not a species.
Our future cannot be made by burning the “red-tape” but instead by making it agile and evolving it in all senses to make it fit for purpose. This is a future in which we need to simultaneously design markets fit for the 21st century and design for markets fit for the 21st century – only in rapid synchronicity can we move forward.