Innovation Mandate: The Case For Less Regulation - InformationWeek
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11/17/2010
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Innovation Mandate: The Case For Less Regulation

One think tank fellow thinks the key to spurring innovation and creating jobs is to put a moratorium on regs in a handful of industries, but only temporarily. His proposal doesn't go far enough.

A senior fellow with the Progressive Policy Institute, an independent research institution that "advocates for radical policy solutions," is calling for "countercyclical regulatory policy" to stimulate U.S. innovation and create jobs. I have no problem with the baby steps proposed in this thoughtful policy paper, but I don't think it goes far enough.

The author, Michael Mandel, who runs a couple of think tanks and is a senior fellow at the Wharton Mack Center for Technological Innovation, defines "countercyclical regulatory policy" as a moratorium on additional regulations on "innovative and growing sectors" during economic downturns. Normally, Keynesians would advocate for looser fiscal and monetary policies to pump up the economy during a downturn, but having just about exhausted those avenues to minimal effect, Mandel notes, the U.S. now needs to pull the regulatory lever.

Mandel says three "innovation ecosystems" should be granted a temporary regulatory reprieve:

• Communications, which includes wireless providers like AT&T and Verizon, Internet companies like Google and Facebook, online retailers like Amazon.com and Overstock.com, and application developers of every stripe.

• Biosciences, which includes pharmaceutical, biotech, and medical equipment companies, as well as bioscience researchers and government funders such as the National Institutes of Health.

• Higher education, which includes universities and other non-profit and for-profit educational institutions, textbook companies, and education software developers.

Not included on Mandel's ecosystem short list is the mainstream software and computer services sectors, which he says generated 1.7 million net new jobs from 1990 to 2000. While he never states that the IT industry's ship has already sailed, his implication is that as a mature industry, it won't be nearly as big a source of new jobs over the next decade as the industries covered above -- though I'd argue that an industry of such enormous size, clout, and continued growth potential should (must) be spared the regulatory rod.

My main beef is with Mandel's call for only temporary regulatory relief for a select few industries. "Like countercyclical monetary and fiscal policy, countercyclical regulatory policy is designed to provide a short-term stimulus to the economy by making decisions that can be reversed when the economy improves -- the equivalent of a temporary tax credit," he argues.

What I have trouble understanding is why something that's good for the U.S. economy -- and, by extension, the nation -- during economic downturns isn't good during economic expansions. While loose monetary and fiscal policies can overheat the economy and burden the country with permanent debt, a selective easing of regulations -- not just a moratorium on new ones -- should provide dividends, in good times and bad, for all industries.

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