Regulation 2.0 – hopefully NOT Regulation 1.0 (squared)

Regardless of your political philosophy, the role of government in today’s economy is a reality in most if not all countries. The challenge for elected and government officials, in my opinion, is not the need for regulatory change, but how will they use technology tools to create proactive rather than reactive policies and legislation.
Regulation 1.0 was responsibly reactive.
Traditional policymaking is reactive – protecting against the last crisis and making sure that what happened will never happen again. Sarbanes-Oxley and other regulatory requirements demonstrate how regulation applies remedies where the wounds used to be and not where new stresses and bruises are forming.
Ex post facto based regulation is understandable considering the complexity of regulating dynamic economies and the relative acuity of hindsight versus the real risk of stymieing future growth.
Reactive policy and regulation were effective to a point when nation-states and national economies were relatively separated from each other. Now that the world is ‘flat’ in Tom Friedman’s terms, we face a world where preventing problems in one country does not eliminate the risk in any country.
This has led to greater policy coordination and oversight across national boundaries. This has already happened recently in the range of reforms and representation in the G20 and their attempt to define a new system of capital, currency and other regimes.
Regulation 2.0 will seek to be reliably proactive
Proactive policy and regulation would seem to be the answer. If being reactive does not work, then its opposite must be the way to go! Such reflexive logic sits behind thinking about new forms of regulation that I will call Regulation 2.0.
Policy thinkers are beginning to see that such a benevolent approach must becoming possible as we enter into the second decade of the information age. The idea of an all seeing, knowing and proactive regulatory environment that keeps use from making big mistakes is appealing. It is an intrinsically populist idea where the government protects use from abuse and our mistakes.
The intellectual support for proactive and invasive policies has already been established in a range of disciplines. Public policy think tanks are busy writing white papers redefining the role of government as Congress ponders legislation with sweeping new powers. They are supported by the scientific research in brain science and behavioral economists who demonstrate that people do not always behave rationally. Their logic is that if people are not rational, then they need the government to behave rationally to prevent them from hurting themselves.
The fundamental flaw in this logic is to view government as a dispassionate objective institution that is somehow more rational than its creators. If anything, government is an institution driven by passion, power, emotion and irrationality. Just talk to a politician, an activist and you see that government is the most human of all of our institutions.
Asking such a human institution to be the super-rational player in society is asking government to deny itself, its source of authority and our sense of citizenship. It is an unnatural act that those in power will encourage – at least as long as they are in power.
So what about the future of regulation? How do we create effective and forward looking regulatory approach within the limitations of our system – some ideas in the next post.