Failure to Regulate Regulation Could Prove Costly

My opinion piece in today’s Irish Times points out that the disbanding of the Better Regulation Unit in the Department of the Taoiseach risks reducing the capacity for effective oversight of regulatory institutions and strategies and for learning about and acting on regulatory successes and failures elsewhere in the OECD member states. A fuller policy brief on the topic, “W(h)ither Better Regulation?” is available here.

I hope there is no problem about my linking to the article I wrote.

Author: 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).

22 thoughts on “Failure to Regulate Regulation Could Prove Costly”

  1. Now that this post has been pushed down the list and will not be the first to attract the eye of readers or commenters, it is worth while to take stock. Despite this area being highlighted, quite rightly, by Zhou as “a critical area for the future economic success of the state”, in the time that this post has been ‘live’ there have been more than 50 comments on other threads – most excoriating the perfidy of foreigners – and, apart from Zhou and myself, there is no interest here on a matter that impacts on almost every aspect of the entire domestic economy – and effectively controls economic activity in large swathes of it.

    This behaviour is probably the most eloquent and insightful statement about the state of economic analysis and debate in Ireland.

  2. To the above – I’m perhaps one of the least qualified on here, but a large part of the problem seems to me to have arisen from the situation of unnaccountabilty. Which seems obvious.
    But I’m referring rather to the psychological space that the government operate in, and how it has evolved – the rules are being set outside the country, the three main parties (so far – I presume no improvement from others even though they sometimes are saying the right things) are taking their orders from their larger conglomerates on the continent, and this whole thing has had to operate under a degree of subterfuge and undeclared purposes in a way different from the more typical secrecies of ‘ordinary’ corruption – it is a realm of ‘official’ unnacountability’; sanctioned by the the eurofinancial Secular Papacy.
    I imagine it’s due to the same tolerance that sees the US cooperate with nefarious ‘friends’ of all sorts, and, of more potency in my view, a continental regime that is itself unjustifiable, that allows the situation to emerge.

    The government are deeply distanced from even feeling a need to be representative of the people; should we feel surprised by anything that follows on from this ?

    By the way, liberalisation in healthcare has been the indirect cause of, and liberalisation in areas such as postal services (witness the continental debacle) will be the cause of the decay of these services.

  3. “a critical area for the future economic success of the state”. What has this DOT unit achieved thus far? I tend to agree with Mark….it has no teeth. It at very least is in the wrong location…DOT is hardly the place for such a unit to effect any meaningful change….It fallsover on the first hurdle, objectivity. Increasing lack of credibility of the Taoiseach and politicians (as deminstrated by the increasing N vote and high level of undecideds in the FC ref) also undermines the initiative….Looks like another quango filled /regularly to be filled with political appointees guaranteed to follow the “party political line”.

    No wonder the lack of interest.

    Beyond that, the article uses too many waffly words to describe a simple politically-sponsored think-tank. Sorry if that offends, Colin.

  4. Whither better regulation?

    There will be dark days in hell before we see better regulation in Ireland. Any person in the government’s employ who is tasked with advising the gov’t will be testing wind direction minute by minute every day. The number one rule if one expects to continue drawing a salary is to tell the powers that be what they want to hear.

    We surely remember that courageous woman working in DOF who questioned the Govt’s stimulus of the building industry in 2006. She was told to shut up, sit down and rewrite the codswallop that passes for Gov’t policy in Ireland.

    Ireland’s problems are bone deep and cannot be cured with Elastoplast such as “advisory bodies”. Of course if the advisory bodies got enough funding to pass along a few hundred thousand Euros with their recommendations they might stand a chance of being implemented. Campaign contributions would increase to counteract the new and strange influences. One could not rule out a stalemate.

  5. @Mark, PaulW and Mickey Hickey,

    Please do not take this the wrong way – as I have no intent to appear to be patronising, but each of you haa highlighted diffierent aspects of this problem – and the challenges that have to be met to secure even a limited measure of reform.

    In the face of a deadening, overwhelming and, for the ‘powers-that-be’, an entirely self-serving body of ‘conventional wisdom’, it is difficult to craft a coherent narrative or critique and to chart a way forward. It is simply impossible to tackle the entire domain of ‘regulation’ when one has limited resources. I recognise that effective regulation in the areas of health, safety and education has the potential to generate long-term benefits, but public policy is the main driver in this area. Similarly in terms of a whole range of services, largely provided b the private sector, there is potential for a mix of regulation and competition that would generate signifciant benefits, but these would be hard-won. This does not mean that they should be ignored; reforms are required; but one needs to husband one’s resources to get the biggest bang for one’s buck in a time of severe economic stress.

