International In-house Counsel Journal

Vol. 7, No. 26, Winter 2014, 1

International In-house Counsel Journal ISSN 1754-0607 print/ISSN 1754-0607 online

The Next Governance Reform: How we create policy for uncertainty

by enabling, learning and analysing

HANNE MELIN

Policy Strategy Counsel EMEA, eBay Inc.

“The idea is to employ law not directly in terms of giving specific orders or

commands, but indirectly to establish incentives and procedures that encourage

institutions to think critically, creatively, and continually about […] their activities“1

In a recent interview, the Swedish Prime Minister described what he saw as the modern

approach to governance: legislative reforms rarely turn out exactly as planned, and so the

legislator needs to be pragmatic, responsive and prepared to adapt the plans.2

It is perhaps stating the obvious, but as an approach to policymaking it is not easy to

implement. It necessitates discarding the traditional “command-and-control” mentality,

recognising that knowledge and skills are held by different actors, ensuring effective

feedback loops, and operating on a fast(er) decision-making cycle. This comes down to

accepting that we cannot force the outcomes we want but with the right tools we can

evolve them.

The realisation that neither law nor politics can control social developments is not new.

Decades of legal discussion about traditional forms of regulation becoming less and less

effective surfaced the concept of reflexive law. This concept redefines the role of

regulatory intervention: from regulating behaviour to affecting the quality of outcomes.

Instead of trying to control corporate action, a reflexive law orientation seeks to guide

practices through structures, to promote self-organisation, and to encourage re-

examination and reform of practices based on feedback.3

This article suggests that it is time for the next step of governance reform. The EU’s

Smart Regulation agenda should become a European-wide Smarter Intervention project

promoting informed problem solving with effective use of stakeholders and technologies.

Today, we have the computer power and technologies to translate reflexive law theories

into practical governance methods, combining market innovation and experimentation

with achieving public policy goals.4

The way towards Smarter Intervention goes via understanding how technological

innovation is driving change in a networked society and the challenges for policy

formulation (part 1 of this article). Based on the governance reform undertaken so far at

EU level, the next stage of reform involves redefining certain parameters of governance

as well as the role of the policymaker (parts 2 and 3). Against this background, it is

possible - and paramount - to start experimenting with new ways of formulating and

implementing public policy (part 4).

1 David Hess, “Social reporting: a reflexive law approach to corporate social responsiveness”, the Journal of Corporation Law, 1999.

2 23 October 2013, http://www.svt.se/rakt_pa/se-program/23-10-16-05?autostart=true

3 Gunther Teubner, “Substantive and reflexive elements in modern law”, Law and Society Review, 1983; Hess (2009); 6

th European

Framework Programme in Research and Development, “Reflexive governance in the public interest” (REFGOV 2010). 4 The Barosso Commission described the objective of EU regulatory reform as ensuring that policy and laws can respond to the need “to

adapt to fast the fast pace of technological change, to foster innovation and to protect the welfare and safety of Europeans”, (2006).

2 Hanne Melin

PART 1

Uncertainty drives positive change

“… robots are always part of the future. Little bits of that future break off

and become part of the present, but when that happens, those bits cease to

be ‘robots’.”5

Not a day goes by without an article or blog post reminding us that the future is almost

upon us. Technological developments, which less than a year ago seemed far away, are

quickly becoming reality.

At Volkswagen’s Salzgitter plant, employees work hand in hand with collaborative

robots. IBM has made “Watson”, an artificial learning system, available as a cloud

service so even individuals can build machines that interpret complex data and interact

with humans. A study by Michigan Technological University found that a family buying

a 3D printer would recoup the investment within a year. Nearly half of Procter &

Gamble’s products have been developed via a crowdsourcing community platform

tapping ideas from external inventors, entrepreneurs, and thinkers.

These are just a few recent examples of fast pace advancements. Others in development

include Augmented Reality, gestural recognition, holographics, nano materials, smart

objects, the semantic web, and quantum computing. These advancements influence and

infiltrate sectors as diverse as health care and retail, education and finance. Even art and

the study of literature are being reshaped by growth in computing power, which, as

Moore’s Law observes, doubles every two years:

“… literary study doesn’t always require scholars actually to read books.

