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Innovation strangled by red tape

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| Darcy Allen and Jason Potts

Innovation strangled by red tape

Recent IPA research has demonstrated that business entry rates in Australia have been in steady decline for the previous decade to June 2014. This falling business turnover signals a decline in Australian dynamism and entrepreneurship.

It is precautionary government regulation that is instigating this decline. The current culture of red-tape threatens to prevent the next Facebook or Google launching on Australian shores by over-valuing certainty, and under-valuing flexibility.

The process of the free market is the only true business selection mechanism; expanding productive and innovative businesses while replacing unproductive dead wood.

This process is irreplaceable, but it may certainly be hindered. Many regulations, while framed in terms of ‘public interest', more accurately act as friction in the free market process; their costs are often ignored.

These frictions prevent the market from facilitating learning and experimentation with new ideas, technologies and businesses.

The market cannot select what is worthy and what is not if technologies are continually restricted before we even know how they are best used.

Rather than as a nation of rules, regulations and road-blocks, Australia must position itself as a nation of experimentation, testing and exploration for entrepreneurial talent.

Much of this friction is due to the ‘precautionary principle', where governments over-value hypothetical harms, and undervalue the capacity of the market to test, experiment and evolve.

Industry-specific regulation and red-tape must be critically avoided. This includes occupational licensing, quotas, subsidies and suchlike. These apply artificial rigidity in what are constantly evolving industry boundaries and the development of innovative new sectors.

 

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