21st century regulation: opportunities & traps
There are opportunities and challenges for all decision-makers in adapting their governance tool box to the implications emerging in the Internet era. Gérald Santucci, Head of the Unit Knowledge Sharing at Directorate-General Communications Networks, Content and Technology (DG CONNECT) at the European Commission, illustrates how our societies ‘rules for living’ need to move from stone or clay tablets, parchment scroll or paper to screen, cloud, holograph and beyond.
From a high perspective, how did the concept of governance evolve historically?
To make things rather simple, let me use a metaphor from the Bible. Moses is supposed to have come down from the mountain about 3,500 years ago with ten fundamental ‘governance principles’ written in stone. Well, in fact we still govern ourselves in pretty much the same way today – though the words and letters are formalised on paper rather than stone.
The question is: how would Moses’ tablets look like today?
No one would dispute that societies are now much more complex. We are governed by an interwoven corpus of common, local, national, regional and global norms and laws enforced and supervised at all these and even more levels. For the most part they serve us well, and most human historical tragedies can be traced to their abrogation.
What are the drawbacks brought about by this new complexity?
From the perspective of the public sector, today the governance status quo is challenged on at least two fronts:
First, excessive micro legislation or red tape has been universally recognised to be a burden on business, an irrelevance to the citizen, and correspondingly ineffective in its primary purpose. The foundations of this regulated society were further shaken by the financial crisis of 2008, thus increasing citizens and business’s demand for tailored service on the one hand and greater transparency on the other.
Second, since the beginning of the 21st century, citizens and businesses have been exploiting the Internet for general benefit. However, the rules within which they operate are lumbering behind.
In the European Union, there are now sign-posts towards a resolution of these challenges. In 2014 we reached a tipping point in respect of the first challenge with the adoption of the so-called Regulatory Fitness and Performance Programme (REFIT) with its regulatory simplification and “lightening the load” agenda. In addition, the EU adopted legislation, the so called ecoSearch Regulation (i.e. the Commission Delegated Regulation No 518/2014 of 5 March 2014), which redesigned energy efficiency labelling for the Internet.
How are these initiatives taken by the European Commission received?
It is too early to assess their impacts. My guess is that REFIT will rapidly be recognised as a powerful instrument. After all, it is taken to make EU law simpler and to reduce regulatory costs, thus contributing to a clear, stable and predictable regulatory framework supporting growth and jobs. Last May, the Commission has gone a step further by setting up the REFIT Platform to conduct an ongoing dialogue with Member States and stakeholders on improving EU legislation in the context of the REFIT.
The ecoSearch Regulation could be, I believe, a more disruptive idea. Without going into details, this initiative has brought to light a number of big challenges.
The first one is information gaps. Pre-ecoSearch, all appliances covered by energy efficiency labelling requirements had to display the label on the appliance in the shop. Post-ecoSearch, the appliance covered must display the Internet-adapted label on websites where the appliance is offered for sale in Europe. I insist: websites anywhere, i.e. in the world!
The second one is peer behaviour. I’m sure you are familiar with the policymaking approach called nudge, popularised in 2008 by behavioural economists Cass Sunstein and Richard Thaler. They argued we can exploit cognitive biases to nudge, or gently guide, people into making choices that are good for them and for the society as a whole, while always leaving them free to choose otherwise. Well, let me argue that nudge becomes shove on the Internet. Appliance eCommerce sites have already started to nudge consumers towards purchasing the most energy efficient appliances using filtering and optimisation techniques. This may be a good thing, but these appliances are also the most expensive. They can have a shorter working life than more robust models and therefore a higher total lifecycle impact on the environment.
The third one is keeping everybody honest. The biggest cost in monitoring label compliance in shops is the cost of sending inspectors around. On the contrary, monitoring of the content of Internet sites is trivial (Google and Facebook already monitor and profile all of us). Furthermore, all sites are visible to all competitors who are free to report non-compliance and insist, for instance, that non-conforming suppliers’ deliveries be stopped at port.
So it’s all about the governance…
Yes. The supervision of implementation in the online environment is simple, at least technically. New rules can be deployed virtually instantaneously – as well as being monitored ubiquitously.
My new question is the following: where legislation can be promulgated and monitored at fast speed and with high efficiency, could an infinitely lighter touch be imagined? Could guidance become the new legislative norm? Imagine a scenario, encompassing the following steps: you design online legislative initiative, you issue guidance, you monitor results, you modify guidance, then you identify the recalcitrant, you issue threat of more direct intervention, you assess peer pressure, and finally you evaluate legislative impact. You could tell me: “And so what?” Ok, my point is that all these steps can all take place in a week! If you don’t believe me, you know little of how the Internet already functions for citizens and businesses…
One vision of the immediate future is the online appliance seller using an actor to describe the product. As the law currently stands, the actor tells you everything you “should” be told and lots more besides. What will legislation “sound like” when we implement web accessibility rules? What responsibility in the very near future will our personal avatars (who we program to do “criteria based shopping” on our behalf) have for making our legal rights and obligations clear to us?
