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Finding a level playing field: Models and frameworks for policymaking in an innovation-driven economy

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How do you James Gattuso: Most people look at the term [level define a level playing field] as referring to the competitors in the playing field? market. And that concept of equality is not what we want. It’s consumers that we want to really have the The Economist benefits, and we want the focus of policy to be on them, Intelligence Unit not on the competitors. convened an advisory board to discuss the impact Minerva Tantoco: When I think about a level playing of innovation on field, I think more about the concept of fairness, that market fairness. everyone’s playing by the same rules, [which are] there to protect the consumer, to collect taxes, to make sure that the workers are protected.

Rory McDonald: You [don’t] want to have any market participants that had privileged access or undue influence on any sort of regulatory process. You want to make sure that all companies have the ability and motivation to pursue innovation.

Jessika Trancik: A level playing field in markets is one James Gattuso, senior research fellow in regulatory that supports economic growth and also technology policy, Thomas A. Roe, Institute for Economic Policy innovation but at the same time protects certain basic Studies, The Heritage human rights associated with the environment, safety Foundation Minerva Tantoco, chief and health. technology officer, New York City Rory McDonald, assistant professor of business Rachel Haot: I would define a level playing field in the administration, Harvard Business School market as a scenario in which no participant has a Jessika Trancik, assistant particular advantage over the others, that everyone is professor of engineering systems, Massachusetts working with the same resources and materials, and of Institute of Technology course one that’s protecting and supporting consumers Rachel Haot, chief digital officer, state of New York with choice and safety.

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Contents

Executive summary 3

1 Introduction 5

2 Recasting the level playing field 7

Businesses’ level playing field 7

Consumers’ level playing field, and rise of the sharing economy 8

The regulator’s quandary 9

3 Chasing a moving target: Challenges for regulators today 10

Finding an edge in the zettabyte era 10

Regulatory inefficiencies and being late to the game 10

Fleeting internet monopolies and “thin” companies 11

4 Learning along the way: Models for balancing innovation and regulation 12

Broader policies and open channels 12

Learning the same language 12

Business as a trusted partner 13

5 Conclusion 15

2 © The Economist Intelligence Unit Limited 2015 Finding a level playing field: Models and frameworks for policymaking in an innovation-driven economy

Executive summary

Technological innovation is reshaping markets and the public interest is no small task. But sparking a creating new opportunities for businesses at a dialogue can help. To capture a broad range of faster rate than at any other time in living memory. perspectives, The Economist Intelligence Unit But to realise the promise of greater economic (EIU) convened an advisory board composed of growth, incumbent businesses, challengers and the subject-matter experts across industries, leading policymakers who regulate them need to find a academics and public officials to discuss the impact balance that encourages fairness without either of innovation on market fairness. The EIU also stifling entrepreneurialism or compromising the conducted in-depth interviews with additional public interest. experts. Finding this balance has proven difficult for We would like to take this opportunity to thank businesses and industry regulators alike. For the following advisory board members (marked businesses, the massive shift toward producing with an asterisk) and interviewees for their time digital rather than physical goods and services has and valuable contribution to our research: muddied the meaning of market fairness. As they Peter Bryant, partner at Clareo Partners and senior confront traditional incumbents, nimbler, digital- fellow, the Kellogg Innovation Network first upstarts often walk a fine line between pressing their competitive advantages and Gregory Daniel, fellow in economic studies and over-stepping regulatory—and sometimes even managing director for evidence development societal—norms. Policymakers, hindered by and innovation, Center for Health Policy, bureaucratic processes built for an earlier time, Brookings Institution struggle to respond in a timely and effective way to Brian Hearing, co-founder, Drone Shield fast-evolving markets and continuous , senior research fellow in technological disruption. James Gattuso regulatory policy, Thomas A. Roe Institute for In order to build greater understanding of the Economic Policy Studies, The Heritage trade-offs at play in ensuring a level playing field, Foundation* this report explores the specific challenges that regulators face when it comes to disruptors, and Tom Goodwin, senior vice-president of strategy explores workable models for increased and innovation, Havas Media collaboration between the public and private Rachel Haot, chief digital officer, State of New sectors. York* Building a policy environment that ensures fair competition, promotes innovation and safeguards

