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31 May

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Regulating in an era of rapid technological change

May 31, 2017 | By |

Governments across Canada are rushing to embrace emerging technologies and their potential to drive job creation, solve thorny problems and improve service delivery.

In just the past three months, the federal government announced a $125M investment in artificial intelligence research, the City of Toronto created a Civic Innovation Office and the Government of Ontario has helped establish a research institute exploring the potential of blockchain technology. Governments appear to be recognizing the power of new technology to improve both society and their own operations.

Yet, despite this momentum, recent experience demonstrates that technological advances also pose tricky challenges to governments and regulators. With their ability to scale and evolve rapidly – and the unconventional business models they enable – emerging technologies seem almost purpose built to confound our staid guardians of the status quo.

The rise of Netflix – which has grown from roughly 1 million Canadian subscribers in 2011 to nearly 6 million in 2016 – poses an existential threat to the federal government’s current Canadian content regime as well as the competitive balance of Canada’s media landscape. Yet Netflix remains effectively unregulated in Canada. The arrival of Uber and Airbnb clearly caught municipal and provincial policymakers flatfooted, with multi-year lags emerging between their widespread public adoption and even the early stages of governments’ regulatory responses.

But what can be done about digital firms that seem to pop up overnight and, within months, upend long-standing assumptions about how established economic sectors should operate? While innovation, and the creative destruction it sparks, will ultimately improve outcomes for citizens, emerging technologies clearly still need rules to protect the public interest in the here-and-now.

To see why, one need look no further than the allegations of racial bias being levelled against an algorithm used by US courts to help estimate a defendant’s risk of committing future crimes. Uber’s evasion of authorities through clandestine software designed to identify regulators and Airbnb’s alleged efforts to hide commercial landlords from officials also both clearly illustrate why digital firms still require strong public oversight. “Move fast and break things” might be a winning strategy in Silicon Valley, but it would be a disaster at Queen’s Park.

So, are governments up to the task of providing the rules and oversight that innovation needs without simultaneously stifling its potential benefits?

A new report from the Mowat Centre explores this question and identifies a series of challenges that governments face when it comes to regulating effectively and quickly. Government structures and processes tend to favour highly detailed and prescriptive regulations which leave little space to meet public objectives in innovative ways. There is often little regulatory coordination between levels of government and there are also real concerns over government’s ability to meaningfully engage with new stakeholders to craft effective rules that evolve with market conditions.

Thankfully, there are a range of options that could help governments modernize Canada’s regulatory landscape and become more nimble. For example, governments should prioritize hiring and developing top-quality staff, and explore opportunities to second them to work within technology firms (and vice versa). The Presidential Innovation Fellows program in the United States provides a model for how such cross-sectoral interchanges can boost public sector insights into how technology firms operate as well as the private sector’s understanding of the government’s unique operating environment and responsibilities. The fact that the Government of Ontario just hired an alumna of this program to serve as its first Chief Digital Officer is encouraging in this respect.

But governments should go further. The federal government should also consider creating an Innovation Advocate to challenge established thinking around regulations and identify obstacles inhibiting innovation. Without an independent voice challenging the status quo and probing for ways to do better, current approaches run the risk of encouraging group-think and favouring solutions that make governments’ – but not innovators’ – lives easier.

Furthermore, governments need a better appreciation of the burdens that existing regulations impose on stakeholders. Recognizing that “what gets measured gets done,” in 2003 The Netherlands adopted the Standard Cost Model to better understand the true cost of regulations, ultimately leading to a reduction of nearly 24 per cent of its regulatory burden and business savings of roughly €4 billion. Unless governments have a clear sense of how much time or money a regulation currently costs businesses, they simply won’t be able to target their burden reduction initiatives in the most impactful ways.

Government should continue to support the development of innovations like artificial intelligence which may unlock significant societal and economic value. But, absent a corresponding effort to modernize regulatory approaches, governments could be setting themselves up for failure by hastening the emergence of disruptions they are ill-equipped to effectively manage.

Ponderous regulatory frameworks will discourage firms from investing in, or bringing their products to Canada, further disillusioning citizens and producing a less competitive marketplace. It is certainly time to invest in innovation, but let’s also invest in our ability to regulate so that we can ensure that innovation best serves Canada’s interests.

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