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Regulation and innovation: beyond ‘top down’ solutions

By Nicholas Gruen - posted Wednesday, 29 August 2007


Why didn’t Australia make the world’s first keyless car?

In the 1970s NRMA mounted a public campaign against the ludicrous ease with which our car thieves could ply their trade - just insert coat hanger and drive away!

Our car industry raced to the forefront of car security technology - a none too daunting target back then. The Australian subsidiary of the German firm Bosch became a world leader with Australian car security technology - like engine immobilisers and keypads - supplying Falcons in the local market and then exporting them to Europe.

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So when Australians bought luxury European imports from Fiat, Volvo, Porsche and Ferrari they came duly fitted with Australian engine immobilisers.

By then, car keys were pretty much dispensable. Why didn’t we go the next step?

Perhaps no one thought of it.

But it sure didn’t help that selling a keyless car would have been illegal!

Australian Design Rule 25 (ADR 25) required mechanical door, ignition and steering locks. It even mandated the number of tumblers in the locks!

With the new car security measures having rendered ADR 25 redundant by the mid 1990s the Productivity Commission duly recommended ADR 25’s repeal.

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The result? No action was taken. Indeed, six years later ADR 25 was expanded to require engine immobilisers as well.

Amid so many success stories in economic reform, this sorry saga is a case study in our failure to make regulation responsive to new developments and new possibilities.

The limitations of regulation are the limitations of “top down” management or central planning. Even when well intentioned, those at the top don’t have the information to make good decisions.

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Nicholas Gruen is CEO of Lateral Economics which authored the report released yesterday, Beyond Taylorism: Regulating for Innovation: a discussion paper commissioned for the Victorian Government’s National Innovation Agenda. First published in the Australian Financial Review on August 28, 2007.



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About the Author

Dr Nicholas Gruen is CEO of Lateral Economics and Chairman of Peach Refund Mortgage Broker. He is working on a book entitled Reimagining Economic Reform.

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