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Barry Johnson, director of the division of l Many of today’s fastest-growing companies industrial innovation and partnerships of the are born out of regulatory inefficiencies. Using directorate for engineering, National Science technology to disrupt their industries with more Foundation efficient solutions, they sometimes manoeuvre in Ken Lehn, professor of finance, Katz Graduate areas that regulations—often conceived many School of Business, University of Pittsburgh* decades ago—don’t clearly address. Unless governments are staffed with tech-savvy Steven Leslie, managing editor, financial services, professionals, they will struggle to keep up with The EIU* the disruptors. Rory McDonald, assistant professor of business administration, Harvard Business School* l A level playing field must balance the interests of business with those of consumers. Arun Sundararajan, professor and NEC faculty While disruptive innovators can deliver welcome fellow, New York University, Stern School of new products and services, without appropriate Business* regulatory oversight, these products and services Minerva Tantoco, chief technology officer, New may not serve the public interest. York City* Astro Teller, head of Google X, Google, Inc. l Technology is making it easier for businesses to self-regulate, but doing this effectively Jessika Trancik, assistant professor of engineering requires integrity. Through data gathering and systems, Massachusetts Institute of Technology thoughtful user agreements, some digital (MIT)* disruptors demonstrate an ability to assume responsibilities previously handled exclusively by The advisory board’s panel discussions and government. However, abusive practices could numerous other interviews with business leaders make regulators and the public more sceptical of and policymakers led us to the following key delegated solutions. findings on the nature of business today and what constitutes a fair marketplace: l Broad and principles-based, rather than prescriptive, regulation is the way forward. Given l Regulators cannot keep up with the speed and how fast technology can evolve, policymakers effects of technological change. Companies should strive to implement forward-looking, broad continue to innovate at a torrid pace, but regulations with clear intent. Doing so requires regulatory frameworks evolve slowly and open channels of communication between industry incrementally. Sometimes they’re even backwards- and government. looking, solving yesterday’s problems rather than tomorrow’s.

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1 Introduction

On September 21st 2011, Google’s executive 93 years to build an inventory of 600,000 rooms. chairman, Eric Schmidt (a member of the board of But Airbnb, a short-term apartment and room- The EIU’s parent company) sat in front of a US rental service, reached this figure in less than four, Senate antitrust panel tasked with determining simply by building an app that connects would-be whether Google favoured its own online guests with available, unoccupied homes. The commercial offerings in its widely dominant search seven-year-old company now has an “inventory” of engine. In response to the claims of close to a million rooms around the globe—without anticompetitive behaviour, he proclaimed: “The having built or purchased a single one of them. internet is the ultimate level playing field.” Such companies excel at exploiting market On the face of it, that is true. In the hyper- inefficiencies to bring greater access to more competitive online space, users are just one click people. But growth like this does not come without away from a competitor’s offering. Seen through a scrutiny. As Airbnb has grown to provide It took Hilton different lens, the advent of an age where accommodation to over 25m people to date, the Hotels 93 years to innovation and growth are largely driven by company has met regulatory challenges in nearly build an inventory information technology, has in some ways made it every new city it enters. Likewise, Google, whose easier for companies to achieve monopolistic stated mission is “to organise the world’s of 600,000 rooms. market positions (or nearly so). Paradoxically, information and make it universally accessible and Airbnb reached however, the information age enables upstarts to useful”, has been investigated or formally charged this figure in less achieve dominant market positions at what were by the Federal Trade Commission (FTC) for than four. once unimaginable speeds, even as it has delivered anticompetitive behaviour eight times since 2007. increased consumer choice and price competition. Innovative companies like these would argue Traditionally, market concentration caused exactly that they’re serving the public interest and the opposite effects. levelling the competitive playing field in their Of course, innovation cuts both ways. Although respective industries. But others—especially the it’s easier than ever for an innovative company to objects of their disruption—are more likely to cry overtake a legacy competitor, defending that foul, not least because the upstarts in many cases position has never been harder. In 1960, the seem to have done an end-run around existing average lifespan of companies in the S&P 500 was regulatory frameworks. Why, they ask, shouldn’t an 60 years. Innosight, an innovation consulting firm, upstart like Airbnb have to follow the same rules as expects this to decrease to less than 20 years by traditional hotels? Part of the answer, or lack 2020. And according to Constellation Research, a thereof, is that regulations never anticipated the Silicon Valley research firm, it took Hilton Hotels existence of such business models.