This new approach to literature depends on computers to crunch “big

data”, or stores of massive amounts of information, to produce new

insights.”6

Change happens faster and faster as most sectors become computer-based and technology

is forging connections and interdependencies within the society. Subsystems of the

society, such as science, family life, sports, education, politics, etc., which were

previously differentiated by function7 are increasingly integrated. Technology allows for

unparalleled interaction between different disciplines, territories, and dimensions of life8:

“A decade ago, most people assumed that computer geeks and data

scientists lived in a distinctly different mental world from bohemian artists.

… But these days this divide is starting to crumble […] some artists such

as DuBois, Casey Reas, Siebren Versteeg and Rafael Lozano-Hemmer are

starting to use Big Data as the raw material for their art, blending

statistics, computer graphics and visual design into a new creative

pastiche”9

The degree of connectivity impacts on how change happens. A commonly used notion for

describing this phenomenon is the “networked economy”: an economy formed bottom-up

5 Mike Loukides, “The future is all robots. But will we even notice?”, Forbes.com, 17 December 2013. 6 John Sunyer, “Big data meets the Bard”, Financial Times, 15 June 2013 7 See the works of Niklas Luhmann, e.g. “The Differentiation of Society”. 8 Ben Ramalingam and Harry Jones with Toussainte Reba and John Young, “Exploring the science of

complexity”, Working Paper 285, Overseas Development Institute, October 2008. 9 Gillian Tett, “The art of big data”, Financial Times, 5 July 2013.

Governance Reform 3

by interactions between people where new ideas emerge and technology is constantly

refined through experimentation.10

This throws up real challenges for policy formulation and governance. Take the Swedish

PM again. By the time his second term ends in 2014, policies he put in place when

entering office eight years earlier will live in a world where computers are 16 times as

powerful. How will his laws fare when faced with industries, services, products and

behaviours transformed by companies – and individuals - leveraging this increased

computing power?

The payments sector is a good example. Historically, the payments business was a very

manual process centred on the bank branch. As technology develops, the process

becomes increasingly automated and detached from the branch location: from the ATM

and the card payment instrument till, more recently, online banking.

Change has been driven by developments in fixed and wireless network capacity;

functionality and performance of end user devices, particularly mobile ones; and data

storage capacity and performance. Of course, those developments drive change in society

in general, from how you access working documents till what music you listen to.

Largely the same user expectations that transform, say the publishing industry, encourage

companies from a variety of sectors to launch payments-related products and services

with the ambition of making the payments process more efficient.

Thus, the payments landscape is evolving through the entry of new actors, such as

technology, Internet, telecom and retail companies, and the offering of new services, such

as the ever-evolving mobile wallet. This is a diverse landscape, underpinned by

constantly changing technology, and connected with almost every part of the society

through the data relationships that digital and mobile users create.

It is indeed a very different sector to regulate compared to the traditional bank-centric.

While the policy objectives are timeless (e.g. consumer protection against fraud),

achieving them requires the legislators to steer free of pitfalls such as favouring one

business model or technology over another and adopting “one size fits all” approaches

that disregard the actual level of risk posed by a specific type of activity and thereby

unnecessarily inhibit processes and innovation.

PART 2

Towards a culture of problem-solving

“… a linear system is precisely equal to the sum of its parts. But many

things in nature don’t act this way. Whenever parts of a system interfere, or

cooperate, or compete, there are nonlinear interactions going on. Most of

everyday life is nonlinear, and the principle of superposition fails

spectacularly.” 11

In a networked society characterized by exponential change, sectors, companies,

behaviours and society itself evolve through interactions. These interdependencies create

nonlinearities where clear causal relations cannot be traced because of multiple

influences. For policymakers, this means that it is necessary both to understand the limits

of a particular model or perspective as well as build and improve models that can provide

10 Richard Whitt, “Evolving broadband policy: taking adaptive stances to foster optimal Internet platforms”,

CommLaw Vol. 17 2009 11 Steven Strogatz, “Nonlinear Dynamics and Chaos”, 1994.

