Regulation: innovators shudder at the mere mention of this term.

But does it have to be this way?

Not according to Kevin Werbach, a Wharton legal studies and business ethics professor. In a recent podcast, he explained why regulation doesn’t have to be the enemy of innovation, especially in what he calls the “Internet of the World.” Below, we’ve summarized a few of his key points (you can hear his entire podcast here):

What’s the “Internet of the World”?

According to Werbach, potentially everything in our physical and digital world is a potential generator of data. That data can be integrated, analyzed, processed and manipulated. As a result, the trends and developments we’ve seen online are now impacting services and physical objects – unlocking new markets, blurring the line between the digital and offline worlds, and spurring new regulations.

Do regulations threaten innovation as the online and offline worlds mesh?

Not necessarily. As the Internet of the World evolves, Werbach states that we need to challenge assumptions about the relationship between innovation and regulation. In his view, government agencies don’t necessarily drain or block innovation; in fact, they can be a positive force.

As an example, he cites the Microsoft antitrust case from about 20 years ago. Had our government not stepped in and filed that suit, Microsoft’s overwhelming power may have been able to warp or hinder the growth of our open internet economy.

How can we regulate innovation without stifling it?

Werbach purports that effective regulation:

• Must start with a conversation between regulators and innovators – to determine what each party wants to achieve.
• Must leverage data generated by the Internet of the World to transparently, yet securely, identify what the market performance is.
• Must be more algorithmic (i.e., regulations should be data-driven and evolve along with the new markets they control).
• Must have adequate accountability mechanisms. The government should set goals, and then give the industry opportunities to meet them, by providing transparent data and explaining how they’re complying with established guidelines/rules/laws.
• Must start with trust. For regulation to be effective – without effectively killing innovation – regulators and innovators must trust one another to be honest, sustain communication and live up to commitments.

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