This report describes the current state of knowledge about differences in the pace of development between regulation and technological innovation.

Summary

The literature review is based on the term ‘pacing problem’. This term refers to the difference in speed between the often-rapid pace of technological developments and the often-slow pace of the regulatory process. The aims of the report are to summarise and contribute to knowledge about pacing problems and to highlight possible policy measures that may address these pacing problems.

Conflicts goals between enterprise policy and substantive policy

From an industrial and innovation policy perspective, the pacing problem is central. Existing regulations may constitute entry barriers for innovation because they create legal uncertainties for innovators concerning how their innovation(s) will be regulated. Yet existing regulations also play an important role in protecting society and citizens from adverse effects and risks. Conflicts goals can thus arise between enterprise policy and other areas of policy. To this can be added that the business community is currently under great pressure to transform. Climate adaptation, increasing digitalisation, geopolitical changes and other altered realities necessitate a rapid development and dissemination pace for innovations.

The pacing problem is considerable, but the literature offers solutions

The scholarly literature on the topic points to substantial and increasing challenges for regulators. When technological developments and dissemination take place more quickly, it becomes difficult for regulators to keep up with and understand the new technology they are meant to regulate. Information asymmetries between innovators and regulators, and genuine policy uncertainties concerning emerging technology are common. Yet these problems are not insoluble. The literature proposes a number of policy tools for handling the pacing problem.

A key component in the toolbox is a new approach to regulating new technology. This new approach is described in the literature as an adaptive governance model, which stands in contrast to the traditional approach to regulation. The model is based on an approach of continuously evaluating and adjusting laws and rules as the technology is developed and the knowledge of its effects is deepened. The approach presupposes continuous learning and foresight. Examples of policy tools for an adaptive governance model include procedures for continuous technology monitoring and risk assessments, methods for testing technology under controlled forms such as regulatory sandboxes, and specific time frames for regulation-improvement measures, so-called sunset clauses.

Another key component is soft regulation. This refers to voluntary agreements, often initiated by industry, which, according to some researchers, are on their way to becoming modus operandi in modern technology policy. The literature shows, however, that soft regulation has thus far been plagued by considerable shortcomings. It is resource-demanding for the parties involved and has often not been goal-effective, partly due to a lack of follow-up of the actors' rule compliance. Forms for sanctions are also lacking. However, soft regulation could be an important component of adaptive governance if it is supplemented with soft follow-up and sanctions. Where necessary, soft regulation could be converted into hard legislation.

Our model for adaptive regulation of new technology

The Swedish Agency for Growth Policy Analysis has further developed a model proposed by Crootof and Ard (2021). The model can be viewed as a checklist and a guide for the regulation of new technology. It provides an overview of fundamental issues and responses for regulators. The model is cyclical, rather than linear, and consists of five steps. Each step addresses a specific question in the regulatory process: 1) Which type of legal uncertainty generates new technology?, 2) What are the risks and opportunities associated with the new technology?, 3) What level of caution do the regulators need to adopt?, 4) What types of measures do the regulators need to implement?, and 5) How should the decided measures be implemented and followed up?

A young research field

Our literature review consists of 44 structurally selected scholarly articles. Half of these explicitly address the pacing problem, and half address the phenomenon without using the specific term ‘pacing problem’.
We see that the number of scholarly publications in the field has increased over the past two decades, but the lack of empirical evidence and evaluations is clear. More empirical knowledge would provide a better knowledge base for further development of both research and policy.

Areas for policy development

Because the literature is based on international research, the conclusions need to be adapted to Swedish legislation and Swedish administrative processes.

On an overall level, however, we see clear areas for policy development:
1. Apply a more adaptive governance model for the regulation of emerging technology.
2. Develop methods and routines for broad and continuous monitoring of technology developments and how they affect society and citizens.
3. Lower the thresholds for innovations by providing methods for testing new technology under controlled forms.
4. Develop procedures for continuous learning and evaluation of regulations concerning new technology with a high development pace.
5. Include soft regulation in the governance model and ensure goal effectiveness by supplementing this with soft supervisory sanctions and, where necessary, converting the soft regulation into legislation.
6. Reducing regulatory uncertainty by working to give innovators knowledge about regulation and application.
7. Developing methods for handling the balance of power between established and new companies.
8. Developing methods for coordinating the regulatory process across overlapping areas of technology and between different areas of policy.