    That’s why I focus on competition and regulation in infrastructure and utility sectors. These sectors are the ‘sinews of the economy’, they comprise a considerable share of economic activity and they provide the basis for businesses to conduct their economic activities and for households to participate in the economy and to increase their well-being. Deficiencies and inefficiencies in these sectors can have a seriously damaging impact on the entire economy.

    And, throughout the EU – and not just in Ireland, there needs to be a major re-think about policy and regulation for these sectors. The following is a link to a comment on a thread dealing with Pat Swords’s success in securing a finding by the UNECE’s Aarhus Compliance Cttee that the Government’s process to establish a National Renewable Energy Action Plan was deficient. It provides an indication of the volume of ‘conventional wisdom’ that must be questioned and, in certain areas, overturned before we’ll make any progress
    http://www.irisheconomy.ie/index.php/2012/05/14/pat-swords-v-the-world/#comment-283449

    Though on a much smaller scale, this is no less ambitious than Keynes challenging the gods of Classical Economics in the 1930s. But it has to be done -and we have to start somewhere. And the battle is being engaged by a number of people on various fronts. Not surprisingly it hasn’t impacted on an academic backwater such as Ireland is in terms of regulatory economics and microeconomic sectoral analysis – even if the requirements for reform are more pressing here than elsewhere. But it will.

  6. Paul, I have to say I admire your tenacity…. and your politeness and patience in the face of this stuff

  7. From the link in Colin S’s post above:

    ” Ireland saw a proliferation of regulatory agencies in the last few decades. More generally regulatory ways of governing using rules to achieve government objectives have displaced forms of governance which depend on governmental discretion or on expenditure.”

    Genuine question, is it received wisdom that that is a good idea?

    Another genuine question, can anyone direct me to papers or input, perhaps from RegGov pertinent to regulation of the financial industry in Ireland?

  8. I’m not surprised by your response Paul, but I was wondering what others thought too.

    Also, I’m not sure PH’s familiarity with the grubby part of financial economics is sufficient to mean we should all just chill out.

  9. There might be some incisive stuff out there. I wouldn’t bet on it, but it may exist, gathering dust maybe.

  10. @grumpy

    ‘Another genuine question, can anyone direct me to papers or input, perhaps from RegGov pertinent to regulation of the financial industry in Ireland?

    simples – simply check out the Progressive Democrat (PD) Election Manifestos from the early 1990s on … or send a case of wine to St Michael and he’ll arrange a tutorial with the brudder …. [hint: the answer is NONE]

  11. @grumpy

    You might also check out The Centre for Corporate Governance at UCD

    Director: Prof. Niamh Brennan – presently chair of DDDA and partner of St. Michael of PD fame

    Worth noting that Prof Blanaid Clarke of this Centre also on Board of the Central Bank of Ireland and a fellow of RegGov noted above.

    Scan around and I’m sure you’ll some detailed heterodox neo-marxist stuff and a couple of worker-directors …

    http://www.smurfitschool.ie/executiveeducation/centreforcorporategovernance/

  12. Back to EU level

    A European growth pact and deeper political integration in the euro zone could bolster the currency union, but there must be no softening of the bloc’s fiscal pact on budget discipline, ECB policymaker Joerg Asmussen said today. [….]

    ‘He pointed to the need for a homogeneous Europe-wide financial regulation framework and a joint financial market watchdog for financial institutions operating across borders, as well as a bank resolution mechanism.To bolster fiscal unity in the euro area, Mr Asmussen suggested launching a special fund from the EU budget and potentially a financial transaction tax – currently under discussion – which would also strengthen the European Parliament.

    http://www.irishtimes.com/newspaper/breaking/2012/0521/breaking47.html

    @Colin Scott

    Finally, Whither Regulation Locally … ????

    Response: Blind Biddy has a posse with bazookas who could take on an ENFORCEMENT Contract. A medium term lease on Mullingar Army Barracks would also come in useful …. could tae, watery stirrabout and mouldy bread optional …. CERTAINTY AND CONFIDENCE AND INVESTEMENT WOULD SHURELY ENSUE.