4 Hanne Melin

the information needed for decision making. 12

The EU governance reform, initiated in 200113

, is an attempt at that. With the Better

Regulation agenda leading into the current Smart Regulation agenda14

, a governance

system is taking shape whereby the EU institutions seek to enhance the quality of

legislation, open up the policy process, and increase learning.

The key tools of this governance system are:

1. Impact assessments for developing proposed legislation based on “sound

analysis supported by the best available data”.15

2. Evaluations of whether existing, individual initiatives “are fit for purpose,

produce the expected change and avoid unnecessary regulatory burden”.16

3. “Fitness checks” of policy sectors to identify regulatory overlaps, gaps and

inconsistencies that may have appeared over time, perhaps as the result of

the cumulative impact of legislation.

4. Public consultations where the views of citizens and other stakeholders

feed into impact assessments and evaluations.

However, there is room for further progress in adapting governance systems to today’s

society. The EU system is still centred on the policymakers, with them defining the

problem and directing solutions – albeit with input from experts and stakeholders. The

power lies with government institutions and the only power division considered is

between government levels. The capacity of stakeholders, including technology, is thus

not fully leveraged to solve problems.

This can be seen in how little innovation there has been in the type of instruments used

for policy implementation. For sure, the European Commission promotes greater use of

different policy tools.17

Nevertheless, traditional legislation remains the primary choice,

with anything else referred to as “alternative”. Moreover, the European Commission

stopped discussing self- and co-regulation in its Better Lawmaking reports in 2007,

remarking that “in many cases, regulations remain the simplest way to reach EU

objectives and provide business and citizens with legislative certainty”. 18

For sure,

employing innovative modes of governance are likely to be “more demanding than

expected” 19

but that should not be a reason to shy away from it.

Furthermore, despite being viewed as a policy cycle, the governance system remains

static compared to the market and society it is to govern. The ambition is the right one: to

create a loop where the evaluation is influenced by the impact assessment and impact

assessments draw on lessons learnt from evaluations. 20

Unfortunately, evaluations and

impact assessments largely remain isolated, top-down exercises.

12

See Ramalingam et al (2008) on how mutual interdependencies between sub-systems or dimensions of a society

create nonlinearities. 13

See e.g. the Mandelkern Report on Better Regulation (2001); European Commission White Paper on European

Governance, COM(2001) 428; and European Commission Communication on an action plan for “Simplifying and

improving the regulatory envioronment”, COM(2002) 0278. 14

Communication by the European Commission on Smart Regulation in the European Union, COM(2010) 543. 15

The European Commission’s Impact Assessment Guidelines, 15 January 2009 16

Communication from the European Commission on “Strengthening the foundations of Smart Regulation – improving

evaluation”, COM(2013) 686. 17

E.g. European Governance White Paper, COM(2001) 428; Inter-Institutional Agreement on Better Lawmaking,

2003/C 321/01; COM(2002) 0278; and the Impact Assessment Guidelines encourage an open-mind with regard to

alternative instruments. 18

Report from the Commission, Better Lawmaking 2006, COM(2007) 0286. 19

Adrienne Heritier, “New Modes of Governance in Europe: Policy-Making without Legislating?”, MPI Collective Goods Preprint No. 2001/14.

20 COM(2013) 686

Governance Reform 5

Taking competition law as an example, there has not been an evaluation of any

competition law instrument since 2006, notwithstanding that the Vertical Restraints

Regulation was renewed in 2010. The renewal was preceded by an impact assessment but

with no evaluation since then, and no revision planned before 2020. And this is an area

where technology and innovation rapidly transform the market and behaviours and

challenge traditional structures. The policy cycle needs to become a living mechanism

that encourages policy innovation.

This article suggests that the Smart Regulation agenda should develop into a project that

promotes 21st Century governance throughout Europe. This would be a programme for

“Smarter Intervention”, a concept established by Mark Fell and based on a new

intervention mindset, mechanism and principle.21

The objective is to promote a culture of problem solving and decision-making based on

four tenets:

Embracing “messy realities” 22

In today’s networked society, many patterns and features – such as processes, functions,

novelty and creativity - emerge from the interactions between sectors, individuals,

technologies, etc. without a simple relationship between them. This means that it is

inherently difficult to predict their emergence.

