Government Statement on Economic Regulation

This statement was published yesterday (hat tip to Jonathan Westrup) and contains many proposals for developing regulatory capacity in Ireland. Amongst the most interesing are the proposal to increase the transparency of strategy and results for regulators and to enhance the monitoring capacity of departments over agencies, new networking arrangements between departments and agencies (an annual forum) and between agencies and stakeholders and increased support (within current resources, of course) for research and training in regulation. The statement is underpinned by a report on economic regulation in Ireland completed earlier in the year by the Economists Intelligence Unit and also published yesterday here.

By Colin Scott

Colin Scott is Principal, UCD College of Social Sciences and Law and Professor of EU Regulation and Governance at UCD. He is a Co-Editor of Legal Studies (Wiley-Blackwell).

16 replies on “Government Statement on Economic Regulation”

Q: How many staff in the FR’s office are members of PRMIA? Or GARRP? or hold CFA charters?
Competence is surely an underpinning requirement of effectiveness?

(A: None, zero and nada)

Looks like the buzzword generator has been on at full flow to give the appearance of doing something purposeful and constructive while skilfully evading consideration of the bleeding obvious. I’ve just looked at the overall take and at energy. It’s a classic bit of work. Hire the independent consultants, but make sure the ToR excludes consideration of policy for the sector or for the corporate direction of the dominant semi-states – surely the key factors determining the context of regulation. (For example, the consultants spend 6 pages moidering about energy prices, but fail to join the dots.) And even when the fettered consultants make perfectly legitimate noises about regulatory costs and the need for an effective appeals mechanism, their recommendations are largely ignored.

@Richard,

I’m totally mystified about the nature of the “real reforms” in the forthcoming budget that you see impacting on the structure and process of economic regulation.

The bubble having wrought its malinvestment, moves on …….

Banks are now used up and like a tissue tossed aside, how sad! But wait, Governments remain! They can print money! Whooppee! New Bubble!

And! NO TIRESOME REGULATORS!

Just the voters and taxpayers to pick up the tab……… AAAAAAAAAAArgh!

The DTA/NTA is mentioned as a regulator. The problem with this is that the DTA is supposed to be a provider of transport services. Now it is to be a regulator as well as a provider. It will effectively be regulating it’s own competitors. This is not well thought out.

What strikes me is the extent of Ministerial say over the detail of a regulator’s work that is envisaged:

“2.1 All Regulators will be statutorily obliged to produce Statements of Strategy at least every 5 years. These Statements, subject to agreement by the relevant Minister, will take account of the legislative objectives laid down for the regulator as well as any policy directions or weighting of priorities communicated by relevant Ministers or by Government in the context of the Annual Regulatory Forum” [Emphasis added, of course]

“2.3 [Annual Reports] will also allow for Ministerial directions and priorities communicated by Government to be formally incorporated into strategic plans, thereby addressing the need for greater flexibility in the regulatory process in light of changing global markets and economic and technological conditions.” [Still added]

Regulators’ independence is to be operational only:

2.8 Notwithstanding the continued operational independence of regulators, the identification of clear priorities by Government and by Ministers with sectoral responsibility will assist regulators to deploy resources appropriately in line with policy priorities

This comes how long after Paul Appleby pointed out that the operation of his office was hampered by the allocation of inadequate number of staff?

@Richard,

I wish I could share your hope. Having one statutory body regulating another statutory body that is owned by the State and directed by government is not uncommon – and often necessary – but, in the commercial area where the private sector is, at worst, equally capable, governments should be required continuously to justify these arrangements. The risk is that fundamental policy conflicts will be resolved in a manner that is to the detriment of the interests of consumers and the economy. And so it has proved in Ireland.

This Government Statement envisages even tighter policy control of the structure and process of economic regulation without any change in the ownership or direction of the dominant firms being regulated. For me, it signals a clear separation of these issues from the budgetary process.

I would love to be proved wrong, but I’m not holding my breath.

The government statement and the various comments raise the question what is the problem with economic regulation which needs to be addressed. The Government statement suggests that the problems are as follows:
1. a lack of government control over policy and scrutiny over performance.
2. too many regulatory agencies.
3. cognitive weaknesses for regulators in identifying problems and implementing solutions, including a shortage of relevant expertise.
4. insufficient emphasis on consumer protection.
5. failure to coordinate inspection and enforcement and to target areas of greatest risk.
6. weaknesses in transparency of regulatory strategy.

On this analysis the central issue with regulation is not either the extent of regulatory powers, nor the quantity of resources allocated to regulation, but rather a concern to sharpen the way that powers and resources are deployed. It is striking that the Statement extends, in principle, to all regulatory agencies, whereas the consultants’ review which underpins it was limited to economic regulation. Arguably the terms of reference were drawn too narrowly, if the ambition was to set down general principles.

