The IPL newsletter: Volume 18, Issue 360

Papers from the Annual Creating Digital Opportunity Conference – May 2017

Innovation Policy Lab
Evolving digital technologies are critical to Canada’s future economic growth and prosperity. Global leadership driving this rapid pace of innovation is also in constant flux—posing a challenge for Canada, but also an opportunity. To benefit, we must take appropriate action, as our prospects for competitiveness and economic growth are inextricably linked to our ability to seize the ‘digital opportunity’ being created. The Creating Digital Opportunity project, now in its third year, identifies strengths in current and emerging digital sectors, by examining the place of Canadian corporations, products and services in global production networks. It also examines how individual regions and locales can invest in the appropriate skills and infrastructure and design appropriate policies to attract outside firms and assists local ones to participate in these networks as well as build upon existing expertise and success across sectors. It also investigates the extent to which digital technologies are being adopted and diffused across a wide range of other sectors—from advanced manufacturing to natural resources and business services—all of which are crucial for the future competitiveness of the Canadian economy and ask if we are taking full advantage of the opportunities on offer. This series of papers was presented at the Annual Meeting of the project participants in Montreal this May.

Regulating Disruption: Governing in an Era of Rapid Technological Change

Sunil Johal and Michael Crawford Urban, Mowat Centre
This report examines the relationship between regulation and innovation in rapidly-changing technological industries. Drawing on extensive interviews with representatives from industry, academia and government, the report analyzes a number of new challenges confronting Canadian policymakers and regulators as they seek to adapt regulatory frameworks for the digital age. Building on this analysis and informed by examples from other jurisdictions, the authors suggest a suite of reforms to Canada’s regulatory frameworks and development processes aimed at enabling them to become more encouraging of innovation.

Governments across the world are scrambling to respond to the arrival of innovative new digital services such as Uber, Netflix and Airbnb. While these services promise great benefits for Canadians, they also pose novel regulatory challenges to how governments are structured, engage with stakeholders and hire and train their staff.

Driving Questions

• How should governments regulate global services headquartered in other jurisdictions but available digitally within Canada?
• How can governments engage and encourage innovators and balance their needs with other stakeholders when government agencies struggle to hire and retain personnel who understand the technical issues involved?
• How can regulators successfully reconcile the deliberate pace of regulatory processes with the accelerating speed of innovation?

Towards Solutions

Identifying solutions to these questions will be a vital step towards securing Canada’s prosperity in the digital age. Other countries have already launched serious efforts aimed at reducing the burden of regulation as well as other measures designed to make their regulatory systems more innovation-friendly. Without renewed attention to this issue, Canada risks being left behind.

This report argues that Canadian governments can and should undertake a serious and sustained effort to bring their regulatory practices and culture out of the industrial age and into the digital age. Canadian governments have the opportunity to significantly boost innovation in several exciting ways, ranging from a greater embrace of design thinking in their regulatory design processes, to the initiation of programs for enhancing technological capacity within government, to the development of new tools to ensure vigorous competition in digital markets. By leveraging these opportunities, governments can make a significant and positive contribution to Canada’s future and ensure Canadians are well-positioned to promote and reap the benefits of innovation.

Recommendations

Develop Relevant Skills Within Government
Regulators’ knowledge of the fields they are regulating must remain current in order for them to be effective. Traditionally, this has meant regular training updates and desk-study on relevant topics. In a digital world, where today’s knowledge base might be out of date within six months, the imperative for real-time, rapid training that is frequently renewed is more important than ever.

To the extent possible, regulators should also explore secondment opportunities for their staff to private sector firms, not-for-profit institutions and government research and development agencies to facilitate knowledge transfer and understanding of looming challenges and emerging trends. Such opportunities can also help build the improved relationships with private sector actors that regulators increasingly need. Similar programs have long been in place in reverse in the legal community, wherein private sector lawyers are seconded to securities regulators.