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Regulators are under pressure to resolve a core dilemma of the information age—how to promote fair competition, encourage innovation and protect consumers given how fast the business environment is changing. To address this and related questions, our paper will do the following:

l Explore how the technology landscape both enables new forms of competition and challenges conventional ideas of what makes a market fair;

l Highlight the specific difficulties regulators face in their approach to digital disruptors; and

l Share successful models that will help policymakers and those they regulate to move beyond rhetoric towards constructive solutions.

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2 Recasting the level playing field

Technology is the main source of competitive Businesses’ level playing field advantage across many industries today. The purely digital nature of many innovators means Almost every instance of industry disruption elicits they face relatively few barriers to entry, which at least a few howls of protest—sincere or could include difficult access to key natural otherwise—from incumbents. By their reckoning, if resources, or the need to build large, costly the success of a competitor’s innovation appears to physical manufacturing centres and distribution hinge even partially on taking advantage of out-of- networks. Moreover, once a digital good or service date regulations, then the incumbents must be at a ❛❛ is developed, the marginal cost of producing and structural disadvantage; the playing field must be The capitalist distributing another—an additional “copy” of an tilted. But, seen from the perspective of the economy is built e-book or another user page on a social networking innovators, as long as their game-changing activity on innovation platform—is often virtually zero. isn’t actually proscribed by extant rules—and leading to As a result, these digital innovators can scale up particularly if consumers prefer their offering to advantage. It’s a much faster, far more cheaply, and with far fewer incumbents’ version—then there’ no harm, no foul. question of, at workers than ever before. But the ramifications for Regulators, caught in the middle, struggle to muster market fairness are still unclear. “The capitalist a consistent response. Their challenge is either to what scale does economy is built on innovation leading to apply existing statutes to today’s technologies or to that suppress advantage,” notes Arun Sundararajan, a professor come up with seminal new statutes—both of which future innovation? at New York University’s Stern School of Business. are extremely difficult tasks. ❜❜ “It’s a question of, at what scale does that suppress “If you work at or on behalf of a major US Arun Sundararajan, future innovation?” technology company, there is a good chance that professor and NEC faculty The basic tenets of the level playing field—that you’ve come in contact with an Antitrust Division fellow, New York University, Stern School of Business the same rules apply to everyone, that no investigation,” said Renata Hesse, deputy assistant competitor should benefit from unfair advantages, attorney-general in the antitrust division at the US and that corporate interests should be carefully Department of Justice, to high-tech leaders in balanced with those of the public—have not January 2014. With so much upheaval in the changed significantly, even as technology has industry, this isn’t surprising. As Airbnb, to revisit transformed the competitive landscape. our earlier example, doubles in valuation year after Interpreting and applying these tenets, however, is year, the hotel industry’s revenues are dropping. no longer as straightforward as it once was. According to a Credit Suisse report, Airbnb is rapidly driving down hotel costs in New York City—revenue from the city’s hotels fell 18.6% per

