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We must test legislation against whether it impedes innovation

Here’s my recent Times column:

An open letter to George Freeman MP, chairman of the government’s policy board.

Dear George, as a former biotech venture capitalist, you are a passionate champion of innovation. It has pulled an average of 137,000 people out of extreme poverty each and every day of the past 25 years. It’s the only thing that can pay off our £1.9 trillion national debt while keeping our grandchildren prosperous. You are on record as saying: “We have a once-in-a-generation chance to seize the opportunities to make the UK the innovation capital of the world, defying the doubters and being clear that we will go on leading the world in science and technology.”

I don’t know what it is like down your end of the parliamentary corridor, but at ours we spend very little time talking about how to encourage and reward innovation, despite its clear importance. We are too busy instead with regulation and spending. Although it hardly features in debates or coverage of British politics, there is an entrepreneurial revolution going on in Britain, with about 600,000 business start-ups a year, more than in any other European country — driven by some excellent pro-enterprise policies started under David Cameron.

However, most of this is in the digital economy, where innovation is comparatively “permissionless” — for now. Elsewhere, there is a real problem with bad, inconsistent or burdensome regulation stifling innovation. So here is a suggestion for the Conservative Party manifesto that I think could help unleash beneficial innovation in years to come, or at least prevent it grinding to a halt. It is called the innovation principle.

It was proposed by the European Risk Forum and is actively supported by BusinessEurope and the European Round Table of Industrialists. In essence, it says: examine every policy, plan or political strategy for the impact it could have on innovation, and if you find evidence that the policy is going to impede it, then drop, change or rethink the thing.

Twenty-two chief executives from some of the world’s more innovative companies signed a letter to Jean-Claude Juncker in 2014 asking him to adopt the innovation principle, and the Dutch prime minister, Mark Rutte, endorsed it last year during his country’s presidency of the EU, saying: “I particularly support . . . the innovation principle. This principle requires assessing — as standard — the impact of proposed new legislation on innovation. In my view, we should position the innovation principle more prominently in the years ahead, to make the EU economy stronger and more agile.” So there is a chance that the European Union will get the point, and remember Britain tends to over-apply regulations anyway.

The innovation principle would complement rather than replace the precautionary principle, which is incorporated into the Lisbon treaty. At its best the precautionary principle is a good thing, preventing future thalidomide tragedies. It says: think about the risks before you adopt something new. At its worst, it does huge harm, because it says: banish potential hazards without considering the benefits of an innovation, while ignoring the hazards of an existing technology, and therefore don’t do anything new.

For example, European certification of genetically modified crops is so impossibly slow, uncertain and politicised as to have frightened off all applications in recent years. The result is that Europe has missed out on the organic, insect-resistant “Bt” revolution in plant breeding and is far more reliant on pesticides instead. The newer technology of gene editing, which is being pioneered in British laboratories, has been given a green light by US regulators, while the EU has — get this — asked member states to avoid making a decision at all. What signal does that send?

One chemical manufacturer tells me he estimates that to develop a new herbicide that could safely tackle black-grass, an increasingly problematic weed, it would be necessary to comply with between 15,000 and 40,000 pages of regulations and scientific guidance documents. Few companies in the world have this capability.

Next month the implementation of new European rules on vaping arrives, which restrict e-cigarette advertising, limit tank and refill sizes, and cap the strength of liquids, making it harder for this much safer new technology to continue to displace smoking at a rate of knots. Thus, in the name of the precautionary principle, the EU has been insisting on danger.

Last December, BusinessEurope produced a long catalogue of cases in which EU regulation had affected innovation. The list includes two cases where regulation stimulated innovation (waste policies and sustainable mobility), but far more where it hampered change by introducing legal uncertainty, inconsistency with other regulations, technology-prescriptive rules, burdensome packaging requirements, high compliance costs or excessive precaution. For example, the EU medical devices directive has greatly increased the cost and reduced the supply of new medical devices.

Don’t take comfort from our many digital start-ups. As a chemical industry executive put it to me last week, the digital industry does not realise what’s about to hit it. The General Data Protection Regulation (GDPR) comes into force next year, along with new ePrivacy regulation. The British Information Commissioner’s Office has issued draft guidance that gold-plates the GDPR, with an unduly strict and burdensome interpretation that tilts the balance against the data industry in a manner not required by the regulation. Its proposed rules on opt-outs and consents would make direct marketing as presently practised here impossible. Data analysis is a growing industry in which we have the potential to be a world leader.

An abstract principle, however pious, is not going to change anything. The only way to get momentum for reform is to create a vested interest, preferably with a budget. Precaution has a wealthy constituency in the vast green lobby, whereas innovation’s benefits are dispersed among consumers. So here’s a suggestion. Why not pledge to set up an innovation commission, guided by the innovation principle, whose job is to examine policies and report on their likely impact on innovation? New Zealand has tried something similar, a productivity commission, which “considers whether laws, policies, regulations and institutions best support the wellbeing of New Zealanders”.

Without this, we will be in the economic slow lane, which will hamper our ability to generate funds for social welfare, defence, foreign aid, education and everything else.

Yours optimistically, Matt.


By Matt Ridley | Tagged:  rational-optimist  the-times