Industry Self-Regulation in an Age of Deregulation: A Sensible Middle Ground

Eric D. Reicin, President & CEO, BBB National Programs

In today’s marketplace, one of the most pressing matters facing both businesses and policymakers is how to strike the right balance between regulation and freedom. 

Many business leaders answer that question by sharing their concerns over what is perceived to be a confining regulatory state, with bureaucracies and rules creating unnecessary barriers to progress. This view has contributed to growing political momentum for businesses to operate with limited constraint—what many observers have termed “a deregulatory environment.”

Among the Trump Administration’s initial actions in deregulation, some of the most significant thus far have been:
  • The Regulatory Freeze on January 20, which halts all new rule proposals and issuances until approved by newly appointed agency heads.
  • The 10-to-1 Deregulation Initiative, which says that for every new rule, regulation, or guidance an agency promulgates, the agency must also identify a minimum of 10 existing rules, regulations, or guidance be repealed.
  • The action implementing the President’s Department of Government Efficiency regulatory initiative, providing for a comprehensive regulatory review and rescinding project.

When combined with the new administration's reversal by Executive Order many of the previous administration's actions, as well as the stated purpose of one executive order to unleash prosperity through deregulation, there is no doubt that deregulation is front and center. Some commentators have even opined that they have begun to see progressives embrace deregulation.

For business and nonprofit leaders, the question then becomes how to navigate a path that works for your organization while swiftly reacting to this deregulatory environment. 

Being cautious yet proactive about deregulation, while also focusing on how corporate reporting can be enhanced to foster transparency and trust, is a good starting point on that path. Then, in my view, the path is best lit by a sensible pro-competition alternative: industry self-regulation, which bridges the gap between internal corporate compliance and formal government oversight.

To understand the potential of self-regulation today, it is worth revisiting the 1980s, when the Reagan Administration championed the reduction of what it perceived as unnecessary regulations that stifled growth. Back then, industries began to take greater responsibility for their actions, initiating voluntary self-regulatory programs that promised to fill the regulatory gaps left by government agencies.

In the 1990s and 2000s, the growing complexity of global markets led to the rise of what has often been referred to as the “administrative state.” Government oversight expanded, with agencies taking a more activist role in regulating industries. There was a wave of new regulations intended to address perceived failures in the marketplace, such as the 2008 financial crisis, which exposed deficiencies in the ability of the financial industry to regulate itself.

The growth of the administrative state was driven in part by public demand for greater oversight and accountability in the wake of scandals and economic crises. However, this regulatory growth came at a price, with new rules and compliance costs. Many industries began to complain about burdensome regulations that were not only costly but also difficult to navigate.

Today, we find ourselves at a new crossroads, with calls for deregulation gaining momentum. In some ways, the deregulatory policies of the current administration echo those of the past, seeking to reduce government intervention and to return more decision-making power to the private sector.

However, today’s calls for deregulation are also happening in a different economic and political climate, and the complexities of the marketplace suggest the need for a more nuanced approach— one that best takes place in the middle ground between the polar opposites of overregulation and unfettered freedom. 

In an era where both overregulation and unchecked corporate freedom are viewed with skepticism, industry self-regulation offers a sensible path that provides accountability without excessive government oversight. Rather than seeing self-regulation as an alternative to government intervention, it should be viewed as a complement—a balanced approach that harnesses the best of both worlds.

The idea behind industry self-regulation is not to absolve the government of its responsibility, but to empower industries to take ownership of their own standards and practices. By doing so, industries can create tailored guidelines that are more flexible, responsive, and innovative than rigid, one-size-fits-all government rules.

For instance, the associations that represent tech companies are increasingly crafting self-imposed ethical guidelines around the use of artificial intelligence. These measures show promise in addressing concerns that might otherwise require extensive governmental regulation, which is often slow to keep pace with the velocity of technological innovation.

That said, frameworks for successful industry self-regulation must fit within the context of the political environments in which they are created. For AI, that environment has changed in the past two months. The current president has revoked the previous Administration’s executive orders on AI, replacing them with other actions, including an executive order calling for “removing barriers to American leadership in artificial intelligence.” And work will be done by several government agencies over the coming months. 

Certainly, the velocity of changes in AI capabilities, such as those captured in the current promise of argentic AI, makes any type of governance planning – whether regulation, self-regulation, or deregulation – very difficult to conduct with certainty. Looking forward, the challenge for businesses will be to build on the lessons of the past and establish lasting self-regulatory frameworks that are transparent, accountable, and enforceable. This means recognizing that self-regulation is not a substitute for government action, but a supplement that can work in tandem to foster a fair and sustainable business environment.

“Deregulation” can be alluring, as it offers significant benefits in driving innovation and enhancing business flexibility. However, the critical importance of enhancing trust in the marketplace with consumers presents a compelling case for industry self-regulation, a type of soft law that lies between corporate compliance and formal government oversight.

In an age of political polarization, industry self-regulation is a sensible middle ground and a practical way forward to a flexible and accountable model that encourages businesses to act in the public interest without the need for the stifling burden of overregulation.

Originally published in Forbes