It is furthermore unwise to assume that, because similar technologies and methods

increasingly underpin and connect most subsystems, we are heading towards a

homogenous society or that comparisons can safely be made between sectors. Different

initial conditions and nonlinearity of relationships mean that changes are not

proportional. History matters. Hence, subsystems will end up in very different places

because of the interconnections.

We must therefore learn to accept the inherent levels of uncertainty in today’s society –

and in policymaking itself: “each component constitutes a separate set of decisions which

in turn affects other decisions in diverse and sometimes unpredictable ways”23

. This is

not to say that we should not plan policymaking; only that if we accept uncertainty as

inherent (and not “as in some way ‘unscientific’ or embarrassing”24

) we can work with a

realistic understanding of it.

If our starting point is that we cannot control outcomes, our approach for trying to get to

where we want to will be different. It will involve, for example:

Building a level of flexibility and adaptability into projects

Moving away from looking for “optimal” policies25

Making continuous learning and reflection integral to policies and projects

21 Mark Fell, “Manifesto for smarter intervention in complex systems”, 2013; launched at an event organized by

PayPal in Brussels on 28 May 2013. It is available here: www.carre-strauss.com 22 Ramalingam et al (2008) argue that “real world phenomena which might previously have been labeled as

‘messy realities’, ‘common sense’, or ‘lessons from experience’” can and should be acknowledged, described

and understood in order to enable a more realistic and holistic view of what the future could hold:

“[c]omplexity science can prove particularly useful in allowing us to embrace what were previously seen as ‘messy realities’.”

23 Whitt (2009) describes the policymaking function as a complex system itself. 24 Ramalingam et al (2008) 25 Ramalingam et al (2008) exemplifies with how businesses develop many diverse prototypes but abandon

them if they do not meet specific targets; a strategy that requires a willingness to accept failures and/or to

deal with the same challenge in different ways.

6 Hanne Melin

Fell captures the essence of the challenge of messy realities when proposing a new

“intervention mindset”: “we need to pursue a far more iterative “trial-and-error”

approach. One in which the decisions we take are survivable.”26

Operating on a loop

Already the 2001 White Paper on European Governance27

emphasized the importance of

being able to react more rapidly to changing market conditions and new problems as well

as finding ways of speeding up the legislative process. It also identified a need to become

better at promoting greater use of and combining different policy tools.

Policy intervention takes place in a context of continuous societal, technological,

economical and behavioural transformation and change. Policy formulation must

therefore entail a commitment to ongoing reflection, learning and adaptation so as to

remain relevant and appropriate.

Taken together, it calls for a policy cycle that:

Is fast around the loop

Helps develop a holistic picture of change over time

Makes up a collective learning framework

Is as little as possible controlled centrally

Fell reminds that such a mechanism exists in the “Boyd Loop”, a decision-making model

for assessing and adapting to changing environments. It forces a focus on four stages: (1)

observing by gathering information and monitoring, (2) orienting by creating a (mental)

model to make sense of the information obtained, (3) deciding based on the knowledge,

and (4) acting by translating the decision into action. And from there back to observing

the impact of that action. Operating on a loop allows for seeking out new ideas and trying

new things, doing so on a scale where failure is survivable, and obtaining feedback and

learning from mistakes.28

Tapping the full potential of actors

The White Paper on European Governance urged the involvement of stakeholders not

only in shaping but also in delivering EU policy. Steps have been taken to open up the

policy process, e.g. public consultations. Nevertheless, policymaking processes do not

efficiently use the various actors at hand (such as experts, individuals, computers) in

decision-making. This is a lost opportunity:

“Under conditions of problem interdependence across boundaries, collective

action to provide common goods has to take place vertically across multiple

levels of government and horizontally across multiple arenas involving public

and private corporate actors. No single actor, public or private, has sufficient

potential for action and/or sufficient power to solve problems of

interdependence on her own, nor has she all the knowledge and information

required to solve complex, dynamic, and diversified problems. Hence actors

have to rely on each other”29

26 Fell (2013) describes the need for an “intervention mindset” based on: (1) embracing uncertainty, (2) using

“trial and error” techniques, and (3) providing tools. 27 COM/2001/0428 28 Fell (2013) on the proposed “Intervention Mechanism”. 29 Heritier (2001)

