Guest Post By Don Tapscott, Curator Social Media Week. As Global Curator, Don Tapscott is leading a series of discussion on our global theme of Empowering Change Through Collaboration. Read previous discussions here.
Who better to police the financial institutions that gouge American consumers than the consumers themselves? That’s the philosophy of the U.S. Consumer Financial Protection Bureau, which began operation on July 21, 2011. The Bureau wants to use the latest crowd-sourcing technology to collect tips from millions of consumers about deceptive new financial practices, from misleading mortgages and improper “gotcha” fees on credit cards to outright fraud. The Bureau has a Facebook presence, where more than 10,900 supporters have given it a thumbs up “like.”
This approach to regulation is a stark departure from conventional wisdom. In the old model, regulatory agencies pored slowly and methodically through a random sample of the products offered by banks. But as financial “innovation” outstrips the ability of regulators to catch up, crowd-sourcing will make regulators more
It’s a good idea that could be applied to other sectors of the economy. Just about every domain of regulation today– from air and water quality to food safety and financial services – could benefit from vigilant citizens helping to protect the public interest.
During the 1980s and ’90s, many governments dismantled large regulatory bodies and asked industries to police themselves. The public was told that self-regulation would be more efficient. Governments were to be the “regulators of last resort” — stepping in only after self-regulation was deemed to have failed.
The problem, in practice, is that most industry self-regulators have lax rules or inadequate enforcement. Also, governments (for the most part) have proven unable or unwilling to take prompt action when market failures become evident. Indeed, after years of under-funding, it’s no surprise that many regulatory agencies are ill-
equipped to pick up the slack, let alone confront novel challenges for which they have neither the resources nor the expertise.
With the old model of command-and-control regulation broken, the Consumer Financial Protection Bureau’s new crowd-sourcing model is a dramatic improvement. Initially, efforts to increase transparency and public participation are likely to be most effective in areas that affect the welfare of our children, families and
communities, but they could grow from there.
Rather than allow a small group of powerful companies to police their own activities, I propose the reverse: open up the regulatory process. Make everything transparent on the Web and let citizens and other parties contribute their own data and observations. Where possible, let citizens help enforce regulations, too, perhaps by changing their buying behavior or by organizing public campaigns that name and shame offenders.
Skeptics may doubt the capacity of citizens and advocacy groups to help regulatory bodies develop more effective systems of monitoring and enforcement. But like the new Consumer Financial Protection Bureau, a growing number of regulatory agencies are already convinced, as evidenced by the U.S. Environmental
Protection Agency’s efforts to open up its rule-making processes and the SEC’s announcement in February, 2009 that it is developing new systems for collecting anonymous tips in the investment community.
Even when inertia prevails in government, other organizations are taking the lead. The FDA may not require manufacturers of processed foods to indicate on the label a product’s origin; whether it contains genetically modified organisms; or was produced using synthetic hormones, antibiotics, and pesticides. But retailers such
as Tesco and a legion of online product guides are making this information available anyway. Why? Because customers are demanding transparency.
I’m keen to hear your thinking on how the vision of transparency and crowd-sourcing in government regulation can be promoted.
For three decades Don Tapscott has been the world’s leading thinker about the impact of the digital revolution on business and society. He is the author of 14 books, most recently Grown Up Digital: How the Net Generation is Changing Your World and with Anthony D Williams: Macrowikinomics: Rebooting Business and the World. You can follow Don on Twitter at @DTapscott.