The enhancement of expertise sits uneasily with the ratcheting up of deparmental scutiny and engagement with regulation. Taking the example of financial regulation, if weaknesses there have not simply been about failures to understand what was going wrong and how to address the problems, but also a cultural unwillingness to enforce the rules, then the introduction of greater departmental involvement is unlikely to address this. Indeed, the introduction of greater political engagement with such issues risks being counterproductive. I would not accept the simple distinction between policy and operational matters which underlies some observations of the government statement. Indeed the search outside the state for senior new personnel for the Financial Regulator seems explicitly to recognises the difficulties of stringent enforcement in a small economy where social networks between regulators, government and regulatees are quite tight.

By contrast the building of networks between regulators through the establishment of fora for them to meet and the creation of what we might call ‘inter-locking commissionerships’ has much to commend it both in terms of enhancing accountability and sharing of expertise across sectors. I would take this to be the most important shift in policy indicated by the Statement and much of the rest to be more cosmetic (for example greater commitment to consumer interests) or potentially counterproductive (greater departmental involvement in regulatory activity).

As Brian suggests it is important not only that the top brass within the regulatory agencies communicate but also that appropriate expertise is drafted in at more junior levels.

As Richard implies there is a good deal of potential for organisational restructuring that is not pursued in the Statement other than in the area of transport.

@Antoin – I am not a transport expert but my understandig of the DTA is that it regulates both through rules and through contracts through which it secures transport services. Two modes of regulation rather than regulation and provision. Each role should be performed by reference to a single strategy concerned with delivering services. A key issue to be addressed is the balance between coordination and competition in executing the functions of the DTA and the proposed National Transport Authority.

So much for what is in the Government Statement. I will leave what is not in it to another post.

By Post Author

@Colin
Your list of problems is fine, but as Antoin and Paul point out, there is also the issue of the separation of power. In transport, waste and energy, and now also in finance, the government regulates, provides, and owns providers (de jure at arm’s length, but not de facto).

@Richard
The extent of public involvement in provision of services in the sectors you mention argues for more rather than less independence of regulators from government or the divesting of state ownership interests. Regulatory independence is difficult to achieve within the Irish system for a variety of reasons. This is not simply a national issue of course, since the separation of regulation and ownership is a core requirement of EC regimes governing energy regulation and is arguably a principle of broader application based both on the broader EC Treaty principle of non-discrimination on grounds of nationality and the more specific competition law prohibition on abuse of dominant position – which applies more or less equally to states.
Though not a specialist in any of these areas I observe that transport and energy sectors are characterised by rather less competition than in my native UK, though there are, of course, important differences in scale affecting the appropriate scope of competitive markets.
From my window in a residential street in South Dublin local waste collection appears hyper-competitive. It surely cannot be sustainable for four different companies to send their waste trucks around the estates each week, collecting only their own bins.
Privatization is, of course, politically contentious for a variety of reasons, some better than others.

By Post Author

@Colin
All agreed.

There are economies of scale in waste collection. The regulator should have tendered for exclusive concessions, renewable every two years or so.

Note that many council counties still have their own waste collection services, and occassionally use their regulatory powers to muscle out commercial competitors.

@Colin,

Many thanks for engaging on these important issues. I can understand your reluctance to engage in the more contentious aspects and your desire to discuss more general regulatory principles. But this Statement is focused on economic regulation and I remain convinced that the policy context (in which the structure and process of economic regulation is defined) deserves attention. I accept I have a particularly jaundiced view of economic regulation in the energy sector, but this is the product of long and bitter experience.

I also accept that the extent of privatisation required to clarify the policy, regulatory and service provision roles is not on the agenda – and is unlikely to be pursued by any alternative government. It is the case, particularly in the European context, that governments are being encouraged to intervene, to underpin and, sometimes, to partially fund dedicated, irreversible, large scale, long-term infrastructure investments that may have public good features. For a variety of reasons – including the absence of long term assurances of investment recovery, barriers to exit, the short term nature of price signals – private sector participants are unwilling to invest. Ironically, solving this problem – as has happened in the US gas industry – minimises the requirement for economic regulation. But the EU is a long way from this, so we are fated to see a continued inchoate mix of policy, regulation and investment support.

There is, however, one area where Ireland is moving away from the pack. This is the area of consumer representation and advocacy. The inadequacies of the public consultation process in economic regulation seem to be fairly generally accepted and having a separate statutory body is frequently seen as an appropriate response. Personally, I have my doubts, and remain to be convinced by efforts at the EU level.

At first sight this might seem to be what is being proposed in the Irish context with responsibility being handed to the NCA. However, the NCA is being folded into the Competition Authority and the Government has set its face against an effective regulatory appeals procedure.

The NCA has displayed little capability of, or interest in, intervening in the regulatory process. It is likely to be even more circumscribed in the CA. This, in conjunction with the proposed increase in departmental control and scrutiny, is part of the much tighter circling of the wagons that is designed to minimise democratic or consumer scrutiny.

Although I look forward to your post on what is not in the Statement, I fear this will just be of academic interest.

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