Technological Innovation and Law: How to Reconcile?
Updated: Aug 15
The dialogue around the relationship between law and technology is thickening. This is within the landscape of regulatory bodies trying to reconcile with the pace at which technology is transforming, while technology companies are continuing to grapple with the demands of regulation and also maintaining rapid development. Globally we have a lot to gain from the marriage of these seemingly incompatible scenarios, and fortunately there are possible avenues forward.
Legal Constraints Both Inhibit and Enable
I’ve discussed this elsewhere, and it’s not exactly a bold statement to suggest that technological innovation is inhibited by regulatory demands. One of the most readily available examples of this is the implementation of the GDPR.
Since its introduction in 2018 there have been at least 12 major fines placed against violating companies, for a total of over $390 million USD, with some companies withstanding fines of over $100 million alone. While it’s evident the GDPR has had very positive impact on the way in which companies store and use the information of their users, it’s also clear that compliancy requires privacy-by-design and many companies have an incredibly long way to go before their systems are at this level.
A related problem is what is referenced by some as the “pacing problem”, where businesses scale too quickly for regulatory bodies to keep up. The same problem applies to technology, whereby many technologies, particularly emerging technologies that are largely unknown, are developing too quickly for legal systems to keep up. When legislation and related regulations are introduced, these companies are often in a situation where rearchitecting their infrastructure for sake of compliancy can be hard, if not altogether impossible.
The solution is not necessarily to regulate less, as legal systems are very much needed for technology to operate in real world scenarios. For example, smart contract-based organizations are having a difficult time gaining traction as there are very few jurisdictions that yet properly account for them in their systems of jurisprudence. Furthermore, while regulatory structures are needed to protect and propel innovation, they are also needed to protect the users of these technologies.
How to Reconcile? There is an absolute need to protect society from the possible downfalls of new technologies, yet there is also great need to ensure technological innovation isn’t inhibited. There are many possible frameworks for creating this needed balance between law and technology.
Consortia and Volunteer Based Proposals: we see this quite a bit in the fields of blockchain and artificial intelligence, where a collective of organizations working on these technologies will come together in a collaborative understanding. This collaborative will often look at proposed regulations and assess their impact, often making recommendations for improvements. These consortia act as a shared space in which member organizations can have input that both reflects their private interest, while progressing the aims and needs of operating in a society that must be governed for the sake of protecting its citizens. For example, the IBM Maersk Blockchain is a supply chain governing platform with over 94 member organizations that participate in pilot programs with governments and other efforts for growing regulatory compatibility and frameworks.
Law making bodies have a lot to learn too from methods used in rapidly scaling technology systems. For example, the creation of regulatory sandbox environments or building adaptive laws.
Regulatory Sandboxes: In software production there is a testing method in which the software is developed and tested in an isolated environment in such a way that it doesn’t affect the system, platform, or application in which the software is meant to run.
Similarly, bodies of regulation can be tested in an isolated jurisdiction, and with limited effect, in order to better understand how it might play out in a real-world environment. For example, some jurisdictions are considering seriously what it might look like to introduce a Universal Base Income (UBI) and are testing it in smaller controlled populations to see whether or not it might be a viable solution.
Adaptive Legislation: legal systems are certainly not recognized as fast changing. For example, Deloitte conducted an analysis of the 2017 US code of Federal Regulation, and discovered that 68% of federal regulations have never been updated. One solution that has been proposed for battling this issue is the creation of adaptive legislation. This does not mean simply updating or amending a particular body of regulation, but rather creating it to be adaptive by design. For example, there is some proposed legislation for what it means to be a Decentralized Autonomous Organization (DAO) in Malta. This proposal looks at a scaled definition of a DAO to account for the evolution of a business from traditional infrastructures through to being completely operationally autonomous. In this sense, the regulatory requirements scale along with how much the business does or does not fall in line with the definition of a DAO.
Whether or not any one or a combination of these solutions are the right way forward it is clear some progression is being made, and it is also very clear much more progress is yet to come. We do now live at such a stage of innovation that it’s quite possible that computational law might be realized in open source environments, doing away with quite a lot of the issues in how laws are currently made and enacted. Until then though, these existing solutions could offer methods for reconciling the gap between law making and technology adoption.
About the Author
Aileen Schultz is Senior Manager, Labs Programs at Thomson Reuters; Founder & President, World Legal Summit.; Fmr. Co Founder & Global Organizer, Global Legal Hackathon.
Aileen is a Toronto based award winning growth and innovation strategist with a global footprint, and a passion for creating better exponential systems. She works with SME's across several sectors with a focus in legal and blockchain technology.