Tech and regulators can find common ground

It seems that everywhere you look these days, tech is under attack. Companies driving transformational innovations are facing a backlash. In August, Transport for London said Uber was not “fit and proper to hold a private hire operator license.” And, facing widespread criticism for Russian-financed activity on its site before the U.S. presidential election, Facebook indicated that it would change its procedures for political ads. These headline-grabbing developments followed a series of controversies about anti-competitive behavior, inappropriate cultures, and insensitive and unsuitable approaches to important diversity and inclusion issues.

Although company-specific factors undoubtedly played a role in each of these instances, there is also a common thread: a threat that needs to be taken more seriously, lest business leaders, regulators and peer pressure risk causing the baby to be thrown out with the bath water.

The best way to anchor this discussion is with the simple observation that the main reason why big tech companies have become so prominent is that their innovations are so powerfully disruptive, enabling and empowering. This is especially the case for platform providers — Amazon, Facebook, Google, Microsoft and Uber — whose goods and services benefit a wide range of individuals and companies by simultaneously improving both demand and supply. Just think, an estimated 3 million users could be affected by the Transport for London decision on Uber (including me, when I visit there).

But history is full of examples of powerful innovations, and particularly those that beneficially influence both the supply and demand sides, that also led to a damaging initial phase of over-production and over-consumption as society responded over-enthusiastically to the sudden dramatic fall in barriers to entry for both existing and new activities. It is, after all, a natural human response to rush in, especially if access is, or perceived to be, extremely cost-effective or even free. But the overall cost-benefit equation skews unfavorably when companies and the system lag in responding quickly to changing realities on the ground.

Big shocks to the landscape, including the operating context for both incumbents and disrupters, require adaptations that can be — and often are — inherently complex.

Companies have to cope with the challenges of enormous growth, as their disruptive platforms attract a rapidly growing clientele. And it is easy to ignore these challenges while the dazzle and riches of seemingly endless expansion dominate. It is also an environment in which harmful “Wild West” tendencies can spread far too readily. Add to that the huge external pressures facing companies that become “systemic” — those that evolve from an interesting role at the margin of the sector to redefining it, and even having an impact well beyond it.

Often, founder-led tech disrupters committed to make the world a better place suddenly have to scramble to operate in a different environment — one that includes unfamiliar scrutiny from regulators, politicians and the media (including social media). This set of circumstances requires companies to mature much faster than anticipated, a state of affairs that is often expressed as the need for “an adult in the room.” In the process, they have to bring on board a wide range of domestic and international expertise that extends well beyond their traditional domains (for example, from a much more professional approach to communications and public relations to serious government relations and far broader strategic planning).

The system also has to adjust, including by overcoming the natural inclination to resist change. It is, after all, a two-way street.

Yes, the world gets to shape the disrupters, including with a view to minimizing unfavorable outcomes. But the world itself has to become more agile to accommodate beneficial transformational disruptions. And with vested interests hard at work behind closed doors, incumbents tend to have the inside track, regardless of their lagging platforms and delivery processes.

Tech disrupters have not been perfect. They must seriously address their deficiencies and regain control of their narratives in the context of an accelerated maturation process. And adding to the pressure, they must do so under relentless scrutiny. But the burden of adjustment extends well beyond them.

Regulators and opinion leaders must also recognize that several disruptive technologies have become more systemic and more difficult to keep up with. As such, and without minimizing the need for companies to clean up their act, the system itself needs to be more open to change that empowers and enables an ever-growing number of people. The shortcut of seeking to repress the disruptive activities is not desirable in terms of overall social welfare, nor is it feasible over the longer term.

Mohamed A. El-Erian is chief economic adviser at Allianz SE, the parent company of Pimco.

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