Unless we make as explicit as possible the map of this game, it will play out in a manner inadequately understood, with unforseen consequences and perhaps outcomes which are considerably short of articulated policy goals.

While the blame game so called may not be entirely productive, it may help us understand how we might want to play this game in the future.

It may be worthwhile reflecting on what the relationship is between regulation and incentives for all the parties to the game, and what form those incentives take, and whether they are always positive for some parties or actors.

Are Our Institutions Fit for Purpose? Political Reform in the Republic of Ireland.

Conference Programme
Monday, June 22nd
http://irishpoliticalreform.wordpress.com/conference-programme/

We are certainly going well off-piste now, but I agree, reform of the Oireachtas and of the electoral system is urgently required. Don’t think we’ll find too many takers on this blog!

Thanks for clarifying that. I was getting a little muddled. I certainly agree in principle. I think, as I suspect you think, that we need to fundamentally reform the oireachtas to achieve this goal. I think we also need to reform our electoral system if we want to rid ourselves of the clientelist system which rewards TDs to concentrate on local government issues rather than national policy issues.

I agree we run the risk of going off-topic, but it is so huge and multi-dimensional that most views may be incorporated.

Just for the purposes of clarity, I am arguing for more effective holding of the executive to account by the legislature in all cases, but especially when the executive is setting out the powers and functions of a new regulatory body. And I believe this enhanced scrutiny should be applied to the regulatory bodies when they’re up and running.

I’m not ignoring the mutiple layers of regulation, but my focus is on economic regulation where regulators set prices, tariffs and revenues in sectors where monopoly exists and some measure of competition is being introduced in separable, non-monopoly activites. The primary interest of the consumer in this instance is in price, variety and quality of service. The question then becomes how may these interests be represented effectively in the regulatory process when individual consumers do not have the time, resources, or, perhaps, interest to ensure their interests are protected.

We are somewhat off-topic as we are now talking about the efficacy and democratic deficit in regulation rather than the proliferation of agencies.

I agree that we may learn something from the USA and from others in respect of regulation and in respect of giving the oireachtas a genuine oversight role rather than a rubber stamp function. I am not sure if you are equating the regulatory process with the executive function and are suggesting that all regulation should be brought under control of the executive.

However, whether or not regulation is controlled by the executive or by quangos, the individual will always be excluded.

Your suggestion that “the interests of consumers are represented directly or indirectly by businesses seeking to secure their loyalty as customers.” is telling. It refers to the citizen qua consumer, i.e. as a purely economic entity, rather than as a person with beliefs, values, intellectual ambitions and altruistic concerns.

The idea that the corporations have to bow to these human values to satisfy the consumer is wholly false. Only if there is sufficient focus, outrage and publicity will the corporations change tack (possibly temporarily), and only then to maximise their economic rewards and only insofar as necesary to assuage the level of understanding in the outrage. That is not democratic control exercised by the people. Are people to spend from 12 midnight to 7.00 am every night researching the products they are going to buy in the supermarket the next day to exercise their democratic rights???

The experts and the “stakeholders” are not going to waste their time explaining things to the individual, especially when the individual is the only element which may oppose economic goals. That’s the way it is and that’s the way it is going to be.

On the other hand, the more complex an area becomes the more opaque it will beome to the individual and the more the general populaces interests wil be threatened. An example would be suggestions that intensive farming has for the last 10 years created the conditions for the creation of pandemic viruses. Another example would be the derivatives trading on the financial market. A further example might be in the development of GM crops. The more integrated the world becomes, through trade agreements, and international trade and travel and the more technically powerful and financially large the players become, the more of these catastrophes will occur.

“..what will never be genuinely recovered is real democratic control of the areas to be regulated.”