Governance Reform 7

Tapping the full potential of relevant actors requires:

A scientific understanding of the strengths and weaknesses of different

actors – private, public and computers - in solving particular problems30

A policy process where the focus is not exclusively on the legal institutions

learning from private actors but where the actors are equipped to actively

participate in decision-making and there is an ongoing collective learning

process31

A Smarter Intervention project would serve to continuously enhance our knowledge of

when, how and in what constellation various actors should be employed in the policy

loop – not as passive consultants but as active participants.

Division of powers

As discussed above, the context of policy formulation is one of inherent uncertainty: we

can exercise some foresight but we cannot predict the future, we can guide outcomes but

not control them with precision. Various issues in a market are shaped through continual

interactions of individuals and companies acting within, adapting to and changing it.

Under such circumstances, traditional “command and control” legislation might be

unsuitable.32

Instead, a shift towards governance that enables self-organisation by

strengthening relationships among and bringing together relevant entities to facilitate

change would be more appropriate and effective.

With this follows the need to rethink division of powers. Today, division of powers is

only considered between the EU and national levels, and between different levels of

government. For example, the subsidiarity principle set out in Article 5 of the Treaty on

the European Union ensures that action at EU level is justified in light of the possibilities

available at national, regional or local level.

To my knowledge, there has not yet been discussion about a serious division of powers

between actors: public, private and computers. The Mandelkern Report33

touched on the

issue when noting that “[f]inding the most appropriate ways of implementing public

policies efficiently should lead us to seek solutions that better combine public authority

objectives and the responsibility of users or groups of users”. But we have not come

much further than that34

, simply because our institutions have not seen the need:

stakeholders and other actors are generally not included in the delivery phase of policy as

traditional legislation is still the primary choice; and when they are included in the

shaping phase, that is largely as passive contributors or consultants.

Accordingly, a shift towards a governance process that embraces “messy realities”,

operates on a loop and taps the full potential of relevant actors requires considerations

about division of powers at the stage of intervention35

:

30 See Fell (2013) for an overview of the strengths and weaknesses of experts / group of experts, individuals /

crowds, and computers / humans. 31 See e.g. REFGOV policy brief September 2010: “promoting a greater reflexivity in the governance process

… implies a shift in attention to the operations through which actors themselves redefine their understanding of the problems to be addressed, and of their role in exploring the solutions to the problems” 32 See e.g. Hans Bredow Institute, Study on Co-Regulation Measures in the Media Sector, prepared for

European Commission, June 2006. 33 Mandelkern Group on Better Regulation, 13 November 2001. This report served as the basis for drawing the

Better Regulation agenda of the EU. 34 In the right direction, the European Parliament highlighted in its study “Preparing for Complexity” the

emergence of “a more multi-polar world where governance is more and more a multi-level one, involving

multiple actors in decision making and implementation”. 35 See discussion by Fell (2013)

8 Hanne Melin

Which actors or combination of actors are best placed to intervene?

Why are they intervening and not leaving the system to self-organise?

If intervention is needed, why not defer to the actions of another actor

or combination?

As a point of departure, Fell proposes an “intervention principle” to help guide us

towards optimal policy intervention:

“An intervention agent is to intervene only if, and in so far as, it is

reasonably foreseeable that the objectives of the proposed intervention

cannot better be achieved by the system running itself or in default of this

by another agent.”

These four tenets, as outlined above, set the direction of a Smarter Intervention project

for shaping, explaining and furthering through ongoing scientific research a culture of

“enquiry and not certitude”.36

It is a shift from the idea of precise control towards the idea

of the emergent nature of change. Such an insight forces a change to the processes and

methods we use to achieve public policy objectives. The Smarter Intervention project

would be that much needed test ground for “work[ing] out better ways to achieve the

policy goals under changing conditions”37

.