Will a new kind of governance come of age?
That’s what I believe. If rules can and will need to be deployed as rapidly as suggested, what does this do to the democratic process itself? What will the new role of national parliaments be? Six month committee stages on the details of a useful legislative initiative will become as unthinkable as a Google homepage that doesn’t change every day. Let’s come back to Europe – in the wake of its new Better Regulation package, I can’t imagine that the European Commission will not soon be ready to “rapid prototype” legislation. Already in this year’s Commission Work Programme, needy candidates for what my colleague John Doyle has coined “Internet Readiness” assistance abound – from financial services to mobility of workers.
There are two clear short-term implications for the European Union: one, we can only make light and fast rules with faster legislative cycle times; and two, this will require greater use of Co-regulation, Self-regulation or Delegated Acts.
How does the power of ICT transform the governance scenario?
We can draw a perfect example from self-regulation in the hospitality industry.
Moving beyond ‘official’ labels, one of world’s best known and powerful labelling devices is the Hotel Star rating – and yet no global standard exists. What exists is Internet-mediated customer reviews and peer pressure. Yes, there is abuse: a rival posting erroneous poor reviews, but the thing is that abusers are quickly identifiable and ultimately removed from the golden goose! The 5-star system is now one of the most effective and accurate worldwide consumer information sources: it is not regulated; it is not even self-regulated. But it works. On the flip side of the coin, the hospitality industry in many countries is now so dependent on Internet mediation and Internet search that the danger of abuse of market position is real. Should this be legislated for? And if yes, how?
Another example comes from our transitioning towards an integrated food chain.
At a time when several countries of the world are grappling with food security and associated mega-trends and challenges (resilience, climate change, market stability), consider how our entire food chain can and will be revolutionised by the application of the same simple techniques.
Today nearly half of global manufacturers say they don’t have any visibility past their direct suppliers – in other words, they don’t know what is happening in their supply chain. Therefore, applying higher standards to information collection and management is likely to reduce the impact animal disease has on global food production and have huge public health benefits.
That information on supply chain transparency should flow and be available to all citizens, administrations and businesses is not questionable. Couple this information, however, with the increasing use of sensors and online media to identify sources of food contamination, spreading of related epidemics and consumer panic, and we could see whole industries undermined overnight. The recent food scandal, in which beef burgers and ready meals on supermarket shelves around UK were found to be laced with horsemeat, demonstrated the speed with which consumers can react.
And what about products where the term ‘label’ (a physical world term after all) is simply nonsensical? The ecoSearch initiative mimicked physical labels: but how do we “design-in” consumer protection or information provision obligations for purely digital goods, i.e. film, music or the software for driving a 3D printer? In the 20th century the Letter of the Law was a perfectly understood concept. In the 21st century it has much less meaning where data is presented on screens or holographs by talking heads or avatars. How will our legislative framework keep pace? As “the medium is the message” what will the message look like when its medium changes from paper to screen to holograph and so forth?
Will the new governance scenario ensure broader societal benefits?
It will indeed. In the eyes of more and more legislators this must be the decade where the legislative missing leg of the three-legged stool is put firmly in place – ensuring broader societal benefits.
Citizens (who love being able to buy schoolbooks and drugs cheaply online) and businesses (for which the marketplace is the whole world) are rightly concerned that the legislative arm will get it all wrong. They are equally concerned that if nothing is done, disaster will ensue: dramatic collapse in employment and earnings for traditional town centre businesses these past five years has been globally compensated for by the explosion of online retail. When I visited Dublin’s West Expo last April, I was very impressed by the Connemara Programme, established in 2012, which is for me a model of the most effective actions that are at the disposal of a public sector to create the new ideas, products and services that will generate growth and qualified jobs in local areas.
But who benefits? Where are taxes paid? What does tax even mean in this new world?
So, Internet Ready legislation must become the norm by 2017 and ubiquitous by 2020. This is the only proof that we are mastering the Internet in the sense of playing our role of serving the greater good. A huge effort of creativity is needed if the Rule of Law is not to die with the Letter of the Law.
What are the main points policy makers should focus on in light of these trends?
First, the legislative process needs to evolve into something completely different. Second, relying only on legacy concepts from the earlier market paradigm exposes today’s policymakers to the risk of formulating irrelevant or ineffective legislation. Mere familiarity with the old paradigm – and the need to grandfather it for a period of years during a transition – is no reason for that paradigm to be enshrined forever going forward. Let me be a bit provocative by suggesting that linear development of the current legislative approaches is the equivalent of priorité à droite on many European motorways, extending legacy from the horse and cart to technology with different characteristics.