I accept your point about the explosion in regulation, but I’m afraid I can’t accept your contention about democratic control. This goes to the very heart of the issue. Most systems of democratic governance may be defined in relation to the extent to which there is a separation of the executive and legislative powers. Internationally, the US is probably the best known example of this separation. Within the EU only France has some form of separation; all other member-states have governments in parliament. This means that the executive, once it can maintain a parliamentary majority, has almost absolute power. (The Taoiseach has asserted that “he will govern as he sees fit”). There are few, if any checks and balances and there are no locations of legitimate counter-acting power and authority. The ability of parliamentary committees to hold governments to account is generally constrained by their composition, resources and powers, by their ability to determine the business of parliament and by the powers of the party whips.

Governments are free to establish statutory regulatory bodies and to devolve powers to them for a wide variety of reasons (both good and bad)- and there is very little scrutiny of the reasons why these bodies are established, or, when established, how they are regulating.

Enforcing separation of the legislature and the executive and empowering the legislature to hold the executive to account is an area that is beginning to receive more attention - particularly in the UK following the scandal of MPs’ expenses, but it would be surprising if it doesn’t resonate in other countries with similar systems of democratic governance.

In addition, the current effective exclusion of citizens and consumers from the regulatory processes is extremely convenient for all the other stakeholders, but it should not be accepted as a fait accompli. The economic regulatory bodies in Ireland would, of course, contest this and trumpet the virtues of their public consultation processes (which allow members of the public to participate), their open days and their proposals to hold public hearings on regulatory decisions. All this is just an empty, self-serving PR exercise.

The regulatory process leading up to a regulatory determination is typically comprised of a period of analysis and assessment by the regulator which is followed by the publication of its proposed decision, the opening of a consultation period, the receipt and review of submissions by market participants and other interested parties, the dismissal of any submissions that contest the regulator’s initial proposal and the confirmation of its proposed decision as the final decision.

This may be contrasted with the process employed in the US and Canada. Proposals for changes in the regulatory regime are usually initiated by a market participant (e.g., an increase or decrease in regulated tariffs or revenues), though the regulator may initiate changes in the regulatory rules. The party proposing a change makes its case in a hearing before the regulator. Other market participants and interested parties make their cases. The process is based on adversarial disputation before the regulator. There are opportunities for rebuttal and counter-rebuttal. The regulator review the evidence presented and makes its decision.

In most cases the interests of consumers are represented directly or indirectly by businesses seeking to secure their loyalty as customers. This does not require all consumers to acquire detailed technical knowledge, but it does require some form of “collective action” by, or on behalf of, consumers.

This is not to imply that the US approach is superior in all respects, but there is perhaps something to be learned from its processes both of democratic governance and regulation. In passing, the failures of financial regulation and corporate governance that contributed to the current financial crisis may be traced to the success of the triumvirate, Robert Rubin, Treasury Secretary, Arthur Levitt, SEC Chairman and Alan Greenspan, Fed Chairman in convincing Bill Clinton that the esoteric products being dreamed up in the financial sector required little or no regulation.

I suggest that any study of the increase of regulatory bodies should include an analysis of how much more specialised and complex the areas to be regulated have become, almost all of which are related to technical areas.

It is this exponential growth in knowledge, technique and deployment that underlies the EU’s moves towards independent regulation. This long term trend in how modern civil society and business is governed and regulated was predicted long ago by Jacques Ellul in the Technological Society.

Independent Regulation is inevitable. Where it is inefficient or ineffective it will be tweaked. Your article is a step in this direction. However, what will never be genuinely recovered is real democratic control of the areas to be regulated.

The common citizen is not expert enough to form a view on regulation even though he is affected hugely. [Perhaps many people don't agree with Paul Hunt's cause because they cannot fully familiarise themselves with the issues] The consequence is that the needs and desies of the common citizen are not paramount in the regulatory process.

In summary, the explosion of knowledge, technique and its deployment lies at the root of the explosion in regulation. Accordingly, the increased quantity of technique, technology, knowledge, expertise and use of same should be mentioned even if it is not possible to be precise.

