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Macrowikinomics: The Citizen Regulator: Increased Citizen Participation Adds Muscle to Traditional Regulatory Systems

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This article is the sixth installment in series written by Don Tapscott and Anthony D. Williams, authors of the newly released book Macrowikinomics: Rebooting Business and the World. Mark Parker, the CEO of Nike calls it "A masterpiece. An iconic and defining book for our times." The Economist says it's a Schumpeterian story of creative Destruction."

The book argues that many of the institutions of the industrial age have finally come to the end of their lifecycle, and are now being reinvented around a new set of principles and a networked model.

Today's blog looks at citizens becoming active in the regulatory regime.

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The Obama administration has a novel idea: Who better to police the financial institutions that gouge American consumers than the consumers themselves?

Recently Elizabeth Warren, architect of the new U.S. Bureau of Consumer Financial Protection, said the government will 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.

This 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, Ms. Warren believes that crowd-sourcing will make regulators more responsive. "The agency can collect and analyze data faster and get on top of problems as they occur, not years later," she says.

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 Bureau of Consumer Financial Protection's new crowd-sourcing model could be 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, we 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. As Ms. Warren put it, "The power of enforcement will be partly about the agency. But it will be partly, in the future, about how people crowd-source around identified problems."

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 Bureau of Consumer Financial Protection, 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.

We're not saying transparency is a substitute for better regulation by national governments and international institutions. But we are convinced that more disclosure and increased civic participation would add significant muscle to traditional regulatory systems.

Macrowikinomics available at: Macrowikinomics.com

Follow Anthony Williams on Twitter: www.twitter.com/adw_tweets

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