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available room in 2014, thanks in large part to innovation makes it more challenging to ensure apartment-sharing services. that consumers’ interests are being served. It took Similarly, mobile-messaging services like 36 years for 25% of the US population to use the WhatsApp, which added 500m monthly users in just telephone since its invention in 1876. In that era, five years since its founding, “are absolutely regulators had ample time to observe and react to cannibalizing the telecommunications market,” the effects its adoption had on consumers. They no says Tom Goodwin, senior vice-president of strategy longer have that luxury. By the same measure, it and innovation at Havas Media. So-called over-the- took only 13 years for the mobile phone to catch on top technologies like WhatsApp and Skype and just three years for the tablet. Today, half of essentially use existing carrier networks to provide the adult population worldwide owns a their own alternative instant messaging services. smartphone. By 2020, 80% will. “Cellular networks are potentially losing billions of Is increasing connectivity and the concomitant dollars in what could be revenue from SMS,” adds shift from traditional commercial exchanges to Mr Goodwin. According to London-based research digital and oftentimes, peer-to-peer, ones working firm Ovum, the global telecommunications industry in consumers’ favour? Given the speed at which it’s will lose $386bn between 2012 and 2018 due to happening and the borderless nature of tech these internet voice and messaging applications. adoption, the answer isn’t clear. Consider the advent of the “sharing” or Consumers’ level playing field, and “collaborative” economy, which allows individuals rise of the sharing economy to leverage the power of technology to share goods The effects of disruptive innovation raise questions and services seamlessly. Rather than a traditional of fairness for consumers, too. “Most people look business providing a product or service to a at the term [level playing field] as referring to the customer, this democratisation of the marketplace competitors in the market. And that concept of blurs the lines between personal and professional, equality is not what we want,” says James Gattuso, service provider and buyer, investor and customer, senior research fellow in regulatory policy at the just to name a few. Not only are middlemen at risk Washington, DC-based Heritage Foundation. “It’s of being disintermediated, regulators could be, too. consumers that we want to really have the benefits, Such concerns continue to mount as the sharing and we want the focus of policy to be on them, not economy expands. Uber, perhaps the poster-child on the competitors.” of the sharing economy, has become infamous for In some ways, the increasing speed of setting up shop in new cities and challenging

Amazon and how to own an e-book

Amazon, which started with the ambition to As a consequence, Amazon came up with a be the world’s biggest book store, was not the solution borrowed from the software industry. first e-book retailer, but it was the first sizeable Facing a similar dilemma of selling digital one. Existing copyright laws that define what products to a market that was accustomed to the owners can or can’t do with a product had been exchange of physical goods, software companies written with physical objects in mind—therefore in the 1980s used a licensing contract to govern governing how and when customers could resell the selling and reselling of shrink-wrapped the product. Once a customer sells a book, he or software. Today, the “ownership” of an e-book is she no longer owns it. But is this the same case basically a licensing agreement. for e-books? The answer is: not quite.

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existing regulatory frameworks while fending off jobs. At the same time, they’re a traditional challenges from the taxi industry. Many would business that creates a lot of revenue. In retrospect, argue that the playing field is often tilted in favour there should be more rules around employment.” of the taxi lobbies to the detriment of passengers, and that upstarts’ presence helps correct the The regulator’s quandary situation. Yet, while Uber itself “employs” over Regulators are poorly positioned to anticipate 160,000 drivers (or “driver-partners” as the disruptive innovations, and reacting effectively to company carefully calls them in a white paper by the such rapid changes has proven almost as great a company’s policy research team in January 2015), it challenge. Amid competing mandates from does not provide health insurance or similar upstarts, incumbent businesses and consumers, benefits, even though nearly 40% of these drivers regulators must adapt, or they’ll find it increasingly have no other jobs. And while the company’s difficult to ensure a level playing field for each of success is a clear indication of the high demand of these constituents. Adapting, of course, is easier these “personal drivers,” recent newspaper said than done—especially when entire industries headlines also point out instances of rogue Uber can change in what seems like the blink of an eye. drivers misbehaving around the world. “Uber has Fortunately, some of the very forces that have the best of both worlds today,” Mr Goodwin says. confounded regulators offer the promise of a “They’re an employer and can say that they create workable solution.

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Chasing a moving target: Challenges 3 for regulators today