“There are none so blind as those who will not see”. Yes. You are correct, but the penny is slowly beginning to drop as more and more people take note of the fact that Ireland’s electricity gas and electricity have moved from being among the lowest in the EU to being among the highest since “independent” energy regulation was applied. This is not a coincidence; a bit of effort and analysis is required to discover what has happened. But it is difficult to establish the case when the CER, the ESB, BGE and the DCENR share a common interest in concealing the reality from consumers and citizens.

That is why I see this post (and the previous post) by Colin Scott as being so important. Increasing swathes of the Irish economy and society are subject to regulation at arm’s length from government, but there is little analysis of the impact of this regulation. In my view, enforcement of regulation is a second order issue. It is important, but the objectives, processes and outcomes of regulation need to be addressed initially and in a comprehensive fashion.

I can only cling to the hope that these posts by Colin will encourage more interest in the topic.

the regulator has thus far been a rent taker who produces no result on the very job they are required to perform. It would be nice if ‘enforcement’ was visible on some level, they speak softly and carry no stick, except for those whom it is easy to beat, and there is a word for that, its called ‘bullying’.

Is it possible that a prolonged attempt with limited effect might lead one to conclude that your perception is not widely shared ?

It is correct that the Financial Regulator aims to secure about half of its funding from the annual Industry Funding Levy but if your implication is that this dependence on funds from the industry affects the Regulator’s independence I would need to be persuaded. As far as I can tell the industry members experience this levy as a tax rather than something that they can bargain over or withold depending on how well the regulator’s actions please them.

The question of enforcement is a complex one. Research from the US, UK and Australia suggests that regulators with the credible capacity to apply tough sanctions to firms are likely to be most effective when deploying education, advice and warnings to the majority of firms found in breach (’speaking softly whilst carrying a big stick’). Firms which fundamentlly seek to be compliant (sometimes referred to in the literature as ‘political citizens) are liable to adjust their behaviour because this is the right thing to do. The ‘amoral calculators’ who value only the bottom-line and not compliance per se will fall into line if they calculate that the fines or prisons sentences they will receive if they do not comply will be more costly than complying. For a third group, the incompetents, this pyramidal approach to enforcement is unlikely to be effective and incapacitation (for example through licence recovation) is the most appropriate course of action. It would not be surprising to find smaller firms being subjected to formal sanctions more frequently where the regulator formed a view that because of their size a) they were less competent to comply b) they had a more limited reputational stake in compliance and were less likely to be ‘political citizens’.

I am not aware that this theory of responsive regulatory enforcement has been investigated empirically in Ireland, but was struck by the observation at a recent conference that a number of leading regulatory agencies have built this enforcement pyramid into their operating practices. They are not alone, as the pyramid is the explicit foundation to the remodelled enforcement practices of the Australian Taxation Office, and implicitly underlies the UK regulatory Enforcement Concordat and the Compliance Code which was put on a statutory basis following the Hampton Review of regulatory enforcement (’Less is More’ 2005).

Many thanks for for this further wide-ranging, but succinct, post on this important topic. I couldn’t agree more with your statement that the financial significance of these regulatory agencies “in most cases, is likely to lie more in the negative or positive effects they have on economic and social activity more generally (their impact rather than their direct costs)”. Unfortunately, the objectives, activities and impacts of this rapidly increasing number of regulatory bodies have received little attention from economists and other social (and political) scientists. Ireland is not alone in this - the lacuna may be observed internationally - but analysis is especially meagre in Ireland.

You succinctly identify the principal factors that have contributed to this growth in regulation at arm’s length from government.

