Failure to regulate regulation could prove costly

Fri, May 18, 2012, 01:00

ECONOMICS:REGULATION HAS been a boom area of public policy throughout much of the industrialised world over the last four decades.

The popularity of regulation is not difficult to understand – it offers a relatively low-cost way for governments to signal that they are addressing perceived policy problems, a motivation that becomes even more important during periods of budgetary crisis.

It was the government of Ronald Reagan which initially acted on the observation that, though regulation might be of low cost to government, it could impose considerable burdens on business and elsewhere. Programmes of deregulation were subsequently adopted in many countries to address risks of “regulatory inflation”.

Although straightforward deregulation remains on the agenda – in southern European labour markets, for example – much more focus is being placed on concepts of re-regulation and, increasingly, on better regulation. The financial services industry is an obvious example.

The Irish Government was encouraged by the OECD to develop policies and practices of regulatory reform from the late 1990s.

The focus of a 2004 White Paper, Regulating Better, was on the development of principles and practices that would provide reassurance that regulation was made and implemented in a transparent and accountable manner.

A key instrument of better regulation policies is a form of cost-benefit analysis frequently referred to as regulatory impact analysis (RIA). RIAs are required to be conducted and published for all new regulatory proposals. The process not only tries to evaluate the net benefit of regulatory changes, but also whether less costly mechanisms, such as self-regulation or market-based instruments, might be more appropriate than classical agency enforcement of regulatory rules and, indeed, whether action is necessary at all.

In a 2010 review of better regulation in Ireland, the OECD noted that awareness of better regulation policies across Irish government had broadened but that active support remained fragile. The Better Regulation Unit established within the department of the taoiseach was singled out for praise as it had significantly enhanced both awareness of better regulation policies and the capacity to deliver on them. The report noted that aspects of transparency and consultation on new regulatory rules were weak and that insufficient consideration was given to less costly alternatives to regulation.

Ireland’s EU-IMF aid package included a number of measures to improve regulation in some areas, including enhancement of the regulation of financial markets, and a variety of measures concerned with boosting competitiveness, such as tougher enforcement powers for the competition authority and new regulation for the legal and healthcare professions. However, the objective of cutting expenditure and increasing government revenues has required a review of whether all functions of central government departments are really necessary. Regrettably, the Better Regulation Unit was considered expendable and has since been disbanded.

The 2012 Action Plan for Jobs admitted there was a lacuna in government capacity for implementing policies of better regulation. It also appears that key functions are being split. The Department of Jobs, Enterprise and Employment retains responsibility for reviewing red tape, while the soon-to-be- established Irish Government Economic and Evaluation Service may enhance capacity for the mathematical component of RIAs.

But the overall capacity for review of regulatory policy, consideration of alternatives, and learning from others risks being lost. A number of recent Bills with clear regulatory impact, such as the Water Services Amendment Bill and Legal Services Regulation Bill, have been presented to the Oireachtas without RIAs, and without due consideration of less costly alternatives to public regulation.

The capacity both for training public servants and for co-ordinating learning about and implementation of best practice regulatory strategies across government and with partners within the EU and the OECD is imperilled, and this risks increasing costs and reducing effectiveness of regulation.

Prof Colin Scott is director of the UCD Centre for Regulation Governance

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