As we’ve seen, rules to help ensure fair competition privacy, but because access to such information is and protect the public interest are caught between often unevenly distributed. Any attempts to curb the old and the new. As the pace of innovation these proprietary information advantages in the gathers speed, it’s in many ways becoming more name of preserving competition will, however, difficult for regulators to do their job. At the heart require careful deliberation. of the challenge lies the explosion of data, and its “If we want people to have incentives to gather increasing centrality in commercial and consumer data and create new products with that data, we interactions. “As innovators come up with more have to assume that people are going to have creative approaches to new technologies,” Astro unequal access to that information,” explains Teller, head of Google X, the company’s home for Professor McDonald. “When we can try to get an ❛❛ experimental projects, says to The EIU, “this drives information edge, it allows us to develop our As innovators up both the rate of change and the overall demand business or release our products in a way that’s come up with for things to be regulated, creating challenging better than competitors.” conditions for policymakers.” For Mr Gattuso, “it goes back to the issue of more creative fairness. Is it more important that everyone has approaches to Finding an edge in the zettabyte era access to the same information or has less new technologies, The benefits of ubiquitous digitisation to both information out there in the marketplace?” he this drives up both business and society are clear. The free flow of asks. “The number one rule is that information is the rate of change information boosts economic growth and good, and you want it to be circulating.” improves products and services for consumers. In and the overall Regulatory inefficiencies and being demand for things 2012, IDC, a technology research firm, estimated that there were 2.7 zettabytes (2.7 x 1021 bytes) late to the game to be regulated... of data generated, which is double the amount Innovators aren’t waiting for regulators to set new ❜❜ generated in 2011. This figure is expected to rules. In fact, many digital disruptors were born Astro Teller, head of Google X, Google, Inc reach 44 zettabytes in 2020. The volume and out of regulatory inefficiencies, experimenting with velocity of data are increasing exponentially—and ideas that the regulators of yesteryear could not with it, its uses. have foreseen. And once their idea takes hold in Amazon, for example, has built up its dominant the marketplace, regulators must cope and react. market position by analysing huge amounts of user Perhaps no industry demonstrates this dynamic data to sell products more effectively—a benefit as well as peer-to-peer or peer-to-business lending less data-savvy competitors, or those with fewer platforms such as Lending Club, Prosper and resources, could not reasonably replicate. Funding Circle, which match investors with small- Competitive advantages like these can be loan borrowers, typically at better interest rates (for controversial, not only for reasons of consumer both buyers and sellers) than traditional bank

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lending provides. Following the 2008 financial crisis the online public, the company has been the most and the tightening of borrowing regulations that dominant social networking site worldwide since followed, the peer-to-peer lending model grew 2010. Meanwhile, as an advertising platform, the quickly as a cost-effective and easy alternative. By company occupies only 5% of the global digital 2014, US consumer-lending platforms facilitated advertising market, by revenue. more than $8.8bn in loans (projected to rise to In addition, despite innovative value $20bn by end-2015). 100 platforms now vie for propositions, digital, online companies like Uber, slivers of the trillion-dollar consumer-credit market Lyft and Airbnb “are very ‘thin’—they don’t have that have, until recently, been the reserve of unique assets, or unique software. They’re an app, traditional banks. an API, a brand name and distribution,” says Similarly, “Uber came out of loopholes in the taxi Mr Goodwin. “They own so little and therefore industry and Airbnb with the hotel industry,” says remove themselves from regulatory oversight Mr Goodwin. Uber has found a way to allow virtually easily.” According to Rory McDonald, assistant anyone with a driver’s licence and a car to operate professor of business administration at Harvard what’s essentially a taxi, and Airbnb looked beyond Business School, upstarts, more agile than larger ❛❛ expensive hotel properties to a wide-open market companies, “can also change their businesses in These companies of ordinary people’s not-always-occupied homes. real time to move away from regulations that may [like Uber and “These companies are ruthlessly exploring be overly onerous for them.” Airbnb] are loopholes. They are built by very smart people who Lastly, with typically low barriers to entry, the ruthlessly understand technology, and unless government is competitive landscape can turn overnight. Finding equally equipped with smart, tech-savvy people, itself challenged to keep ahead of changing user exploring markets are already hacking themselves.” behaviour, Facebook, the world’s most popular loopholes. They Our panellists agree that for policymakers, this social networking platform, made its biggest are built by very means playing catch up: “In part, the government acquisition at the time, acquiring the two-year-old, smart people who wants to get ahead of [regulatory challenges] and steadily growing photo-sharing application understand we know the sector is important,” says Rachel Haot, Instagram for $1bn. Luckily for Facebook, 26% of technology... chief digital officer of New York state. “The market is Americans on the internet use Instagram today, ❜❜ so powerful—especially with all these technologies, and “hockey-stick” growth came in April 2012, Tom Goodwin, we hear it [in] the public sector—that it becomes when the number of users doubled in just four senior vice-president of unavoidable. The power dynamics are shifting in short months after its acquisition. strategy and innovation, general and we’re seeing that everywhere.” In a post-event analysis of FTC’s antitrust case Havas Media against Google, in which the agency dropped its Fleeting internet monopolies and charges after the company agreed to voluntary “thin” companies changes in its practices, Geoffrey Manne and With the competitive landscape skewing towards a William Rinehart researchers from the “winner take all” approach, successful digital International Centre for Law & Economics, a companies are naturally prone to dominant market think-tank, warned against treating digital positions, as we’ve seen. Yet in the last decade, this monopolies the same as traditional monopolies. new crop of quasi-monopolies has proven to be Referring to the Department of Justice’s landmark different from traditional monopolies in several ways. antitrust case against Microsoft’s dominance on First, they can easily operate two-sided markets, operating systems, they wrote in a law review where companies have two distinct user groups journal: “We’ve been here before in the relatively that provide each other with benefits—leaving short history of high-tech antitrust. Microsoft’s regulators with a complicated task of constantly market position was unassailable...until it wasn’t. overseeing more than one market. For example, Even at the time, many could have told you that its Facebook operates a business for two groups. For perceived dominance was fleeting, as many did.”

