Does too much Regulation Kill Innovation?

We have all come to love the idea of innovation. Whether we're hearing about it in the healthcare industry or fintech, innovation has become a buzzword that is as popular as the latest fashion trend. If you've read any of my previous articles, you'll notice that I am careful to define terms (or buzzwords in this case) before going further with the content. So let's define innovation and regulation.

Innovation is the act of innovating; introducing new or different things or methods.

Regulation is a law, a rule, or other order prescribed by some authority, especially to control conduct.

Since this debate of regulation vs innovation is applicable across a multitude of industries, let's zoom in on my favourite one, Healthcare technology. To give more context, let's assume that the end-users (i.e. the individuals for whom the technology is intended) are lay-persons, like you and me. The principle of regulating healthcare technology is to ensure that the lay-person is not exposed to unacceptable levels of risk, given the intended purpose of that technology (medicine and pharmaceutical products are considered as technology). The regulation(s) ensure that manufacturers develop and sell safe and compliant products. But what happens when there is too much regulation? Can it be justified? The European Medical Device Regulation (MDR) is a brilliant case to analyze these questions.

In 2001, a French company called PIP (Poly Implant Prothese) began manufacturing and selling unapproved industrial-grade silicone in their breast implant products. Without stating the obvious, the story did not end well, both for PIP or the majority of its clients. It is said that the PIP scandal triggered an extremely strict response in the European market. One of the results was the establishment of the MDR. You can read more about the PIP scandal in this article.

After such scandals, our response inevitably is to applaud the European Commission for tightening up the regulation. However, as we near the date of implementation of the MDR we realize that some measures are perhaps draconian and we end up with a bureaucratic scandal. For example, under the MDR certain products that were previously classified as low-risk will now be seen as medium-risk. This has huge implications, both in terms of cost and resources for the manufacturer. Another result of the tighter regulation is that manufacturers will be required to produce a greater deal of documentation than previously. Although it seems that MDR only introduces a cost and resource burden, the ultimate end-result is the possibility of killing innovation. This is especially true for smaller companies that get their market edge, not based on volume sales, but on innovative solutions. What about the case where an innovative solution could have saved a human life? Given too much regulation, that product or technology may only reach the market 5 years later (yes, it's that bad).

I am not saying that the MDR is bad. Overall, I believe it will produce high-performing compliant products. But at what cost? There has to be a practical balance between setting rules in place and the creative freedom that comes where rules are more relaxed. The biggest warning sign is the fact that there aren't even enough conformity assessment bodies that can deal with MDR assessments (see the article I wrote about MDR implementation here).

So, there are two ways to look at it. The first way is to make a case for too much regulation killing innovation. When taken a step further, it is rational (in my opinion) to argue that that innovation may have saved someone's life, which ultimately results in the following new outlook: too much regulation kills innovation and that results in killing (some) people that may have benefited from that innovation. The second perspective makes the case for too little regulation, and arguably "too much innovation" (not that I believe that there is such a thing), resulting in people's lives being put at risk even to a fatal extent. Perhaps a better way to formulate this second perspective is something along the lines of "when innovation is not regulated enough, it can result in killing people". The interesting thing is that in both cases, the worst case is that lives are at fatal risk. The question then becomes, how much risk are we willing to reasonably take? [CAVEAT: I am not implying that regulation and innovation are inversely proportional or that they should be that way. The main observation is that it seems that in the real world, the most practical way to have the two coexist is through some sort of trade-off.]

I hope you found this insightful. I'd love to hear your comments.