Why is it Important to Regulate Innovation?

When the EU unveiled its updated General Data Protection Regulation (GDPR) in 2018, the difficulty in conciliating innovation and associated regulatory frameworks once again raised its ugly head.

When the EU unveiled its updated General Data Protection Regulation (GDPR) in 2018, the difficulty in conciliating innovation and associated regulatory frameworks once again raised its ugly head.

Certainly, too much or overly stringent regulation can stifle growth an innovation. At the same time, the financial crisis of 2008 highlighted the dangers of deregulation, but we’ll touch more on this a little later in the piece.

But why is this such a difficult balance to strike, and why is deregulation so potentially damaging? Let’s find out!

The Challenge of Regulating Innovation

While regulation is often presented as the enemy of innovation, this ignores historical advancements and mandatory technical standards. Take the growth of smartphone usage, for example, which is poised to nearly double between the years 2016 and 2025. Mobile communications are now also playing a pivotal role in social and economic development of developing economies in Africa, Asia and Latin America, with a key contributor to this evolution actually a mandatory EU technical standard (the GSM) enforced back in 1987.

This regulation created a continent-wide market for associated hardware and services, which was so large and transparent that it was ultimately adopted globally.

There were more than a billion subscribers to GSM services globally by the year 2004, helping to minimise manufacturing costs, drive huge economies of scale and make it much easier to create interoperability between global networks.

This highlights the understated and often invisible role that regulation plays in creating fair market conditions and driving growth, so long as this is underpinned by a balanced approach that considers fairness, transparency and long-term commercial growth.

This is where regulators and businesses face their most significant challenge, as successfully regulating and managing innovation is an incredibly delicate balancing act and one that can take years to achieve successfully.

The Importance of Legal Innovation

To provide further context here, let’s take a look at the dangers of complete or aggressive deregulation.

This is best embodied by the financial crash and banking crisis of 2008. By deregulating this global marketplace through the noughties, banks and financial institutions were allowed far greater autonomy on how to distribute their capital.

Over time, this led to the decision of leading banks to invest in high-risk financial derivatives, laying the foundation for huge market volatility and arguably precipitating the financial crash in 2008.

Not only does this help highlight the challenge facing regulators and innovators alike, but it also reminds companies about the importance of legal innovation. This describes the process of underpinning innovation and technological advancement with regulatory standards and clear defined compliance measures, ensuring that new developments can be rolled out quicker and in a way that complies with UK law.

Without this, you may find it hard to roll out new innovations safely or in a way that can be sustained over time.