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Learning along the way: Models for 4 balancing innovation and regulation

As long as innovation continues to transform “micro-regulations,” finding a balance comes down business at breakneck speed, regulators need to to creating flexible policies that promote fair play rethink their strategies to ensure a level playing and the public interest, regardless of how field and protect public interest. Our research and industries transform. “Even in the new context discussion with the advisory board members where new business models are created, or it’s a suggest that regulators achieve the best results new way to deliver a service in an existing industry, when they show the same nimbleness as innovators the intentions of the regulation still hold,” argues and embrace digital solutions themselves. Minerva Tantoco, chief technology officer of New York City. “We’ve seen how technology makes ❛❛ Broader policies and open channels We’ve seen how markets more efficient, competitive, and allows technology makes It’s impossible—and undesirable for all new entrants into the field, but do not lose track of concerned—for regulators to update or create new what the laws are meant to enforce.” markets more laws around every new technology or upstart. In efficient, this environment, policies need to be broad Learning the same language competitive, and enough to accommodate future innovation, but Hiring additional technical subject-matter experts allows new have clear enough intent to adequately guide can help government agencies keep abreast of entrants into the expectations and enforcement. change in industry. “Where I’ve seen success is field, but do not For instance, governments around the world are where there’s a two-way dialogue between the lose track of what rushing to clarify existing policies to address the businesses trying to set up and the regulator that’s advent of 3D-printed guns. Part of regulators’ in charge of that,” Ms Tantoco adds. the laws are challenge is to issue rules that won’t inadvertently According to CQ Roll Call, a US politics meant to enforce. create loopholes for a subsequent generation of publication (and sister company of The EIU), only ❜❜ innovators. In the US, regulators recently found 10% of members in the 113th Congress (serving in Minerva Tantoco, themselves wrestling with the emergence of 2013 and 2014), had a science or technology chief technology officer, New York City organisations like Defense Distributed, which background. There is a general lack of expertise planned to make 3D-printed gun schematics when it comes to building policies that address available to anyone on the internet. In response, newer technologies, such as those around genetic lawmakers extended the duration the Undetectable sequencing diagnostics and modern systems for Firearms Act, which prohibits weapons that can data collection, explains Gregory Daniel, managing evade metal detectors, for 10 years as well as director for evidence development and innovation updating some of its details around how to define at the Brookings Institution, a think-tank based in such weapons. Washington, DC. Government is beginning to catch Often, instead of constantly reacting with up, though. The Food and Drug Administration

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What are self-regulatory organisations?

Self-regulatory organisations (SROs) exercise SROs to oversee complex markets, such as the authority over a specialised group or industry. Financial Industry Regulatory Authority (FINRA), Their roots date back to the communal farming- which is charged by the Securities and Exchange and-grazing byelaws that protected land in Commission to set and enforce regulations that 13th-century Europe, but they are just as protect investors and promote fair markets. prevalent in today’s world. Contemporary Depending on context and varying widely in examples of SROs include the Chartered Financial stakeholders’ involvement, SROs are typically Analyst Institute, which sets high ethical and privately held and serve the purpose of policing professional responsibilities in finance, or the an industry (rather than a trade organisation American Bar Association, which does so in that serves to promote the well-being of an law. Some government agencies heavily rely on industry).