  13. Global level

    @Must Read

    A pathway to sound economic thinking
    Robert A. Johnson, Executive Director, Institute for New Economic Thinking (INET)

    Our flawed financial regulatory system contributes to bad policy choices in the real economy. The aversion to debt restructuring, in part because of the fear of unleashing a financial contagion in our opaque regulatory system, leads officials to resort to the dead-end policies of austerity. But austerity will not bring us out of this mess. You cannot cut your way to growth and solvency while in a slump. But the traditional Keynesian approaches of just spending money to get the economy back to full employment aren’t appropriate either, because in addition to stimulus you are incurring debt that will have to be serviced over the long term. Investment, even during times of demand shortfall, must still be chosen to enhance productivity. Otherwise the long-term debt burden will be unsustainable and crisis will merely be delayed. […]

    The failure of these old approaches to financial structure and regulation, and dead-end approaches to debt and demand management speak to the need to create a more integrated and relevant economics that places real human beings and real institutions at its centre, not the narrowly defined, misleading, and simplistic abstractions, that are unconsciously embodied in the logic of mechanical finance. These visions of conventional wisdom, pretending to be scientifically valid, ignore the broader costs borne by humanity, and the pain is only revealed when it emerges as rage, violence, social uprising, and other reflections of the malfunction of our political economy.

    DO READ ON …

    http://www.oecdobserver.org/news/fullstory.php/aid/3763

  14. @Paul Hunt

    I presume you are speaking for yourself in referring to “robust critique”.

    I have just asked a couple of constructive questions – see above, any takers?

  15. @ PH “But all the economic regulators know very well how they are expected to exercise their discretion to satisfy the desires of their political and policy masters. Their ‘independence’ is totally an optical illusion – but a very convenient one for governing politicians and the vested interests being pampered.”

    Your potential solution of a few weeks ago is what comes to mind….There needs to be a”crisis”or two in Ireland before anything will change.

    However, I believe it’s coming. Just need to be patient….the world is moving very slowly just now, that’s all. That said, what worries me is the rise of the extreme political camps, particularly SF on the left….soon we will have that party potentially in Govt (many convicted criminals among them). However, given the complacency and “eliteness” of the currently “I’m alright Jack”crowd (Fine Gael, Labor, FF & the like political, public service and otherwise protected classes), nothing will change unless something is risked. There is little risk in the status quo for the latter in particular. The status quo needs to change whether (illogically perhaps) via a N FC vote or whatever. In that context, the Big Picture is becoming more important that the details…..That is something also that Offical Ireland is missing /ignoring….

  16. @Paul W,

    This thread has finally been pushed down off the opening page of the blog, so I expect the thread will fizzle out pretty rapidly. It’s remarkable, but totally unsurprising, that there has been no engagement by the poster or any others of the ‘grown-ups’.

    The centralisation and exercise of political and economic power by Official Ireland is almost total; it is indeed a ‘comfortable tyranny’ for the majority. Who among them would dare speak out? The Sicilian mafia would dearly love to be able to impose such an ‘omerta’; even the vaguest hint of a critique by those within the camp is expressed in code; and every effort is made to avoid confronting the underlying problems.

    It should be no surprise that those outside of Official Ireland who are able to build a political platform are securing increasing popular traction. But their diagnosis is flawed; and their prescriptions are frightening. This is politcial opportunism of the most blatant variety.

    I see you are minded to number yourself among those who favour voting ‘no’ to give Official Ireland the shake-up it so badly deserves, but I fear this could be entirely counter-productive. In the event of a ‘no’ majority the self-preservation instincts of Official Ireland will kick in and the hatches will be battened down even more tightly. And this, eventually, will play even more in to the hands of this opportunistic and power-hungry opposition.

    It will require hard graft to detach and release some of those embedded in Official Ireland, who are well-intentioned and have integrity and who know full well the nature of the problems, but who feel trapped within the machine. There is no shortage of these people. But, individually, they feel they can not risk taking a stand.

    But ‘events’, inevitably, will unfold which should provide opportunities for many of these people to detach themselves. We’ll just have to wait and see.

    Just as a sampler of an area where some ‘events’ might unfold, I’ve linked above to the latest ‘public consultation’ launched by the CER on future gas transmission revenues. This is ‘public’ in the sense that any member of the public has the opportunity to scrutinise what the CER is proposing and to make a submission. What is being proposed will ensure the continuation of excessively high gas prices to final consumers – and will increase them even more. This is totally and completely unjustifiable. It is a combination of bad policy, bad regulation and bad economics. But it has the full sanction of Official Ireland – with the Government, the relevant department, the CER, the ESB and BGE (inclusing managements, unions and staff) in complete agreement, with the knowing consent of most other market participants and with the tacit approval of all other public bodies (including academia) and private sector service providers which have either knowledge of this or an interest.

    How on earth could any reasonably informed member of the public challenge this overwhelming economy-damaging and consumer-gouging consensus? And the real irony is that this opportunistic opposition to Official Ireland mounted by SF and the left is part of and would defend this consensus.

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