Challenges of regulating new industries and the future

NEW industries, new technology, new economy ... new problems! Changes in business models and the fourth industrial revolution (4IR) are throwing up many challenges and opportunities for countries. At the centre of how driverless cars or new energy sources will develop is how they will be regulated. And how they will be regulated will determine if they can be an enabler for innovation and growth in an inclusive and sustainable way, or a barrier.

However, this requires a governance approach that can cope with the pace of continuous innovation, advancement and change. Governments and regulators should not be expected to account for all possibilities before setting rules, in part because as soon as a detailed rule is set, technology has advanced and the laws or policies are out of date.

So how can the public sector nurture and manage this innovation at the same time? In Korea, there is a move for new industries to have a relaxation of rules as well as a "negative" rule system that sets parameters that the private sector cannot contravene. But apart from that anything goes.

In Singapore, there are "sandboxes" or experimental spaces to grow certain industries such as in fintech. The tone set by the government and regulators will shape the behaviour of the private sector. But the behaviour of the private sector will also determine how much trust the public sector will have for the private sector to be a partner in finding solutions.

Ethical business regulation will become a greater consideration. Professor Christopher Hodges from Oxford University has proposed a model based on theoretical and practical research where "the regulatory system will be most effective in affecting the behaviour of individuals where it supports ethical and fair behaviour".

This approach has already influenced thinking in the UK government and tries to raise the levels of trust among all actors in the regulatory environment for a better functioning and self-sustaining ecosystem.

But in addition to ethical and flexible regulatory frameworks, a more collaborative approach between the private and public sector will be required with a different attitude to risk. Managing sectors in an iterative and partnership approach with shared responsibility and accountability will mean a more mature relationship between the public and private sector - and shared risk.

Technology-enabled tools can provide mechanisms to manage that risk, along with the necessary data. Some governments are using an app called apptivisim to engage citizens and public bodies and understanding citizen sentiments before policies are designed or implemented.

Behavioural insights

Fundamentally, regulation is there to manage, prevent or enable certain behaviours from individuals and organisations. Therefore really understanding the drivers of behaviour as well as how to affect those behaviours will be key, for instance through behavioural economics or behavioural insights. The 2017 Nobel Prize for Economics was awarded to the behavioural economist Richard Thaler who is the co-author with Cass Sunstein of the influential book Nudge.

To date there are 135 public bodies from across the world who not only apply behavioural science in public policy but who have institutionalised it as a function in policy making in central governments (eg Australia, Canada, Germany, Qatar, Saudi Arabia, United Kingdom, United States, etc) or at the state or local level (eg Western Cape government in South Africa, New South Wales in Australia, British Columbia in Canada) or in regulatory agencies (eg Brazil, Colombia, Ireland, Italy, etc). And it is being applied beyond nudging individuals but helping to design entire regulatory regimes.

The 2017 OECD report captured over 100 case studies of it being used across the world. For instance, Colombia's Communications Regulator redesigned their consumer protection regime in the communications market and tested why and how people will behave before redrafting and enacting the new law.

Embedding a culture of experimentation, testing and trialling is at the heart of behavioural science. In Finland, one of the key initiatives of Prime Minister Juha Sipilä's government is to promote an experimental culture to find innovative solutions to develop the society and the public services.

The objective is to instigate and support societal change through experiments, policy trials and tests, which provide concrete evidence of what actually works, as opposed to what may be assumed to be the correct intervention. This is currently being used in the "basic income" policy, for instance.

Singapore's Ministry of Manpower has been one of the early adopters of behavioural science and has conducted a number of randomised controlled trials in a number of policy areas.

There are also some key tools that are well recognised across the world, such as regulatory impact assessments (RIA). OECD countries have been implementing systems of ex-ante assessment for a while. In 2015, Malaysia began systemically assessing the impacts of new regulatory proposals with public consultation before enacting and implementing them. In 2017, the second annual report for good regulatory practice will be published similar to practices in Australia and other countries.

While not all RIA systems are the same in design or analysis, they signify to industry and the civil service the importance of ensuring effective regulation.

New initiatives

Singapore is also making moves. The government has announced a number of new initiatives to expand engagement with businesses and trade associations, enhance calls to review regulations and develop action plans to improve the regulatory environment. Singapore also has a first mover framework to encourage innovations.

There are also challenges in being flexible and encouraging new industries. For instance small firms in new industries, such as tech industries, can grow quickly and have somewhat monopolistic powers or behaviour. And despite arguments that barriers to entry are small, they may still stifle other startups and indeed innovation.

Also some industries and sectors may begin to cross traditional boundaries. For instance in France the traditionally mobile phone operator, Orange, is experimenting in Brittany on its potential role to operate smart grids for energy. That is because of the increasing importance of data that may help to manage a number of "vertical services" in a more horizontal and integrated way.

These are all part of the "growing pains" in regulating new industries and indeed the future, and Singapore can take comfort from others in other parts of the world being in similar situations. However, that also means that the race is on to become the most effective enabling business environment in the new world - whatever that may look like.

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