PART 3

Encourage novelty and look for innovation

“Initiatives, innovation and commitment cannot be imposed by law.”38

This article has described some of the mechanics behind a society in transformation. It

has emphasized the role of interactions and interconnections in creating change. The

article has also discussed the challenges for policymaking and argued for a more open-

ended and inclusive governance process.

The proposed way forward is a Smarter Intervention project: an umbrella programme for

research and experimentation in public policy problem solving. The aim is to explore

“better ways to achieve the policy goals under changing conditions”.

As mentioned above, characteristics such as novelty and creativity emerge from

interactions between people, groups, companies, etc. and are inherently difficult to

predict: “yesterday’s action activates a reaction today which may lead to a new action

tomorrow”39

. In fact, analysis of organisations indicates that it is only as organisations

“move into far-from-equilibrium states that emergent ideas are possible, giving rise to

innovation and creativity.”40

Creating a governance process based on the emergent nature of change requires a rethink

of the role of the policymaker and the relationship with the participatory actors. If

achieving stability through codification is not conducive to innovation and directing

society towards a prescribed future state is not possible, then how should policymakers

act to realise desirable public policy objectives?

36 Ramalingam et al (2008) discuss the need to approach problems with a mindset of ‘enquiry and not

certitutde’, move away from an attitude of ‘knowing best’, and realize there are no ‘final answers’. 37 Hans Bredow Institute (2006) 38 See discussions by Hans Bredow Institute (2006) 39 Donde Ashmos Plowman, Stephanie Solansky, Tammy E. Beck, LaKami Baker, Mukta Kulkarni, Deandra

Villarreal Travis; “The role of leadership in emergent, self-organization”, The Leadership Quarterly 18:4,

2007. 40 Plowman et al (2007)

Governance Reform 9

Drawing on research of leadership in complex organisations41

, the following three

principles provide helpful orientation:

Disrupting existing patterns

Perhaps counter-intuitive but policymakers have a role in disrupting existing processes or

patterns of behavior to enable ideas to emerge. One way is to surface conflict, thereby

creating a state of instability where novelty can emerge. An example is the initiative by

the European Commission to tackle counterfeit sale on the Internet following years of

private litigation and increasingly entrenched positions. Faced with “a rapidly evolving

technological and commercial environment”, the Commission attempted “a novel

function as facilitator by providing administrative and logistic support and by

safeguarding, where necessary, a fair balance among the different interests at stake”.42

Loud and visible conflict eventually led to creativity, among the participating

stakeholders, in finding a cooperative solution.43

Encouraging novelty

Finding “better ways to achieve public policy goals” requires novelty and innovation.

Rather than assume all the responsibility for innovative ideas, policymakers should

encourage the market actors (companies, individuals, experts, etc.) to be innovative in the

public policy space. Take technology companies, their competitiveness depends on

constant innovation and improvement of services and products. The methods they employ

should greatly benefit policymaking. To that end, policymakers would establish a few

simple rules or principle(s) and facilitate interactions and information sharing between

the actors but leave them “complete flexibility about how to go about carrying out the

principle”. 44

“Sensemaking”45

Policymakers play an important role in making sense of emerging change and giving

meaning to unfolding events. They have a central role to “interpret change rather than

create it”.46

With that comes attentiveness to language:

“[Language] can serve as a medium through which we create new understandings and

new realities as we begin to talk about them. … Language … as articulation of reality is

more primordial than strategy, structure, or … culture.”47

Consequently, policymakers need to be attentive to the words they use and correlations

they make. So for example, associating “new products and new business practices,

including new delivery mechanism, and the use of new or developing technologies for

both new and pre-existing products” with a potentially higher risk for money laundering

and terrorist financing is hardly an expression supporting innovation. 48

These three principles provide guidance for the type of governance envisaged by the

Smarter Intervention project. It is one where policymakers take on an enabling role. As

the examples above suggest, this is not suggesting a passive or laissez-faire role. Action

is defined as ‘enabling’ instead of ‘controlling’.

