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Structure is a Good Thing

| On 28, Mar 2008

Cass PursellI’ve been reading a lot about how government can and should stimulate innovation, particularly in relationship to the emerging economies in India and China. The consensus seems to be that innovation flourishes in areas that are particularly free of government regulation, which makes a certain degree of sense; if you free up the market to allow problems to be approached creatively and remove start-up barriers to allow companies to be cheaply and easily established, you should see more innovative companies entering the market. There is a widely accepted inverse correlation, in fact, between bureaucracy and innovation (in places with a lot of bureaucracy you see relatively little innovation going on). So there’s a lot to be said for creating markets where government regulators have largely butted out.

However. However.

As a proud quality geek, I have long since bought into the notion that keeping an eye on things is by-and-large a smart thing to do. Stay out of the way as much as possible, yes, but never allow yourself to be convinced that an ability to measure, track, trend, and analyze is intrusive and restrictive. Count this, then, as an argument in favor of creating easily accessed markets (very low hurdles for new companies to enter the market) and rigorous review and regulation of new product offerings (no products should be widely dispersed that aren’t understood in detail by a regulating body).

It’s true that companies and even economies as large as the United States’ can be turbocharged by unregulated or lightly regulated products or markets. But inevitably, this growth is short-lived and comes at a very high cost. Consequences of unstructured, unregulated markets are easy to find these days. The Enron debacle occurred in large part because regulators took their collective eyes off the ball. The credit crisis that is now hobbling the world economy is in part the result of unfettered innovation in the financial services market, as the industry combined computing power and leverage to create a burst of innovation and new products that were so complex as to defy the easy understanding of even economists at the Fed. My general opinion is that unfettered growth is unsustainable and, in the end, makes a handful of people rich at the expense of the broader society.

As part of the innovation conversation, we would do well to remember that creating and driving innovation isn’t the goal. Creating and driving sustainable growth is the goal, and innovation is a potentially powerful tool we can use to accomplish that goal. By making that distinction, we can better resist the urge to advocate the tearing down of reasonable market oversight structures in order to drive bigger, faster, and better innovation.