Many businesses have had to change their practices and operations on the fly to accommodate the changing circumstances caused by the response to COVID-19. Unfortunately, these pivots put businesses in a precarious position, as they can sometimes be in conflict with state and local regulations. But there’s hope ahead: A proposed regulatory relief process can help position Utah to be one of the quickest states to recover after the pandemic by better enabling entrepreneurs to innovate and adapt to quickly changing market conditions.
When the pandemic first broke out, many governors waived hundreds of regulations that were a burden to businesses. Life has gone on without incident, raising the question: Why were the rules ever on the books to begin with? The reality is there are likely thousands more regulations across a variety of industries that are equally as burdensome to business, and which are discouraging (if not prohibiting) innovation that could help the economy recover more quickly.
The state’s current approach to regulations is reactionary in nature — waiting for an economic downturn or some other significant act to occur and prompt later reforms that are seen as necessary. To keep pace with a quickly changing economy, policymakers need to shift away from this reactionary model to a more dynamic and proactive role. This can be achieved through an industry-agnostic regulatory sandbox.
A regulatory sandbox is a unique legal classification that allows for companies and regulators to identify potentially problematic laws or regulations, and temporarily freeze enforcing the specific restriction for a limited period of time. This allows private companies to safely develop or introduce an innovative or previously unthought of product or service, with oversight from regulators, where current standards poorly apply or haven’t yet been created.
For example, in Utah and around the country, there was recently a shortage of hand sanitizer. A key component in the production of hand sanitizer is alcohol. Utah has a few distilleries that could have filled the need for hand sanitizer immediately, but existing regulations prevented them from doing so. They had to get special permission in order to produce the hand sanitizer before they could start production. And in the time since, there has been no apparent harm to consumers as a result of allowing distilleries to produce this basic yet crucial good for consumers.
Many businesses have had to quickly and fundamentally change the way they operate as a result of COVID-19. Restaurants, airlines, the gig economy, hospitals and the education system have all underdone serious changes to their business models to deal with the challenges brought about by the pandemic. A regulatory sandbox offers an opportunity for businesses in these various industries to highlight potentially problematic rules and regulations and have them temporarily suspended so the businesses can adapt and thrive. This can lead to Utahns getting access to more goods and services at a quicker pace without compromising quality.
This approach does not mean that the state would become the Wild West, waiving a wide range of regulations. Consumer protection is paramount, and the goal of the program would be to identify problematic regulations that are impeding innovation or preventing a more efficient production process from taking place and suspending them. A company would still be held responsible for abiding by all other rules and operating safely. If they harm a consumer, they could still be held liable.
An additional benefit of creating a dynamic and flexible regulatory environment in Utah is it makes the state an increasingly attractive option for companies looking to leave highly regulated economies like in California and New York. In Utah, companies would find a state that truly embraces businesses and facilitates an environment to flourish and become successful.
This approach isn’t new; the Legislature has already created two regulatory sandboxes for the financial technology industry as well as the insurance industry. In addition, the courts have implemented their own sandbox in order to reduce the burden on the provision of certain legal services. It’s time to build on this momentum to expand regulatory relief to entrepreneurs and innovators in any industry, rather than a select few. The Utah Legislature will soon have the chance to consider passage of an industry-agnostic sandbox to provide this relief to all struggling businesses, boosting our economy’s recovery in the wake of COVID-19.
It is imperative that Utah utilizes every tool in the kit to mitigate the damage caused by this pandemic. A dynamic regulatory environment would make Utah a leader in economic development and entrepreneurship for years to come.
James Czerniawski is the tech and innovation policy analyst at the Libertas Institute, a free-market think tank in Utah. Follow him on Twitter: @JamesCz19