Regulation: What Often Goes Wrong and How To Fix It
Uber and Airbnb both show how “disruptive innovation” creates regulatory challenges. The reason is simple: Regulation is usually reactive, responding to facts. But when it comes to disruptive products or services it can be difficult to establish the facts or the selection of the “relevant” facts is distorted by the interests of incumbent players.
In the Uber and Airbnb examples this means that regulators respond to the unfair competition claims of potential rivals — who allegedly undercut prices, escape regulation, increase housing prices or avoid paying tourist taxes — without really understanding the negative impact of restrictive regulations in these areas.
Regulators often forget that society might be better off with Uber and Airbnb (more fulfillment, greater experience, happier customers, etc.).
How to Regulate Disruptive Innovation — From Facts to Data shows that we currently live in a world of data, and not facts. Regulation must be proactive and dynamically responsive to data and trends.
This raises the following questions: (1) When should regulators respond?, (2) What should regulators respond to? and (3) How should regulators respond?
The answer — regulators should use data analysis to better understand and anticipate regulatory needs.
Regulators already have access to high-quality and real-time data for rule-making. Recall that government funding is the main driver behind sustaining and disruptive innovations.
An analysis of this information undoubtedly confirms the view of Stephen Hawking, Elon Musk and Bill Gates that regulation should be introduced sooner rather than later to shape the evolution of artificial intelligence and robotics.
Thus, “data-based” rule-making is necessary in regulatory grey areas (where innovation has outpaced regulation), but the same might be said of more established regulatory areas, such as labour law, competition law and corporate law.
Corporate Disruption — The Law and Design of Organizations in the 21st Century explores “re-making” corporate law through the prism of the United Nations’ recent efforts at reducing legal obstacles experienced by entrepreneurs in starting and scaling their businesses.
The United Nations should not build its recommendations on traditional facts-based regulatory strategies by comparing and harmonizing existing corporate legal regimes. Such an approach will lead to “compromise rule-making” which will inevitably fail (as we have already experienced in several meetings on this topic at the UN in New York and Vienna).
It is preferred that the United Nations embrace a more “data” oriented approach.
In the context of company law, a focus on business fundamentals and real world needs of entrepreneurs makes it possible for lawmakers to engage in a more imaginative form of regulatory design in which new solutions for stimulating innovation and business creation can be developed.
Ironically, this would lead to a faster pace of innovation, and even shorter waves of disruption, which would in turn contribute to the need of more “data-based” regulation.
