Innovation & Regulation

If you're ever wondered how regulation affects innovation just look at the industries that have been the slowest to see any truly disruptive technologies take hold.  Healthcare and financial services stand out to me as two of the slowest moving industries in the US, and it is no surprise that they are also the most highly regulated (and two of the most important).  Progress is slow, changes are incremental, and its my hope that all of this will not dissuade entrepreneurs from attempting to change things.

In a recent interview Google co-founder Sergey Brin was quoted saying that healthcare is so heavily regulated it is not a place where he wants to spend his time.  How bad does it have to be when one of the smartest most innovative thinkers of our lifetime decides its not worth his time?  My firsthand experience dealing with insurance carriers further adds to just how slow and backwards the industry is.  They generally lack any cohesive technology strategy and still rely on processes and legacy systems that are decades old.  There is one insurance carrier who's primary backend technology system is referred to as "the 72," which references the year the system were put in place (yes that is 1972).  Larry Page was also quoted in the same interview as Brin saying, "Imagine you had the ability to search people's medical records in the U.S.. Any medical researcher can do it. Maybe they have the names removed. Maybe when the medical researcher searches your data, you get to see which researcher searched it and why. I imagine that would save 10,000 lives in the first year. Just that. That's almost impossible to do because of HIPPA. I do worry that we regulate ourselves out of some really great possibilities that are certainly on the data-mining end." 

Financial services is not much better, and the financial crisis of 2008 didn't make things any easier.  Regulations like Dodd Frank, Sarbanes–Oxley and the myriad of other  other laws passed over the years have made finance very unattractive for many entrepreneurs.  Not just because entry into these markets is costly and complex but because these regulations end up being used by incumbents as defensive tactics to maintain the status quo.  We are seeing progress though.  Crowdfunding and the recently passed JOBS Act (that allows private companies to start using public markets in their fundraising efforts) are showing a ton of potential.  Additionally, services like Wealthfront and Betterment are targeting another mainstay, financial advisors and their high management fees. Perhaps most encouragingly is Bitcoin, which has the potential to sidestep most of the existing roadblocks in a variety of capacities (which I won't get into here).     

It's my hope that the next generation of policymakers and bureaucrats will see how regulation has brought these and other industries to a relative standstill and will work to create policies that encourage innovation, not hinder it.  It is exactly because these two industries in particular are so important that we should be inviting innovation and experimentation.  The consequences of inaction is greater than the consequences of action!