Regulatory Burdens Stifle Innovation
Regulatory Burdens Stifle Innovation

Regulatory Burdens Stifle Innovation

Nothing slows innovation faster than precaution

Innovations provide us with the opportunity to do our work with less effort, reduce our impact on the world around us, and better connect with colleagues, friends and family. At times, it seems like we purchase the new version of a technology, only to have an updated version appear on the market in less than a year. At time, it seems like the pace of innovation moves at the speed of light!

Benefits beyond the innovation itself

As individuals we certainly benefit from new technologies, but so too does our economy. A country’s GDP increases if its industries are able to produce consumable products more efficiently and/or cheaply. Innovation is crucial for economic growth, as it attracts new investments, creates new jobs and generates more tax revenue for governments. Capital is one of the most mobile resources on the planet and government innovation policies are very competitive in an effort to attract as much new investment as is possible. Every government offers innovation investment incentives as a way of raising the rate of capital investment in its economy. Often these incentives are part of federal research agencies granting programs.

Governments are working to ensure domestic investments into public- and private-sector innovation are taking place at increasing levels. However, a concerning contrast is showing signs of emerging, which is increased calls from activist organizations for increased regulation of innovations. What these activist organizations are calling for is to restrict innovation, which lies at direct odds of what federal government policies targeted at increasing rates of innovation are trying to accomplish. It defies common sense to invest more money into innovation and then needlessly increase the regulatory burden to the extent that fewer innovative products reach the market. Investing more and getting less is a lose-lose scenario.

Advocating precaution

Many activists advocate for increased regulations as they mistakenly believe that increases in regulation will lower the level of risk to zero. It’s the precautionary idea that many of these individuals state ‘better to be safe than sorry’. However, this is a naïve sentiment. Everything in the market has a threshold for risk, and for most of us, we have viewed them as acceptable levels of risk, such as electronic defects, adverse drug reactions and unsafe food products. These acceptable threshold levels are based on approvals by government agencies. These thresholds of course are based on scientific evidence and are designed to ensure that the management of risks is done as efficiently as is possible. Just as importantly, these thresholds recognize that the presence of risk is not unavoidable, and are set to minimize risk as much as possible while still adopting the practice/innovation that has been evaluated as safe.

Odds are against innovations to start with

The reason that governments are actively encouraging innovation is that the rate of success is frequently less than 1%. One assessment of the rate of innovation in the agricultural biotechnology sector found that 558 potential innovations showed laboratory potential. From this, 355 proceeded to field trials, with 51 progressing to advanced field trials. Only 14 products were submitted for regulatory approval, of which, 5 products were actually commercialized. Of the 5 that entered the market, only 2 remained in the market for any period of time, resulting in a success rate of 0.003%.

Governments are actively seeking ways to increase the rate of innovation investment, which given no changes in regulatory approval, would result in an increase in the rate of successful innovation commercialization. Activists are seeking to reduce the 0.003% rate of success by needlessly adding regulations that would lower the successful commercialization of innovative products even further.

Canadian innovation, where do we fit in the rankings?

When it comes to improving rates of innovation, one preferred method is to reduce the level of regulations that govern the approval of new innovative products. As an example, in 2018, Canada was globally ranked in 53rd position in terms of regulatory burden in 2018 and jumped to 38th the following year. This low position placed Canada as one of the worst-ranked industrial countries, signifying that regulatory burden is a concerning issue for innovative technologies and products. This clearly identifies that increases in regulatory requirements for products of innovation would reduce the rate of innovation in Canada. The result of this would be fewer innovative products reaching the market and those that do reach the market, would be higher priced due to the additional time and cost of the regulatory burden. This would apply to all other countries that are being encouraged to bring in stricter regulations for the commercialization of innovative products.

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