While committing to hiring more workers who are technologically adept and to upgrading the skills of existing employees are both important steps for governments and regulators to take, as was discussed earlier, doing so successfully may require governments to also focus on expanding the pool of technologically-skilled workers available across the economy. Steps taken in this direction would help to ensure that technologically-skilled workers are available for government to hire, and would also have the additional benefit of ensuring a deep talent pool exists to support the emergence and growth of innovative private firms.

Update Government Structures
Given the often insular nature of government policy and regulatory development processes (i.e. typically behind closed doors at the cabinet table), we propose a more radical structural change to ensure that innovation is a key consideration at those discussions. As part of the Innovation Canada platform announced in its 2017 budget, the federal government should create an Innovation Advocate mandated to challenge regulators, publicly report on opportunities for innovation in regulatory and policy design, identify regulatory capture and unreasonably protected markets and other similar issues. The Innovation Advocate should be a deputy minister-level appointment with a direct reporting relationship to the Clerk of the Privy Council (an Officer of Parliament could provide even more independence). Provincial governments should also consider a similar role within their organizations.

Governments should also continue and expand existing efforts to enhance pathways for information sharing between regulators at the federal, provincial and municipal levels. A focus on formal policy development and coordination fora that tackle cross-jurisdictional issues with political leadership, as well as time-limited problem-focused “tiger teams” of regulators who are brought together to tackle specific thorny issues on short- to medium-term assignments, would mitigate some of the risks of developing inconsistent and varied approaches in silos. More information sharing and secondments with international peers could also be a strong benefit to Canadian regulators looking to both learn from, and share knowledge with, other best-practice jurisdictions.

Uniform commercial codes, such as the Personal Property Security Act, have significantly enhanced the ability of provinces in Canada to adopt shared approaches on commercial law transactions. A similar approach should be adopted for digital economy challenges posed by companies such as Airbnb and Uber which have, to date, prompted discrete, time-consuming and possibly redundant responses from many different provinces and municipalities. Given that municipalities have been the order of government under the most pressure from these new services – while simultaneously possessing the least policy capacity – such a collaborative approach offers a significant opportunity for improvement on the status quo.

Priority should be given to policy development and coordination processes involving all three levels of government. These processes should explore best-practice solutions and draft model legislation or by-laws that can be adopted by many jurisdictions, with minimal amendments to reflect local realities.

Adopt Flexible and Innovative Strategies
In business “what gets measured is what gets done.” A key starting point for governments across Canada is to gain a baseline understanding of where regulatory frameworks currently stand. What burdens do they impose? Which regulations and laws should be updated to reflect the new digital economy and society in which we live? Can we create more inter-operable databases and systems within and between governments to share information and enhance regulatory outcomes?

An ongoing performance tracking report submitted regularly to cabinet, or the head of government, should also be prioritized to ensure focus on regulatory improvements does not waver. Once such a system is set up, politicians should take the plunge and commit to reducing regulatory burdens by a specified amount over a specified period of time. Other measures related to the quality of consultations, development of regulations and ongoing inspection and oversight should also be considered.

Often, different regulators require the same information from businesses. By working collaboratively and coordinating their actions, regulators should be able to make their interactions with citizens and businesses less burdensome. Similarly, technology is now enabling new ways of ensuring minimum quality in some industries that could drastically reduce the regulatory burden on some businesses if new quality control and safety assurance systems were devised.

The advent of new technologies has opened up a host of new options for governments and regulators in how they can conduct consultations and engage the public. By broadening and improving the way they do consultations, government and regulators can improve the quality of the regulations they do create, the efficiency of their enforcement of the rules, and the climate for innovation. The successful deployment of these new techniques, however, requires expertise and training of its own.

Governments and regulators need to recognize the importance of the migration to digital and take the actions necessary to facilitate this shift and ensure that government itself is sufficiently established online that it is able to engage adequately with the public in this environment. By taking the steps needed to ensure a vibrant and competitive digital ecosystem and by ensuring that citizens and businesses are able to comprehensively engage and interact with government and regulators in this space, government can increase the efficiency of its regulation and enable innovative new benefits for the public.