The massive disruption of the world economy in recent months has many in government and the general public calling for new regulations to control the system’s sensitivities to upsets.

Market practitioners are often wary of any new regulatory mechanisms, arguing that with new regulations comes a reduced ability to innovate, or create the new financial instruments that can help distribute capital efficiently.

But in many highly complex adaptive systems – in biology, physics, society, or economics, for example – regulation and innovation coexist and often co-evolve in ways that make separating them dif cult.

At a May 15 Business Network meeting at Fidelity Investments headquarters in Boston, some 50 financial experts and scholars spent a day sharing ideas from a variety of fields about the intertwined nature of these two forces. SFI and Fidelity co-sponsored the gathering.

“Financial practitioners will say that regulation staunches innovation,” says the meeting’s organizer, SFI External Professor and Dartmouth College Professor of Mathematics and Computer Science Dan Rockmore. “We know, in fact, that regulatory mechanisms, whether naturally occurring or intentionally imposed, are not always bad for the system. Regulation and innovation work and evolve together at times to either make the system more stable or destabilize it.”

The meeting’s participants, he says, spent the day looking at different kinds of regulatory mechanisms and the back and forth between the two actors and, in typical SFI fashion, “tried to nd big, central ideas across disciplines.”

SFI Faculty Chair and Professor David Krakauer spoke to the group about the co-evolution of innovation and regulation in biological selection and development, and its possible implications for complex social systems such as the economy.

Jeff Madrick, editor of Challenge magazine and director of policy research at the Schwartz Center for Economic Policy Analysis, The New School, surveyed lessons from previous economic collapses. He said innovation is almost always considered a healthy characteristic of nance, but waves of innovation often lead to crashes and recessions. A lack of or loosening of regulations also have repeatedly given rise to tidal waves of innovation that create severe instability. These patterns call for a deeper look at regulatory control of economic systems,
he said.

In a key afternoon presentation, Sean Belka, senior vice president and director of Fidelity’s Center for Applied Technology, said ideas are at the core of innovation. He explored ways to create and manage an “idea ecosystem” in an organization to generate more and better ideas that serve customers and create a competitive advantage.

During the meeting the participants discovered linkages between “what someone in the financial products industry might be thinking about and what the people in biology and ecology and economics are thinking about,” says Dan.

He says it became clear during the day that “there are, at some level of abstraction, lessons that can be shared in both directions. The speakers gave the people at the meeting an opening to think about these linkages.”