41 Plowman et al (2007) 42 Report from the Commission on the functioning of the Memorandum of Understanding on the Sale of Counterfeit Goods via the Internet,

COM(2013) 209. 43 A memorandum of understanding was signed on 4 May 2011 in Brussels. But trying this approach on stakeholders in the area of illegal up- and

downloading did not yield the same successful result. 44 Plowman et al (2007) discovered innovation emerging as the result of leaders ensuring “a tenacious rigidity about the principle and complete

flexibility about how to go about carrying out the principle”. 45 Karl Weick cited by Plowman et al (2007): “the basic idea of sensemaking is that reality is an ongoing accomplishment that emerges from efforts

to create order and make retrospective sense of what occurs”. 46 Plowman et al (2007) concluded that “[w]hen leaders explain and repeat specific language to their organization, they foster the understanding of a

shared understanding and become catalyst of a specific action”. 47 Fred Kofman as cited by Donella Meadows, “Thinking in Systems”, 2010. 48 Proposal for amended 3rd Anti-Money Laundering Directive, COM(2013) 045

10 Hanne Melin

PART 4

Data analytics can deliver reflexive law in practice

“… it would seem that the key is to minimise central controls, use rules

which promote and permit complex, diverse and locally fitting behaviour:

decentralise, minimise controls, enable local appraisal, analysis, planning

and adaptation for local fit in different ways” 49

This article has drawn up a framework for the next phase of EU governance reform,

naming it a Smarter Intervention project and focused on:

1. A policymaking process based on acceptance of inherent uncertainty,

designed around the Boyd Loop, leveraging the strengths of actively

participating actors (public, private and computers), and guided by an

intervention principle.

2. A role for the policymaker as an active enabler, recognising the

importance of disruption, interaction and correlation; and of upholding

simple rules while allowing flexibility on how they can be achieved or met.

What sort of intervention could then result from a Smarter Intervention project? That

depends on the particular situation – market conditions and structures, history, the actors,

connections and interactions – and the issue at hand.

However, one great example of how this type of intervention could look is the idea put

forward by PayPal in its 2013 white paper entitled “21st Century Regulation: putting

innovation at the heart of payments regulation”.50

PayPal envisions a regulatory model for the payments sector based on performance

metrics and driven by data analytics, collaboration and iteration. This is a different

approach to achieving the public policy objectives of payments regulation:

First, the focus would be on performance. Regulation would identify an

outcome but then leave the specific measures to achieve the outcome to the

discretion of the regulated entity.51

Second, performance would be measured and improved through a

continuous process of securing relevant data about performance from all

regulated entities, using machines to organize the data into interlinked

databases, creating algorithms to derive insights from the data, and

interpreting and applying the insights.52

Third, the regulator would take on one of the following three roles53

:

a) Manage the process

b) Audit the process

c) Oversee the process

This is an example of governance adapted to a context of transformation and change, and

49 Robert Chambers, as quoted by Ramalingam et al (2007) 50 This paper (hereinafter ‘PayPal (2013)’) has been publicly launched at events in Brussels, Washington DC and Singapore.

PayPal is an eBay company, and the author was part of the team behind the paper. Available here:

http://www.ebaymainstreet.com/news-events/how-should-industries-payments-be-regulated-21st-century 51 In the EU, principle-based regulation was much discussed specifically for the financial sector in 2007 but the financial crisis

caused a sharp return in favour of rules-based regulation. Without proper tools, performance standards fail to deliver the

intended flexibility. PayPal (2013) proposes the application of a new regulatory concept, “Dynamic Performance Standards”,

which marries traditional performance standards (or principle-based) with modern data analytics techniques. 52 PayPal (2013) introduces the “SMART Governance” framework of Securing data, using Machines to organise databases,

creating Algorithms to derive insights, Reassessing results, and Targeting insights. 53 The author suggests that the research by Cynthia Kurz and Dave Snowden on the Cynefin framework,

matching decision-making and learning processes to different kinds of systems, could be used to further

refine these three methods.

Governance Reform 11

exercised with a mindset of “enquiry and not certitude”. The quest is not for a final

answer. In fact, the model places emphasis on learning what works and improving the

overall system performance.54

For example, in the context of legislation aimed at money laundering and terrorist

financing, an expert group would create performance standards to measure payment

entities on their ability to protect consumers and reduce financial crime. The regulated

entities would be allowed freedom in how they achieve the goals. Defined data points

would be secured from the entities, analysed, and the expert group would tweak the

standards to improve measurement and performance.

