Since the beginning of the modern concept of business, virtually every business owner rails against the overbearing bureaucracy of regulation. From the fact that it raises the cost of doing business to the fact that it can used as a potential weapon to impede progress or artificially protect existing players for no economic reason.
For many, regulation is an impediment to the ability of individuals to pursue to their passions and dreams due to the need to fulfill time consuming and bureaucratic paperwork on minutia. While everyone can point to anecdotal examples of bureaucratic insanity when it comes to regulations, do such anecdotal examples represent the norm or are abnormalities that need to be eliminated?
There is no doubt that viewed from the lens of speed to market, regulation, particularly from a pre-technology perspective as it was implemented, acted as more of an impediment than a benefit. Or did it?
Viewed from a different perspective, regulation need not be an impediment but a necessity from not only a human-based perspective but one that produces better long-term results. While there is no doubt that regulation can impede the process over the short-term, over the long-term, the provisioning of additional knowledge can potentially improve the end result, if applied correctly.
If one looks at regulation, it seems to stem from a human need for transparency and accountability thanks to the development of modern social and economic systems. As human civilization expanded from individual tribes and communities where everyone knew everyone else, it was necessary to develop a common set of ground rules that everyone could abide by when interacting from a broader social or economic context. Thus was born regulation.
Unfortunately, while many thought that a simple common set of ground rules would suffice, the reality is as inevitably happens when humanity is involved, it grew into something more complex and complicated. There are numerous reasons but the primary one is human ingenuity. Whether it is driven due to circumstance, culture, imagination or some combination of all of the above, basic regulations can be interpreted in an infinite number of ways.
Thus was born the need for additional regulations to ensure a more rigid interpretation of regulations that was more uniform and consistent. Unfortunately, though, as we’ve seen time and time again, regulation tends to lead to additional regulation and thus growing complexity turning a simple regulation into one that requires an advanced degree to interpret. For many individuals who just want to get things done, learning regulations is an onerous and pointless task that has turned regulation from being a benefit to society to a roadblock. But is this always the case and can it be changed?
Most business people would argue that regulations do not add value to business for the reasons outlined above. Regulations, according to many business people, prevent innovation and creativity and merely add to the cost of doing business and erode profits. That is one interpretation but what if there is a more positive one?
What if we instead viewed regulation as the codification of ideas that have been tried and failed in the past and can act as guideposts for business people and entrepreneurs to innovation along different and unexpected paths? There is no doubt that no one in civil society would want another Ponzi scheme or sub-prime mortgage crisis to occur again as it is a waste of invaluable resources and creates distrust in the system thereby slowing down innovation.
Indeed, regulation, if interpreted and applied properly, can act as an accelerator for startup development. Not only can regulations potentially guide startups down a path to profitability by acting as both an indirect and direct repository of knowledge but they create an ecosystem by which they can potentially grow and thrive.
As stated earlier, regulations allowed individuals that did not necessarily know each other through tribal or community affiliation the opportunity to interact with each other on an equitable playing field. Startups definitely need that equitable playing field, particularly in their nascent stages, when resources are in short supply and competition is fierce. One could argue that without regulation, we wouldn’t have the variety of startup innovation that we have today.
That being said for all the good that regulation provides, there is no doubt that how we enforce regulation needs to change if we want to keep innovating at a rapid pace. Becoming an expert in a particular regulatory regime should not be someone’s career nor require an advanced degree.
With today’s technology and human ingenuity, it should be possible to simplify regulations to make them simple to abide and interpret. One can look at startups who have managed to simplify their legally obligated disclosures into easy to understand language that does not require an advanced degree to interpret.
In addition, we must be willing to prune regulations where needed to ensure balance. Unfortunately, regulations, thanks to society’s inability to prune when necessary, continue to grow unchecked thus feeding the distaste for regulations among society. Those involved in the creation of regulations must be willing to also find ways to remove unneeded regulations to ensure health and innovative social and economic ecosystems.
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