11: Trust the people, not regulation

The Regulators do not trust the people. Yet the people do not trust the Regulators. Partisans of innovation need to take the right side in this dispute. It’s time for them to state unequivocally that further state laws and regulations around innovation are in general likely to circumscribe it and slow it down, not enhance it. You don’t have to be a believer in free market forces to agree with that.

Since the credit crunch, the world’s governments have failed to innovate in economic analysis. Instead, they have disinterred the patrician economics and statist politics of John Maynard Keynes. Meanwhile free markets, the same old bogeyman of Democratic Party thought, loom larger in the liberal imagination than ever before. There is a new enthusiasm for regulation: as McKinsey discovered in the wake of the collapse of Lehman Brothers, CO2 emissions, the financial sector and technology standards now require ‘regulatory standards at a transnational level’. [1]

For years there has been a wider trend to big up the role of regulation in stimulating innovation. [2] The failure of the December 2009 Copenhagen summit on climate change, however, shows that regulation cannot be a force for technological progress.

Lessons of Copenhagen

Copenhagen doesn’t just show the defects of United Nations diplomacy and the utopianism of McKinsey’s call for international regulation. It also confirms that the focus for today’s regulation is much more about targets, personal behaviour and Motherhood-and-Apple-Pie transparency than it is about innovation. The only piece of technology to make the headlines around Copenhagen was satellite surveillance of China’s CO2 emissions. Even the proposed transfer of Western energy technology worth $100bn to the South barely gained a mention.

Perhaps that’s because, outside the ivory-tower world of international regulators, it’s newly created Eastern technologies that are more likely to make a difference to energy supply than old Western technologies. And, in corporate innovation, are India’s Suzlon (wind turbines) or China’s Suntech (solar power) and BYD (all-electric cars) the products of regulation? Not much.

Since Copenhagen, Western commentators have vilified China and India as wrecking international regulation. [3] This shows how far the bureaucratic impulse has enveloped the Western mind. Agreements to cap and trade carbon emissions are thought more meritorious than real progress in the development of clean energy.

Copenhagen shows, finally, that a regulation is always a piece of paper ‘cobbled together’. For that reason alone, regulation cannot really cohere popular backing for itself. Over climate change, governments have begged for campaigns to grow, and campaigns have clamoured for governments to go further. But Copenhagen mobilised no more than stage armies of protesters on the streets and in the conference hall.

A genuine movement for innovation will never be based on the demand for state regulation to be still broader or more exacting than it is.

Regulations that haven’t helped

Of course, there is regulation and regulation. When the world’s manufacturers of mobile phones agreed that chargers should be standardised, who could disagree? [4] Yet continued restrictions on stem cell research in the US, and on genetically modified foods in the EU, benefit nobody. No serious harm to humans has been found to attach to either innovation.

Regulations growing out of custom and practice are one thing, but the regulatory enshrinement of monopoly power, as with AT&T in the post-war US, has done little for innovation. Similarly, in Britain, hopes that the state’s procurements might encourage suppliers to break the mould have proved to be just that – hopes. [5]

Greeted by popular and professional acclaim

Anyway, private sector compliance with state regulation is never guaranteed. From light bulbs through washing machines to government buildings and cars, governments offer sticks and carrots to make different stakeholders see sense about energy efficiency. Yet through what physical and social processes, exactly, does a legal piece of paper lead to world-beating innovations in these various fields? In the same way, the state and its quangos may set a target for ‘Broadband Britain’; but it is the surrounding economic and political context, the technological possibilities, the attitude of employers and the attitude of employees that will determine the practical fate of particular regulations. [6]

Like innovation, regulation brings unexpected consequences. But the failures of regulation, its tendency to produce perverse results, its tendency to reinforce powerful interests – these things are much more given in regulation than they are in innovation. Right now, the world has too much of the wrong kind of regulation, and not enough of any kind of innovation.