(FDA), for example, is asking Congress to expand Business as a trusted partner the agency’s budget in order to hire people with greater technical expertise. Many regulatory issues in the digital space beg for And by drawing on the expertise of the more delegated solutions, where large stakeholders tech-literate, regulators can also “track how other than government (ie, consumers and technologies are performing right now in terms of businesses) participate actively in rulemaking and benefit to society,” says Jessika Trancik, assistant enforcement. ❛❛ professor of engineering systems at MIT. Digital businesses frequently serve as quasi- [Companies] To do this, some government departments, regulatory intermediaries or ensure fairness in should be part of including the Department of Energy, Department of their own marketplaces through incentive the regulatory Homeland Security and Department of Defence, are structures and user agreements. Such businesses solution. They leveraging the Advanced Research Projects Agency are often in a better position than the government should be (ARPA) model, composed of engineers, developers, to act as referees, given their strict control of user and tech futurists to work hand-in-hand with channels and data. This practice is especially involved as actors policymakers to add technical proficiency to the prevalent in the sharing economy, where on- in the provision of regulatory process. Many agencies are also demand car services Lyft and Uber, for example, making the participating in the Intergovernmental Personnel collect feedback directly from users to incentivise markets work Act, a federal mobility programme that encourages drivers to offer good service. And Airbnb has been better. agencies to loan out skilled personnel to other able to assuage some regulatory concerns by ❜❜ agencies. And most recently, the US Digital collecting occupancy tax on behalf of its users in a Arun Sundararajan, Service, formed in 2014 after the disappointing handful of US cities. The fact that it captures professor and NEC faculty launch of healthcare.gov, is rapidly hiring top tech accurate occupancy data through its app is, in fact, fellow, New York University, talent to bring government services into the what allows it to make the case for a greater degree Stern School of Business digital era. of self-regulation. “Technology is changing so fast. Adoption is As the relationships among businesses, growing exponentially, and we are all connected by consumers and regulators evolve, it is becoming networks. So many more exponential changes are clear that the technology and data underlying so coming,” says Mr Goodwin. “Government agencies much friction can actually help each party find must be properly staffed to deal with this.” solutions. The commercial drone industry is a case in point. Following a near-ban on all commercial

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drones, the Federal Aviation Agency issued an construction and other fields. interim policy in March 2015 governing the use of Regulatory oversight for the sake of public small commercial drones for approved companies safety, especially in industries like air travel, food as long as the drones fly under 200 feet. Critically, and drugs, is critical. But as businesses these companies were able to show that increasingly control marketplaces through digital technology such as GPS-based flight path software means, regulators and businesses themselves can could help address the safety concerns of benefit from shared interests, leading to more regulators, airlines and the general public. As of partnerships and greater collaboration: “To me, the end of April 2015, more than 150 companies [companies] should be a part of the regulatory had been granted permission to field commercial solution,” says Professor Sundararajan. “They drones, with hundreds more waiting to test drone should be involved as actors in the provision of applications in agriculture, data collection, making the markets work better.”

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5 Conclusion

Even the most aggressive disruptors would agree public interest. They universally acknowledge that that some form of regulation will always be no single set of rules can address or anticipate the necessary in order to ensure fair competition and fast-changing needs for oversight. Instead, they safeguard the public interest. And though advocate broad, principles-based and forward- policymakers continue to struggle to accommodate looking policymaking, which they believe will hold the effects of disruptive innovation, a workable relevance even as further innovations inevitably path forward is becoming clear. arrive. Of course, such an approach will only be Just as innovators are disrupting industries, possible through collaboration with a cooperative regulators, working in close partnership with private sector and an increased capacity on businesses and consumers, need to refresh their policymakers’ part to embrace new technology. approach to rulemaking. Crafting future-proofed To Rachel Haot, chief digital officer of the state regulations may seem more difficult than simply of New York, the possibility of greater collaboration continuing to react with prescriptive regulation, is not far off: “What we find is that at the beginning but the results are likely to be more effective for all government and [innovators] may feel like they’re concerned. speaking different languages. But they do have Representing many different points of view, our common aims. They do have a desire to impact the panel participants observe trade-offs at play as public, very often to improve the world in some regulators aim to ensure fair and open markets for way, and by working together we can achieve a lot both innovators and incumbents while protecting more.”

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