The regulator would not control but enable interactions, information flow, and feedback

to facilitate desired development. It is indeed a reflexive law approach to governance put

into practice. It is made possible by increases in data acquisition capability, data storage,

computing power, and algorithmic design55

:

Certain structures are put in place, such as expert groups for interaction,

interfaces for collecting data, databases for storage, software for data

analysis, processes for feedback

The structures encourage self-reflective processes within the regulated

entities while ensuring that certain external factors are taken into account,

such as consumer protection against fraud and combating money

laundering56

PayPal’s model is a practical approach to governance that seeks to enhance the quality of

outcomes – not by way of dictating the workings of the market but by leaving decisions

with the regulated entities.

FINAL THOUGHTS

“In today’s world no single person, group or organization has the power to

resolve any major public problem; yet at the same time, many people, groups

and organizations have a partial responsibility to act on such problems.”57

I wanted to write this article because I genuinely believe we don’t yet have the

governance system we need. We need a much better understanding of how change

emerges in different systems. Simply stated, it is about managing expectations: we can’t

control, but we can be smart about evolving the outcomes we desire. We also need to

become much better at identifying constellations of resources – private, public,

individuals, computers – that can effectively help bring desirable futures into being. It is

not by accident that companies such as P&G, Lego and eBay make external expertise part

of internal processes.

With this article, I hope to provide ammunition to lawmakers and politicians to persist

with open-ended and flexible policies (the Swedish PM should courageously stick to his

modern approach). I also hope this article provokes reflection about the role of

54 Ramalingam et al (2008) reminds that, when dealing with nonlinear systems, not only are lessons provisional

by approaches to decision-making and learning need to be tailored to the specific situation; “tools are useful but no single tool should be expected to provide all of the guidance needed for decision-making”.

55 PayPal (2013) explains how these trends are behind the big data revolution and argues that policymakers “can

use the same techniques, skill and approach to transform the regulatory process of designing, implementing and improving public policy and legislation in collaboration with stakeholders”.

56 Teubner (1983) explains that “the goal [of a reflexive law approach] is the design of organizational structures

which makes the institutions – corporations, semipublic associations, mass media, educational institutions – sensitive to the outside effects of their attempts to maximize internal rationality. Its main function is to

substitute for outside interventionist control and defective internal control structure.” 57 Lenahan O’Connell, as quoted by Ramalingam et al (2007)

12 Hanne Melin

policymakers as enablers and division of powers with actors outside the legislature.

No doubt, we need to start policy innovating now. Bits of the future steadily transform

the present. One example is the integration of human and machine, where technological

land winnings deserve clever responses to the novel legal, moral and ethical issues they

throw up.

I think our challenges and opportunities are described well by the economist Assar

Lindbeck: “The unexpected happens more often than the expected because the

unexpected can happen in an infinite number of ways; the expected can only happen in

one way. Therefore, it is unlikely the expected happens.”58

***

Hanne Melin is Policy Strategy Counsel EMEA at eBay Inc. This article builds on work

the author carries out for the eBay Inc. Public Policy Lab but the views expressed should

not be attributed to eBay Inc. and all mistakes are those of the author.

eBay Inc. is a global technology company that enables commerce by providing online

platforms, tools and services to help individuals and small, medium and large merchants

around the globe engage in online and mobile commerce and payments. Three reportable

business segments make up the eBay Inc. family. With more than 100 million active

users globally, the eBay Marketplace is the world’s largest online marketplace. eBay

connects a diverse and passionate community of individual buyers and sellers as well as

small businesses. PayPal gives people simpler ways to send money without sharing

financial information and with the flexibility to pay using account balances, bank

accounts, credit cards or promotional financing. Because PayPal helps people transact

anytime, anywhere and in any way, the company is a driving force behind the growth of

mobile commerce. eBay Enterprise is a leading provider of commerce technologies,

omnichannel operations and marketing solutions enabling the world’s premier brands and

retailers to deliver connected consumer experiences throughout the entire purchase

lifecycle.

58 Free translation. Assar Lindbeck, “Ekonomi är att välja”, 2012.