Yes, the state should invest in basic research. But that’s different from representing state regulation as a powerful force for technological progress – indeed, more often as the only game in town. Just because the state appears to enforce the solution of a particular problem doesn’t mean that that’s what actually happening. The record is one not just of market failure to innovate, but also of state failure to do the same. Just a glance at failed IT projects run by the British state shows this.

Today the state isn’t interested in innovation, but in making the future more predictable and more stable, in avoiding risks, restraining events, and imposing moral codes. By contrast serious innovators, whether they like it or not, tend to make things less predictable and less stable. They tend to take risks and let events take their course. It is not in their interest to, dampen things down.

It might appear naïve to suggest that innovators put their trust in the people, but it is not so naïve as suggesting that they put their trust in regulators. ‘Greeted by popular and professional acclaim’ is a statement that, if true of any particular innovation, will better guarantee its future than any seal of approval made by the state. Innovators should trust governments to see their handiwork through as little as they trust markets.

The desire and energy to innovate come from neither the unconscious hand of the market, nor the restless malfeasance of the modern bureaucratic state.

They come from you, me, or someone yet more qualified.

[1] Scott C Beardsley and others, ‘Managing regulation in a new era’, McKinsey Quarterly, 2009, Issue 1.

[2] See for example Stanford law professor Lawrence Lessig, ‘Innovation, Regulation, and the Internet’, The American Prospect, 30 November 2002, on http://www.prospect.org/cs/articles?article=innovation_regulation_and_the_internet. Here Lessig upheld the law-based license to use open code, the end-to-end norm of network architects, and the law-based right of access to US telephone networks as bringing great innovatory benefits – not least, the Internet. For a critique, see Gregor Claude, ‘Goatherds in Pinstripes’, Mute, 10 March 2002, on http://www.metamute.org/en/Goatherds-in-Pinstripes

[3] See for example Joe Klein, ‘2010: The China Challenge’, Time, 24 December 2009, on http://swampland.blogs.time.com/2009/12/24/2010-the-china-challenge/?xid=rss-topstories&utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+time%2Ftopstories+%28TIME%3A+Top+Stories%29 and Mark Lynas, ‘How do I know China wrecked the Copenhagen deal? I was in the room’, The Guardian, 22 December 2009, on http://www.guardian.co.uk/environment/2009/dec/22/copenhagen-climate-change-mark-lynas

[4] See International Telecommunication Union, ‘Universal phone charger standard approved’, press release, 22 October 2009, on www.itu.int/newsroom/press_releases/2009/49.html

[5] See Sir Peter Gershon, Making a Difference: Reducing Bureaucracy in Central Civil Government Procurement, Volume 2 – Main Report, Office of Government Commerce, December 2003; and Releasing resources to the front line, Independent Review of Public Sector Efficiency, July 2004, on http://www.hm-treasury.gov.uk/d/efficiency_review120704.pdf. For the Tories’ more recent position on procurement and innovation, see ‘Osborne calls for money for small businesses’, News story, Conservatives.com, 28 October 2009, on http://www.conservatives.com/News/News_stories/2008/10/Osborne_calls_for_money_for_small_businesses.aspx. For Gershon, the ‘innovation agenda’ merely jostled with the green agenda, adult literacy, small and medium enterprises and black and minority ethnic businesses in ‘trying to ride on the back of procurement’. See his ‘Public Sector Efficiency – did the Gershon Review make a difference and what comes next?’, eGov monitor, 13 November 2006, on  http://www.egovmonitor.com/node/8570/print

[6] On the likely weak take-up of next-generation broadband access in Britain, see ‘When will we get superfast broadband?’, Point Topic, November 2009, on http://point-topic.com/content/dslanalysis/BBAngamaps091112.htm


One Comment so far. Leave a comment below.
  1. I think a very good and important example here is the protection of Digital Restrictions Management now built into law in most countries. To a great extent, it criminalises acquiring knowledge about how certain system components work. This again, prevents all innovation in this field. In fact, it has, and continues to prevent any disruptive innovation in most fields of computing. It should be a fundamental human right to be able to seek understanding of any technology that surrounds you.

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