English | EN Regulation: Innovation’s Double-Edged Sword
Oct 13, 2014
What are the deciding factors in the success or failure of a truly disruptive business powered by truly innovative technology? Consider the impact that regulation (and in some cases the lack thereof) can have on the viability of institutions established and entrepreneurial alike. Brick-and-mortar shops have long been vocal about the advantage that Amazon enjoys by not requiring sales tax where they do not have a physical presence in the US, a drawn out legal battle with an inevitable end. Similarly, startups like Uber and AirBnB have been able to take advantage of outdated regulations and regulatory bodies to introduce whole new paradigms of transport and lodging. But do predictably glacial regulatory processes always serve as a smorgasbord of loopholes of which spry up-and-comers can take advantage?
Legal institutions around the globe have been faced with challenges forced by technical innovation long before the age of the smartphone (and have predictably oftentimes handled this challenge inelegantly). It’s hard to believe in this day and age with DVRs in living rooms everywhere that allowing people to copy broadcasts on VHS in the US required a decision by the US Supreme Court in 1984, and who can forget the entertainment and legal industry’s awkward efforts to keep pace with the P2P networking phenomenon ignited by Napster by suing elderly people and the deceased? These cases illustrate the failure of copyright regulations to keep pace with technical innovation, a common phenomenon in consumer industries. But regulation does not in all cases serve as shackles for established business models to be exploited by the entrepreneurial. A good example of this can be found in the pharmaceutical industry, where heavy regulation and oversight effectively shields established manufacturers from disruption by startups. Technical innovations may drive new mechanisms for diagnosing and treating illnesses, but good luck trying to compress approval processes subject to lengthy governmental reviews and significant scrutiny.
As established businesses continue to drive towards the digital enterprise, it would be wise to take note of where regulation frees and where it constricts. It’s also important to note that the startup of today may be the established business of tomorrow, and that the same regulation that’s currently viewed as an advantage may come back to bite (taxi operators that reaped the rewards of a government-backed monopoly are now suffering under the weight of medallion fees with which ride share services are not burdened). And that it may take a while (in some cases 30 years), but legal institutions will eventually catch up – at least until the next breakthrough!
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