Regulation for the Fourth Industrial Revolution

The Fourth Industrial Revolution

The Fourth Industrial Revolution is of a scale, speed, and complexity that is unprecedented. It is characterized by a fusion of technologies – such as artificial intelligence, gene editing, and advanced robotics – that is blurring the lines between the physical, digital, and biological worlds. It will disrupt nearly every industry in every country, creating new opportunities and challenges for people, places, and businesses to which we must respond.

Our modern Industrial Strategy seeks to put the UK at the crest of this global wave of technological innovation, bringing benefits to businesses and consumers alike. Our foundations are strong. The UK ranks in the top five in the Global Innovation Index [1]. We are a global leader in science and research and home to four of the top 10 universities in the world [2]. We have a thriving start-up environment and are home to many of the world’s most R&Dintensive businesses. We develop and attract some of the most talented people in the world.

We want to build on our strengths in developing and deploying ideas to become the world’s most innovative economy. We want to raise our total investment in R&D to 2.4 percent of GDP by 2027, the biggest increase on record. We have set four Grand Challenges for the UK government and wider economy to seize the opportunities presented by the Fourth Industrial Revolution.

The Industrial Strategy Grand Challenges

1. We will put the UK at the forefront of the artificial intelligence and data revolution.
2. We will maximize the advantages for the UK industry of the shift to clean growth.
3. We will become a world leader in shaping the future of mobility.
4. We will harness the power of innovation to help meet the needs of an aging society.

Our regulatory system is a national asset. We are ranked 9th among 190 economies for the ease of doing business in the UK [3], with the quality of our regulatory practices given the highest overall country score by the Organisation for Economic Co-operation and Development (OECD) [4]. We protect the natural environment and ensure the safety and employment rights of citizens. We also provide the certainty needed for businesses to thrive.

The Fourth Industrial Revolution presents challenges for regulatory systems across the globe, as they struggle to keep pace with rapid, complex technological innovation. In our Industrial Strategy, we committed to developing an agile regulatory approach that supports innovation and protects citizens and the environment. We need to act now to maintain our world-beating regulatory system in this period of transformational change.

Evolving our regulatory model

Innovation – the development of new ideas, new ways of doing things, new products and services, new technologies, and new business models – is crucial to improving the productivity of our economy and solving our most pressing social and environmental challenges. Innovation is at the heart of our Industrial Strategy. It can drive the creation of new sectors, such as the quantum technology industry which is expected to be worth £1 billion to the UK in the future [5]. It can help us find new ways of diagnosing and treating diseases or novel approaches to cutting carbon emissions and tackling climate change. It can give consumers greater choice and lower prices through greater competition. We need to seize the opportunities that innovation presents for our economy and citizens alike.

Understanding regulation

The regulation describes the rules that are set out in legislation and the processes used to monitor and enforce them. It complements other government levers such as taxation and public spending in shaping our economy. While some regulation relates to citizens, this paper is focused on the impact of regulation on business. The government regulates business to deliver better outcomes for the economy, society, and the environment – for example, to safeguard citizens’ privacy, protect wildlife from pollution or uphold consumer rights. But where regulation is poorly designed, it can inhibit productivity. The government strives to ensure that regulatory interventions are proportionate, targeted, fair, and transparent. It ensures that alternatives to regulation (such as voluntary standards or incentives) are considered before the regulation is introduced, and that regulation is regularly reviewed to minimize the unnecessary burden to business.

Regulation has a powerful impact on innovation. It can stimulate ideas and can block their implementation [6]. It can increase or reduce investment risk – and steer funding towards valuable R&D or tick-box compliance [7]. It can influence consumer confidence and demand – and determine whether firms enter or exit a market [8]. We need to reshape our regulatory approach so that it supports and stimulates innovation that benefits citizens and the economy. At present, only 29% of businesses believe that the government’s approach to regulation facilitates innovative products and services being efficiently brought to market [9]. The need for reform is urgent: 92% of businesses from a range of sectors think they will feel a negative impact if regulators don't evolve to keep pace with disruptive change in the next two to three years [10]. Other countries are rapidly reforming their regulatory environments to support future innovation, with Nesta describing these anticipatory approaches as ‘an increasingly important source of competitive advantage in the global economy [11]. By taking an anticipatory approach we can give people faster access to innovations that can transform their lives and attract the ideas, talent, and investment to the UK that will drive our future prosperity. We are turning things around. The Financial Conduct Authority’s regulatory sandbox (p.19) has kick-started a wave of regulator-led initiatives to support new products and services to come to market and has been widely emulated across the globe. Our Regulators’ Pioneer Fund is accelerating the change, with £10 million invested in 15 projects to support technologies from autonomous shipping to virtual lawyers. We have established a partnership with the World Economic Forum to shape the global governance of technological innovation.

But we can go further. The Business Secretary has established a Ministerial Working Group on Future Regulation to drive reform across government to put us at the forefront of the industries of the future. The Prime Minister’s Council for Science and Technology has provided recommendations on how to enhance the regulatory oversight of technological innovation. We have identified six challenges we need to address:

• We need to be on the front foot in reforming regulation in response to technological innovation,
• We need to ensure that our regulatory system is sufficiently flexible and outcomes-focused to enable innovation to thrive,
• We need to enable greater experimentation, testing and trialing of innovations under regulatory supervision,
• We need to support innovators to navigate the regulatory landscape and comply with regulation,
• We need to build dialogue with society and industry on how technological innovation should be regulated,
• We need to work with partners across the globe to reduce regulatory barriers to trade in innovative products and services.

This White Paper sets out our plan to tackle these six challenges and seize the opportunity presented by the Fourth Industrial Revolution. We want to lead the world in innovation-friendly regulation that supports the emergence of new products, services, and business models for the benefit of all. The White Paper will be matched later this year with papers describing how we will modernize consumer and competition regulation in response to the transformation in our economy.

References

1 Cornell University, INSEAD and the World Intellectual Property Organization (2018). 2 QS Top Universities (2019). 3 World Bank (2019). 4 OECD (2018). 5 UK National Quantum Technologies Programme (2015). 6 Ambec et al (2013), Stewart (2010), Pelkmans and Renda (2014). 7 Pelkmans and Renda (2014), Stewart (2010), Blind (2012). 8 BERR (2008), Blind (2012), OECD (2012). 9 BEIS (2018a).10 PA Consulting (2018). 11 Nesta (2019).

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