This op-ed appeared this week in U.S. News & World Report.
With the response to COVID-19 causing many businesses to shutter permanently, one state is laying out a welcome mat for innovative entrepreneurs looking to adapt to a changing economy. Where many states have created legal complications for companies wanting to serve their customers, Utah is providing them the option to hit the ‘pause’ button on any law or regulation that stands in their way.
At the start of the pandemic, governments had to quickly grapple with the economic impact of their varied public health responses – and some states are still suppressing business activity in hopes of curbing the spread of COVID-19. Many jurisdictions rightly recognized that government was not always the solution but might actually be the problem – often impeding both the private sector and the government’s ability to respond to the outbreak.
Among the federal, state and local governments, more than 800 regulations were waived in the name of fighting off the pandemic. Consumers’ lives went on, the sky did not fall, and this suspension of restrictive regulations raised the question of why some existed in the first place.
According to one survey, 60% of businesses that closed during the pandemic will never reopen. Ultimately, businesses will need to have the flexibility to adapt to changing market conditions, which means governments and their respective regulatory bodies need to be prepared to shake their rigidity to adapt to the changing times.
For Utah, the way forward involves a dynamic regulatory reform tool known as a regulatory sandbox. These programs have been around for some time, first originating in the United Kingdom to address the emergence of novel financial technology (fintech) companies that regulators did not know how to manage. These programs allow for a temporary suspension of enforcement of certain rules or laws against businesses, typically for a limited period of time, in order to find a more tailored – and perhaps reduced – set of rules more suited to the product, service or business model in question.
Utah has become a leader in pursuing this regulatory reform, perhaps not a surprise given its frequent awards for being the best state for business. In 2019, the state created a fintech sandbox of its own, and in 2020, the state added an insurance sandbox to spur innovation to drive down costs. At the same time, the state’s Supreme Court introduced and approved a first-in-the-nation legal services sandbox to increase access to affordable legal services.
Several other states have been exploring similar, industry-specific sandboxes to encourage innovation. Now, Utah has become the first state to create an all-inclusive regulatory sandbox –allowing companies in any sector to benefit from this flexible governance approach. The Utah Legislature passed House Bill 217, which created the sandbox, with unanimous support in each chamber, and Gov. Spencer Cox signed it into law March 22.
This is a bold and ambitious proposal, creating a dynamic regulatory reform program that opens the door for innovation by inviting entrepreneurs to seek suspension of any conflicting law or regulation that inhibits their unique business model, product or service. An approach such as this becomes an attractive incentive for businesses to relocate from highly burdensome regulatory environments found in places such as California and New York, which have both experienced an exodus of both people and businesses during the pandemic.
States are the so-called laboratories of democracy, and they should look to leverage every tool they have at their disposal to facilitate economic recovery and promote long-term growth. Regulatory sandboxes can be effective tools for businesses to succeed and to incubate innovations over the coming years. Utah’s approach serves as an example for other states to follow.