Industry 4.0 requires agile governance

The Fourth Industrial Revolution, marked by increasing interconnectivity and smart automation, has been in motion for some time. And the arrival of COVID-19 has only further accelerated the rate that we adopt and depend on technology. But with the speed that technology and innovation are evolving and becoming ever more critical cogs in our lives, a key challenge remains— ensuring our policies and regulations stay pace.

The concept of the Fourth Industrial Revolution was popularized by the founder of the World Economic Forum, Klaus Schwab. According to Schwab, the First Industrial Revolution was characterized by its use of water and steam power to mechanize production, the Second by electric power to create mass production, and the Third by the use of electronics and technology to automate production. What makes the Fourth distinct is not only technology-driven change, but its unprecedented velocity, scope and impact.

To some extent, the shifts in how we use technology over the last two years captures the force of this change. Since the pandemic arrived, both businesses and consumers have rushed to online platforms and further integrated technology into their operations.

Technology is already widely recognized as an economic driver. In a nationwide survey commissioned by Stratbase ADR Institute, around nine out of ten respondents agree that digital technology can significantly help create jobs and businesses.

This link between technology and the economy was also captured by Google’s e-Conomy SEA 2021 report. The study found that 39% of digital merchants in the Philippines said they did not think they would have survived the pandemic if not for digital platforms. The report also found that the country has seen 12 million new digital consumers since the start of the pandemic and that the value of its digital economy is expected to hit $40 billion by 2025.

Given technology’s potential to make a positive impact, it follows that we should be motivated to encourage its growth by creating conditions that support the innovation process.

Like other industries, a vital component that affects the innovation process is a country’s regulatory and policy environment. However, in this age of disruptive technology blurring the lines between sectors, regulators increasingly find themselves faced with the challenge of re-interpreting and applying old rules to new problems. 

At the same time, they are also confronted with the task of creating new innovation-friendly policies and streamlining them across regulatory jurisdictions. As a result, this complex regulatory environment can sometimes result in policy inconsistencies that end up holding back the innovation process. 

Take the example of cloud adoption in the public sector for instance. The Department of ICT has a Cloud-First Policy that promotes cloud computing as the preferred technology for government administration and the delivery of government services. The benefits of this policy are clear, pay-as-you-go cloud computing models are known for their flexibility, security, and cost-efficiency.

However, while the cloud-first policy’s language is also clear when it comes to implementation, procurement rules and rigorous bidding processes make it difficult for government agencies to procure cloud services. Cloud computing’s pay-as-you-go pricing models, after all, significantly differ from the traditional cost structures and pay-once public procurement modalities.

Another recent example is the situation being faced Grab, the ride-hailing app that has now evolved into an e-commerce platform. Not so long ago, Grab’s Transport Network Vehicle Service (TNVS) was mainly regulated by the Land Transportation Franchising and Regulatory Board.

But over the years, Grab has evolved into a Super app that offers online food delivery, ride-hailing, and digital wallet payments. As a result, the government bodies regulating its services have multiplied as well, further complicating the regulatory landscape that tech company operates.

For instance, the company has recently tried to issue a 1 peso refund to users through their GrabPay wallets in compliance with a Philippine Competition Commission order.
However, because GrabPay is a mobile wallet payment solution, it is subjected to regulation by the Bangko Sentral ng Pilipinas (BSP), such as its rules on electronic Know-Your-Client (e-KYC). Under this BSP rule, users must undergo a standard identification and verification process before being allowed to open a mobile wallet account. The e-KYC process, while convenient, is not a process everyone is willing to undergo.

This whole situation leaves Grab in a sort of regulatory policy limbo, willing but unable to fully refund customers unless they first go through the verification processes needed to set up their digital wallets.

These examples illustrate the complexities of the relationship between innovation and regulations. They highlight the need to streamline regulations through a more holistic approach to technology policy.

To address these new policy challenges, the OECD recommends adopting agile regulatory governance to help policymakers unlock the potential of innovation while still safeguarding public protections.

One of the key pillars of agile regulatory governance is the need to lay institutional foundations to enable cooperation and joined-up approaches within and across jurisdictions. Central to this pillar is strengthening cooperation across policy-making departments and regulatory agencies as well as between national and sub-national levels of government.

This feature of the agile regulatory governance model would ensure that technology policies and regulations are streamlined and consistent across the government. This, in turn, would create a more stable and predictable environment for innovation to flourish.

With the Fourth Industrial Revolution upon us, regulators are faced with the mounting challenge of encouraging innovation while simultaneously regulating it. In the words of Klaus Schwab, “regulation can struggle to keep pace with innovation, hindering the introduction of new ideas, products, and business models, while leaving citizens with outdated protections. A more agile, flexible approach to regulation is needed in order to seize the potential of the Fourth Industrial Revolution to change lives for the better.”

Regulations are often considered counterweights to innovation. However, through a more agile approach, regulators can be safeguarding public protections and be allies of innovation at the same time.

Paco A. Pangalangan is the executive director of think tank Stratbase ADR Institute.