I’ve been using the metaphor of “throwing pebbles in a stream” to describe the effect of regulation on innovation. No single regulation or regulatory activity is going to deter innovation by itself, just like no single pebble is going to affect a stream. But if you throw in enough small pebbles, you can dam up the stream. Similarly, add enough rules, regulations, and requirements, and suddenly innovation begins to look a lot less attractive.
A new study entitled “FDA Impact on U.S. Medical Technology Innovation: A Survey of Over 200 Medical Technology Companies” makes this point very well. The study, supported by the Medical Device Manufacturers Association and the National Venture Capital Association, found lots of ‘pebbles’–inefficiencies and lags in the system of approval that added up to a big problem. Survey respondents viewed
current U.S. regulatory processes for making products available to patients (the premarket process) as unpredictable and characterized by disruptions and delays…..[as well as ] inefficient and resource intensive
Given who the survey respondents are, this view might be expected. But then the study did a comparison of U.S. and EU regulators, and it turned out that “it takes significantly longer to navigate U.S. regulatory processes than it does to complete European approvals for the same products.” For example,
For higher risk devices seeking premarket approvals (on the PMA pathway), responding companies indicated that it took an average of 54 months to work with the FDA from first communication to being approved to market the device. In Europe, it took an average of 11 months from first communication to approval.
85 percent of respondents considered EU authorities to be highly or mostly predictable, while only 22 percent gave the FDA the same ratings.
The longer and more unpredictable the approval process, the higher the hurdle rate for investment. No single regulatory request is unreasonable or a major obstacle, but the combination–the growing pile of ‘pebbles in the stream’ –can be a massive deterrence to innovation.
Unfortunately, given the importance of innovation, an inefficient and slow approval process can have a negative impact on jobs and the economy. As the study notes,
Until recently, device innovation has largely been a U.S. phenomenon—the most important new technologies were invented here, and commercializing them in the sizable U.S. market was at the core most medtech company strategies. However, as medtech hurdles have climbed and available funding has declined, device companies are considering alternative strategies that are less U.S.-dependent…..It also suggests that the United States is at risk of losing its premier position at the center of the global medtech innovation ecosystem.
My bottom line: If Washington is genuinely serious about jobs and economic growth, it’s time to encourage innovation, not discourage it.
FYI: Very soon I will be issuing a paper with the tentative title “Biosciences and Long-Term Economic Recovery” through the Progressive Policy Institute, where I am a senior fellow. If you are interested in receiving an electronic copy of the paper when it comes out, please drop me a note at mmandel@southmountaineconomics.com
Mandel on Innovation and Growth 
“Pebbles in the Stream” is an interesting analogy which probably says more about Mr. Mandel’s understanding of geology that economics. Left to its own devices, without mans interference, a river piles pebbles and sand at every corner creating oxbow lakes meandering paths, thus limiting the effects of flooding and drought. It is when man stops the buildup the pebbles in the stream that rivers become evermore difficult to deal with.flooding in concentrated and and erosion is increased. It is hard to judge his economic reasoning when the title makes one wonder about his understanding.
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