Towards balanced regulation: protecting innovation and societal benefits

Photo by Maurício Mascaro

The speed of technological disruption is making it difficult for regulators to keep pace but regulatory response needs to be measured in order to protect innovation, according to a report from The Economist Intelligence Unit released in early 2020.

A fine balance: Regulations and the societal benefits of disruptive technologiesis a research report sponsored by Philip Morris International (PMI). The report examines how best to balance the introduction of new regulation with the societal benefits of new technology through industry case studies and in-depth interviews with senior executives and academics.

It includes two case studies–one on the development and impact of regulation on electric scooters and the other on the introduction and use of blockchain technology in rural finance.

Disruption defined

The report defines disruption as, “solving market problems by creating solutions that are easier, faster and more accessible to new markets”.

It highlights the prevalence of this buzzword in the last decade, acknowledging its negative connotations, but arguing that it perfectly encapsulates the speed, breadth and progress that technology and science can bring about for players in any industry.

The report finds that disruption typically results from friction caused by the introduction of a new technology that makes accepted ways of doing things obsolete. This change can cause fear among segments of society around issues like job security and the loss of tradition.

However, Kai Riemer, professor of Information Technology and Organisation at the University of Sydney suggests that the overall impact tends to be overestimated. “It’s quite rare for a technology to come along and do away with an entire profession,” he says.

“What is more likely is that we will invent new tools that will change the way in which certain professionals do their work. And we might need fewer people. But we might also need more people to actually look after the technology,” he continues.

He points to the introduction of the personal computer as an example of unfounded fears about job losses.

“When it was invented, people thought we didn’t need secretaries or even office workers. But the entire service industry and office work has expanded.”

Disruption is not a new thing, and technology that creates more efficient ways of doing things has helped the world progress for hundreds of years.

However, according to the report, the pace of such change has become much faster. As such, regulators have found it difficult to balance societal concerns such as safety and privacy with societal benefits given the greater speed and the increased scale and scope of the impact from new technology.

Case Study: E-scooter sharing companies

One case study is that of E-scooters and urban transport. According to the report, Motorised scooters are older than traffic lights, having been invented more than a century ago. But it wasn’t until a Los Angeles start-up launched a shared, dockless electric scooter scheme that their popularity began to soar.

Says Justin Rose, managing director and partner at Boston Consulting Group, “What is truly new and driving massive adoption is the concept of shared and dockless scooters – which has dramatically lowered the cost of usage and made them ubiquitously available to a wide range of people.”

E-scooters promise to enhance public transport by addressing the “first mile and last mile problem” created when public transport options are beyond easy walking distance. E-scooters reduce traffic congestion because more people use public transport, as even cities with the best public transport infrastructure still have a proportion of residents who lack a nearby route.

At the same time, innovations in technology driven by leading players have also reduced the environmental impact of e-scooters, particularly by making the units last longer and the batteries more efficient.

However, despite their popularity, issues that make them difficult to regulate include ensuring pedestrian safety, and managing discarded and unused scooters which are seen as nuisances.

According to Mr John Rossant, founder and chairperson of the NewCities Foundation, a global nonprofit network, in the early days of e-scooters “there was no regulation because previously there’d be nothing to regulate.” However, this situation eventually reversed, with cities imposing speed limits and restrictions on the number of operators for share services.

“Municipal facilities in every city have quickly learned that they need to put in regulatory environments that don’t suppress innovation or choice for citizens. But you can’t have a free for all. I think cities are learning from one another,” says Mr Rossant.

Open dialogue for better regulation

The case studies in the report illustrate how realising the full benefits of these new technologies requires regulators to listen to stakeholder concerns, as well as the arguments for change from industry, and carefully examine the actual impact of such a technology before making any decisions that could have a long-term, negative impact.

According to PMI, regulation has long followed an input-output type of model where “Existing legislation and evidence accumulated over long periods of time have been the starting point to set new rules needed to govern new processes.”

As such, they continue, “regulation in this era of disruption tends to follow the known path and lean toward the status quo. The capacity to continue innovating for the benefit of society is significantly limited when regulation is unable to account for, and adapt to, the pace of scientific and technological progress.”

“Disruption is here to stay and it is important that regulators are able to keep pace, but also balance that speed with decisions that are based on consideration of stakeholder concerns and empirical evidence as opposed to a knee-jerk reaction,” says Chris Clague, editor of the report and a Managing Editor in Thought Leadership at The Economist Intelligence Unit.

“Regulations that result in an outright ban on technologies can stifle innovation, financial growth and societal benefit. Any regulatory change in response to disruption from a new technology should be based on a wide range of information and perspectives, as well the experience of others, to be both constructive and effective,” he concluded.