Regulate Baby, Regulate. The Definite Way to Kill Innovation and Established Technologies
Don’t suffocate the next big thing with today’s regulations
To all the regulators out there, please don’t take this personally. Although I am a fierce enemy of administrative hurdles, this article is not about questioning the necessity of your profession.
But your profession really made my life harder than necessary, and a few others’ lives, too.
When Did It Go Off-Track?
Some years ago, there was a fistfight between two taxi drivers in my hometown, because they couldn’t agree on the parking order at the local train station. The result? The city council of a town of 10,000 people had to pass a taxi regulation. Seriously?
Some 30 years earlier, regulations exploded in industries that count as “highly regulated industries” today: Pharma, finance, aviation. Digitization assisted the regulation explosion, as it became (too) cheap to publish additional regulations as PDFs.
Because it is cheap to publish one additional regulation, and because people don’t like fistfights between taxi drivers, they counter every problem with a new regulation, even potential problems.
That’s a problem for both radical innovation and established technologies. Let us look at two examples.
An Example of Radical Innovation
Let’s look at the example of a large-scale geothermal energy project in St. Gallen, Switzerland. Back in 2005, this city of 80,000 people spent 150M CHF (150M USD) per annum on fossil energy. To reduce their dependency on fossil energy, the city council analyzed many different options to redesign the energy supply system. In an audacious move, they decided to test unchartered waters and invest 150M CHF into a large-scale geothermal plant. An investment of 150M CHF should generate renewable heat and electricity for the coming 50 years, at the one-off price of the annual fossil energy bill.
In Switzerland, we cherish direct democracy, and the plan was put to a referendum with the local population. 83% of the population voted in favor of the project, even though the outcome of the project was completely unknown. Nobody had ever drilled a hole of 4,500m below the city before.
The project took its course, from feasibility studies to geological surveys to drilling that hole. It was realized in a record time of 7 years because there existed no regulation that could have delayed the project.
And then it happened. In 2013, natural gas entered the drilling hole, leading to a series of events that ended in an earthquake of magnitude 3.5 on the Richter scale. To make things worse, the actual output of hot water was significantly lower than projected, reducing the available thermal power by roughly 80% against the initial plan. Increasing the hot water output would have further increased the seismic risks. Not increasing the hot water output would have crashed the economic perspective of the project. So it was decided to stop the project, even though lots of money was already spent.
Nevertheless, both the population and the team said the project was a success.
Asking the responsible persons if they would proceed in the same way again with the next geothermal project, the clear answer was yes. Of course, abandoning the project sent shockwaves through the geothermal industry, but nobody could have foreseen the difficulties the project team met. And at the end of the day, the bad luck was also good, since the earthquake didn’t create significant harm to the infrastructure and the population in the region.
Because there was no regulation, the project could proceed and fail fast.
Because there was no regulation, there wasn’t any litigation in the aftermath of the project.
An Example of Established Technologies
Now on to an example of more mature technologies: Software.
At Yonder, we are ISO 27001 certified because our customers request us to be certified. ISO 27001 is a great framework that raises awareness for information security and sets standards across industries.
So far so good. But during our recent recertification audit, the auditor asked whether we already analyzed the NIS 2 and DORA directives. Those are new European frameworks for protecting information security in a world full of digital infrastructure. In principle, this is a good thing, as modern society is highly dependent on reliable and secure digital infrastructure. On the other hand, it’s a death sentence for many smaller companies: I can’t increase the prices of my product because I have to comply with additional requirements from NIS 2 and DORA. I also can’t afford the hefty fines that are threatened if I don’t play by the rules of NIS 2 and DORA.
Dear regulators, thank you for crushing everything entrepreneurs have built with their blood, sweat, and tears. And thank you for doing so from a cozy office chair, on a feudal salary paid by tax dollars.
Conclusion: It Ain’t The Wild Wild West?Anymore
I’m deliberately taking a sharp position on regulation. In real life, it’s not as black-and-white as I present it in this article.
Compare today’s time with the Wild West era, or the time the first railways were laid in Europe. Those were times when anybody could start a railway company. Regulation and standardization came later.
That’s where we are today with the digital infrastructure. The Wild West days are gone, everything is highly regulated. Because we’re so dependent on digital infrastructure, maybe this is a good thing.
But maybe it’s a bad thing to suffocate the next big thing with today’s regulations.
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