Regulators Look to New Tools, Tactics to Keep Pace with Innovation

In most industries, it’s been a long time since inspectors could just come into a plant with a clipboard and checklist and effectively regulate.

But as technology advances in leaps and bounds, there are too many fields where regulation is falling so far behind that it’s not only ineffective, it’s become a hindrance. Cary Coglianese, a professor of law and science at the University of Pennsylvania and director of the Penn Program on Regulation, likened it to herding cats.

It’s not only that there are so many new technologies out there. However, that does complicate the issue, Coglianese told David Evans, chairman of Global Economics Group and co-executive director, Jevons Institute for Competition Law and Economics and visiting professor, University College London. Pointing to robotics, artificial intelligence, cryptocurrency, FinTech, precision medicine, social media, online, retail and many others, Coglianese said, “there’s a lot going on in the industries, plural, but there’s also a fragmented policy structure” at both the state and federal level.

“We have hundreds of different regulatory agencies that are in existence,” he said. “And in some areas, like FinTech, there’s a multitude of different agencies that might come in and interact with this new technology.”

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That leads to a lot of problems, not the least of which is that in some industries, like cryptocurrency and FinTech, there are turf wars as different agencies fight for control of what is, after all, a new sphere of influence.

But more broadly, the regulatory system is plagued by inertia.

“It’s hard to get any legislation passed,” he said. “We’re obviously operating in a highly polarized environment today where regulation is not a concept that a lot of people are embracing.”

That said, Coglianese added that that inertia is not just a product of the current legislative disfunction. “To get over that inertia, it often takes some kind of calamity, some crisis,” he said. “That’s when I think we’ll see real, serious attention to legislation” regulating these industries.

“I think it’s incumbent upon experts today to get ready to help policy makers when the crisis happens,” Coglianese added. “When the policy window opens, what are the ideas that can be quickly put into place? Because that’s usually how Congress works.”

Making it Happen

There are a couple of ways to regulate, particularly as industries get more complex and the old methods of putting in place mandatory actions or performance and outcome standards are not feasible.

“We’re really not talking about regulation as if it were a noun, but rather regulating,” Coglianese said. “This is a verb, it’s an activity, it’s an ongoing process. The problems don’t have to be nearly as neatly defined in advance.”

One way to do this, Coglianese suggested, is management-based regulation — essentially telling firms to self-regulate.

“It’s actually an approach that’s being used in a wide variety of areas,” he said. “It’s an outcome-focused approach to regulation, but it’s telling companies specific means to take to manage with those outcomes in mind.”

It’s already in place in fields like food safety, where companies have to identify potential points at which pathogens could contaminate food and then identify concrete strategies to avoid that, he said.

“The virtue of it is, is it has flexibility,” he said. “So each regulated entity can customize what interventions make sense for their products and their processes. It saves the regulator from having to figure out all of that as well. And it has been shown to work.”

That said, Coglianese noted that this type of regulation has to be backed up “by some kind of liability regime.”

The problem with liability is that it kicks in after the thing going wrong has already gone wrong — in the case of antitrust law, for instance, people have already paid too much for their goods or services.

What’s successful, he said, “is a multiplicity of approaches. Some liability, to be sure, some regulation and different types of regulation put in place.”

But one vital component is getting the right people in regulatory agencies and positions.

“Then you need humans who can maintain vigilance and be watching over all of that and be engaged in that verb of regulating,” Coglianese emphasized. Part of this is pay, but another part is attracting talented people who want to serve the public interest.

What’s encouraging is that the need to get top people in place in these new industries is broadly recognized, he said. “The National Security Commission on Artificial Intelligence came out with a report in May that said this has to be a priority,” he noted. “The GAO has come out with a report.”

Broadly, one of the greatest difficulties Coglianese sees is that regulation has to follow people knowing what they want to accomplish to be successful. He points to social media, saying many people see it as a problem but don’t have a solution.

“I think the biggest challenges, ironically, with new tech are human challenges, social challenges, and those that have to be front and center in our priority and going forward,” he said. “We’re not going to regulate well unless we can really understand and define the problems very carefully — and build up the human capability to monitor and adapt over time.”