The tech sector needs a smarter breed of watchdog

Entrepreneurs tend to see regulation as the enemy of innovation and progress.

But while it is true that watchdogs can struggle to keep pace with fast-changing markets and to comprehend technology companies' novel ways of working, it is hardly surprising they sometimes resort to random barking.

One adviser who attended a recent meeting between a social media company and a financial regulator says there was a complete "disconnect in understanding" between the two, with the supervisor barely appreciating how the proposed service worked, let alone how it should be regulated. Similarly, a US city official, speaking at a recent conference, said elected councillors' ability to decide whether and how to deal with new arrivals such as Uber and Airbnb was limited by their lack of experience of the sharing economy. "They still pronounce it 'You-ber'," he pointed out.

What is needed is a changed attitude and approach to regulation of such industries that allows for innovation while protecting against abuse.

Margrethe Vestager, the European competition commissioner who last week filed formal antitrust charges against Google , probably knows how to say the name of the ride-sharing group. She is an active and avid user of new media. She deftly tossed into her Brussels statement an unscripted remark about why she and her children use Google (not because it is an American or a European company, but because "it has very good products") and a day later tweeted a picture of surprised-looking Washington journalists after briefing them on the case.

At 47, the Dane is also the youngest commissioner to have held the competition brief. All her predecessors were born in the first half of the 20th century. This matters. The gulf - in age, understanding and mindset - between those who regulate technological development, and those who are regulated is wider than it has ever been. Meanwhile, the difference between the speed of regulatory change and the pace of the digital revolution has never been starker.

Ms Vestager is a consummate politician, so it is easy to overstate her role in changing Brussels antitrust policy. But her approach to the Google case does illustrate some ways regulators could narrow the gap with wary innovators.

First, they need to move quickly and establish broad principles, rather than finick constantly with the rules. Ms Vestager said there was "a parallel between a fast-moving market and fast-moving solution finding", and that she was looking for a "future-proof", principles-based outcome to the case.

A second necessity is to be as transparent as possible. The filing of formal charges by the Commission brings a process previously dominated by backroom discussions into the open.

Third, where the case involves retail consumers, using the product is a first step to understanding innovative business models. "We've spent four hours of every week for the last five months with Uber and taxi leaders yelling at each other," said the US city official. Encouraging councillors to use the new services, he said, would at least help them appreciate how they work.

As my colleague Richard Waters has written, the received wisdom in the tech sector that regulators are wasting their time fighting old battles is only partly true. Some entrepreneurs hope for a new ideal - what they call "iterative regulation" - flexible enough to change with the market, yet solid enough to prevent anti-competitive behaviour. But this sounds perilously like a recipe for regulatory capture, as technology companies nudge their overseers into accepting changes that exclude other innovative competitors.

Most companies will never be successful enough to suffer the intense regulatory scrutiny aimed at Google. But digital economies of scale mean more services will tend towards monopoly. At the same time, the sharing economy poses unfamiliar competition questions to local authorities. All regulators will have to develop new techniques to keep up.

Still, certain age-old fundamentals of the relationship between regulator and regulated will not change. In the words of Jack Welch, for whom the European Commission's rebuff of General Electric's 2001 bid for Honeywell still rankles, "the dangers of unchecked [regulatory] bureaucracy are a constant thorn in the CEO's side".

So too are the dangers of unchecked abuse of dominance, regulators might justifiably retort.

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Twitter: @andrewtghill

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