1. EU harmonisation and single market completion initiatives: it has fallen to British (and other) Eurosceptics and Europhobes to highlight the extent to which national legislation in all EU member-states consists of the transposition of EU primary law drafted and shepherded to enactment by the Commission. In many cases, the Commission maximises its legislative scope by extracting the maximum discretion from high level policy statements from the European Council that are often messy and opaque compromises. Though its powers of scrutiny and amendment have been, and will be enhanced, the European Parliament is ill-equipped and not sufficiently empowered (particularly in terms of democratic legitimacy) to challenge the Commission’s primacy in drafting and ensuring the enactment and implementation of primary legislation. And this legislation frequently requires the establishment of national regulatory bodies and the expansion of regulatory activities largely independent of national governments. (Needless to say the Commission frequently is unable to avoid the impact of the messy compromises at the European Council on its drafting of primary legislation and this often provides considerable discretion to national governments when transposing primary EU legislation into national law and, subsequently, implementing it.)

Although a general popular acceptance may exist that the EU is a “good thing” - and by any objective standards the EU has proved an outstanding success as a unique historical experiment in inter-governmental co-operation and development, the extent to which its legislative and regulatory activities (that are transposed into national legislation and regulation) increase the distance between the nature of governance and the willing and informed grant of the consent to be governed in this way by the EU’s citizens may not be.

2. Establishing the credibility and effectiveness of certain types of regulation: again, similarly to the impact of the EU, there are good and bad aspects to this. As you point out, in the areas of public health and safety, there is a solid case for establishing regulation in line with best international practice and scientific evidence that is independent of political influence and is not constrained by insufficient capacity in government departments. But in areas of regulation that are vulnerable to “regulatory capture” - or other external impacts - this focus on independence and credibility often means that the necessary transparency, scrutiny and democratic accountability is lacking.

The expansion of regulation in some of these areas has matched the progressive decline in the provision by the State, either directly or indirectly, of public utility services. This, as you point out, has been accompanied by increased private provision of these services and this, inevitably, creates a demand for regulation.

3. A change in the style of government: it is simply a recurring feature of human nature that governing politicians, always and everywhere, will seek to avoid and evade scrutiny and accountability to the greatest extent possible. The transfer of responsibility for making potentially difficult and possibly politically unpalatable decisions to “independent” regulatory bodies is extremely convenient for governing politicans. Irish politcians are not alone in this; the trend may be observed internationally. This transfer is accompanied by appeals to high principles of openness, transparency, accountability, independence and the effective application of “international best practice”. Governing politicians frequently make a virtue of the extent to which they are prepared to relinquish existing powers in the greater public interest. In some cases this is justified by the subsequent performance of the relevant regulatory bodies, but, frequently, the speed and ease with which governing politicians pass on a “poisoned chalice” - and the subsequent detrimental regulatory outcomes - reveal the grubby political instincts at play.

Your perceptive observation that the historically limited provision of welfare services suggests that Ireland was a regulatory state before it was either profitable or popular internationally is particularly apt in the context of the Ryan Report into Child Abuse. The transfer of responsibility for the care of children (lacking one or both parents or with parents unable - for whatever reasons- to provide the family life to which they were entitled) without adequate or sufficient supervision to an external agency (operating subject to a perceived higher authority) suggests that the willingness of governing politicians to shirk their responsibilities and to evade scrutiny is deeply ingrained in Ireland.

Each of these factors is worthy of detailed investigation and analysis in its own right - and that is more wide-ranging than may be accomplished solely by economists. However, as you conclude, there is a pressing requirement to examine the objectives, activities and outcomes of regulation. This must begin by accepting the extent and scale of regulation currently in place - since almost all these regulatory bodies have been established by statute. In passing, I have spent the last six years trying, with limited effect, to bring the dysfunctional and damaging nature of energy sector regualtion to public attention. While I have progressed this I have become aware of similar deficiencies in regulation in other sectors.

I can noly hope that your posts and the discusion they stimulate will initiate this much-needed research and analysis.

they were quick to hit small operators (easier to push around). and the focus was totally on consumers, they did this while rome was burning in the background.

there was a talk given by stephen kinsella on corporate governance/regulation to the cfa on friday you can check it out (relevant to this thread)

http://www.youtube.com/watch?v=-2GfMU288Nw&feature=PlayList&p=85DA5C6122685D7B&index=0&playnext=1