Home Insider Insider Opinion The Tension between Innovation and Regulation

The Tension between Innovation and Regulation

Ihave previously written about the need for a proper commodity exchange in Myanmar and so it is with a special in-

terest that I read reports of the recent con- troversy surrounding attempts to progress the creation of such an institution by a pri- vate sector organisation that has taken up the challenge of doing just what I had pro- posed. That the promoter has been forced to put its plans on hold for the time being highlights the tension between innovation and regulation, the topic for this month’s column.

In a nutshell, the Myanmar firm MICEx, which has links to the Myanmar Paddy Pro- ducers Association and an Indian company, revealed that it has been informed by the Ministry of Commerce that it cannot pro- ceed further with the establishment of its planned online commodities exchange, for which considerable preliminary work has been undertaken, despite the fact that the Company appears to have earlier obtained from the Ministry of National Planning and Economic Development a permit to trade embracing such activities (Myanmar Times, 12 May 2015). What this means for the future prospects of establishing an online commodities exchange able to satisfy the needs of the country’s agricultural sector is, as yet, unclear. One suspects, however, that the Ministry’s concerns centre on the issue of regulation.

Obviously, apart from any concerns the Government may have, there are also some interest groups opposed to the creation of an online commodities exchange and while some of this opposition may have its source in self-interest, it is apparent that a culture of regulation that persists in Myanmar has a significant influence on the positions tak- en by such groups. In a similar vein, the Chair of the Union of Myanmar Federation of Chambers of Commerce and Industry, explaining the uncertainty about a start date for a commodities futures market in the country, points to the absence of ‘rules and regulations’ as a key stumbling block (Myanmar Times, 20 April 2015).

Opposing the delivery of new and needed services solely on the ground that no spe- cific ‘licence’ to undertake that activity has been created seems to me to be a mistake. I would argue that the proposed exchange is a great example of real entrepreneurial innovation, something that Myanmar des- perately needs to facilitate economic devel- opment, and in this case especially given the country’s lack of essential institutional infrastructure.

This is not to argue that no supervision or regulation is required, only that we should not regulate ‘for regulation’s sake’. It cer- tainly may be appropriate to put in place consumer-oriented and prudential guide- lines for all providers of commodity ex- change services, whether online or oth- erwise. The key here is the promotion of genuine transparency, so that all parties, including the government, can readily mon- itor relevant aspects of the market. Some would argue that such transparency is miss- ing in respect of the trade in agricultural commodities in Myanmar at present. Real transparency would permit the Government to capture an authentic picture of the mar- ket, including conduct, performance and efficiency, on which to ground appropriate decisions about the necessity for and the na- ture of any regulations.

It is important to keep in mind that in a con- text of rapid economic growth, the call on Myanmar’s resources is such that it cannot afford to divert resources to the design and implementation of any regulatory scheme that is not absolutely necessary. To avoid resource wastage (and wastage of taxpay- ers’ funds) or the hindering of productive innovation in the economy, or both, any regulation must address a specific problem and represent a logical and efficient means to address that problem. It is not necessary for the Government to licence everything. It may, as an alternative, establish a registry

that is not a licensing authority and encour- age market participants to volunteer rele- vant data to inform future decision-making about the need for regulation in a given market. A high level of participation by busi- nesses could be expected in exchange for an entitlement to priority for licence allocation should the Government subsequently move to a licensing regime.

The need for ‘capacity-building’ in Myan- mar is obvious and a key means of gener- ating additional capacity is by the diversion of resources from areas of lowest efficacy and importance to more productive uses. The level of human and financial resources available to the Administration may not be sufficient to allow for the establishment of regulatory regimes for every commercial activity that might emerge but this should not result in embargoes on valid economic activities simply because resources aren’t available to ‘watch over’ them, particularly in an economy in which the private sector will be relied upon as the main driver of eco- nomic growth.

In no country can government do every- thing. This is clearly so, even in the world’s most prosperous developed nations, where resources and capacity are significantly greater than that available in Myanmar to- day. Consequently, we hold the view that the Myanmar Administration should truly leverage the resources of the private sec- tor and encourage economic development through innovation, while eschewing the impediment of excessive regulation at this point in time. The other side of the coin, of course, is that those introducing innova- tions to markets or establishing innovative institutions have the responsibility to oper- ate in a thoroughly transparent manner and according to global best practice, in order to engender confidence in the capacity of the private sector to conduct its activities in a socially-responsible and economically-effi- cient manner.