Considering the recent regulatory meltdowns over Credit Default Swaps, Madoff, and less-publicized failures at the FDA, it's clear that leadership in overhauling regulation itself--something way beyond tinkering with old rules--is long overdue.
Regulators—folks working for the FDA, FCC, the SEC, DOE, and so on—are the referees of commerce. Regulations are the rules of the game. We need to think in a fresh new way both about regulators themselves, and regulation – what would leadership look like?
Personally, I believe Regulators are way too close to the industries they regulate, and, while it's a tad radical, I suggest they become a kind of Caste unto themselves, like referees. They need to be educated in, and heavily insulated from the industry they regulate. Think of it as a new profession:
- Becoming a regulator needs to be a one-way street. Ban regulators from ever returning to the industry, or customers of / suppliers to the industry they regulate.
- Compensation for regulators needs to be similar to that of the industry they regulate. Adjust the average compensation of regulators to be in the 50th percentile or above versus the industry they regulate.
- Regulators must be experts in the field they are to regulate, either from training, education, experience, or all of these. Arguably, this might have helped with FEMA and Katrina during Bush 2. Require that regulators be educated deeply in the industry they regulate.
- Regulatory agencies cannot use the industry they are regulating as a supplier of services. No more “fox guarding the henhouse.”
- Regulation must itself be reformed to catch patterns of bad behavior, in addition to specific bad acts. For example, Credit Default Swaps could be banned, yet something will take their place. The pattern or theme of creating a secondary market that destabilizes when bets start going bad, is something worthy of looking at. We have the tools and technology –and hopefully now the will.
Just some ideas to prime the pump. More to follow!
