UCD College of Social Sciences and Law will host the Garret FitzGerald Lecture and Autumn School on Monday 19th October, in the UCD Sutherland School of Law. The daytime School (from midday) will focus on the significance of the social sciences. The evening Lecture will be delivered by Professor Cass R Sunstein,Harvard Law School, on the theme ‘Is Behavioural Science Compatible with Democracy?’. More details and bookings here.
The nominees for, and configuration of, the portfolios in the European Commission named by Jean-Claude Junckers this week gives some hint of the priorities in European governance over coming years. In this context we might ask how significant is it that Dutch Foreign Minister Frans Timmermans has been nominated as First Vice President with responsibilities to include Better Regulation, Inter-Institutional Relations, the Rule of Law and the Charter of Fundamental Rights? At first glance this portfolio appears to reflect procedural rather than substantive concerns for the new Commission. The mission letter from President-Elect Junckers suggests that the brief is one which crosses the concerns of all the other portfolios indicating a recognition of the link between process and performance on key issues such as regulation.
UCD Sutherland School of Law is hosting a morning seminar in the IFSC, 14th November, 8-10.30am, on opportunities and challenges for Ireland’s financial services sector. Justin O’Brien, Visiting Professor at UCD Sutherland School of Law, will address key issues facing Ireland’s financial services sector including, regulatory engagement – problems and perspectives, regulating culture – the rationale for intervention and nurturing a world-class regulatory environment in Dublin. Justin O’Brien is a Professor and Director of the Centre for Law, Markets & Regulation in the University of New South Wales. He has written many books on the subject including his most recently published Integrity, Risk and Accountability in Capital Markets – Regulating Culture (Hart Publishing, Oxford, 2013), Engineering a Financial Bloodbath (London: Imperial College Press, 2009) and Redesigning Financial Regulation: The Politics of Enforcement (Chichester: Wiley, 2007). Details and bookings at http://www.ucd.ie/law/events/title,187039,en.html
Professor Justin O’Brien, University of New South Wales, will give a public lecture Back to the Future: James M. Landis, Regulatory Purpose and the Rationale for Intervention in Capital Markets on Monday 28th January at 6pm, in Newman House, St Stephen’s Green, Dublin 2. This lecture addresses contemporary problems of regulatory design through exploring the history of financial markets regulation. Attendance is free but booking is required at http://www.ucd.ie/law/events/title,159217,en.html.
Policy failures often lead to regulatory reform. In a pathbreaking new study the National Economic and Social Council have published their evaluation of the regulatory regime over residential care homes for the elderly in Ireland, examining closely the regime put in place following the Leas Cross scandal of 2005. Serious failings both of provision and oversight at Leas Cross, uncovered in a RTE Prime Time investigation, led to considerable soul searching about the care of the elderly, and the establishment of a new independent regulator, the Health Information and Quality Authority.
The report makes for very interesting reading. Substantively it finds evidence of demanding standards being effectively applied both by providers across public, private and voluntary sectors, and by the regulator. It provides pointers as to how the regime might be further enhanced, but notes that confidence in the sector has already been significantly enhanced. Of greater general signficance is an approach to the research which asks to what extent there is evidence of a search for continous improvement both in provision and regulation of services. Within this analysis regulation is no longer a zero sum game of government imposing costs on businesses. Rather it is a shared process of learning about what can and should be done.
The report is one of a number of reports which NESC is publishing on the regulation of human services in Ireland. Taken together they are likely to offer a sea change in the evaulation of regulatory governance, creating expectations that regulators should be responsive and smart and above all capable both of learning and supporting the learning of regulatees. The approach, developed from cutting edge regulatory research internationally, could usefully be applied across both economic and social regulation as starting point for effectively evaluating regulatory performance.
In a piece in yesterday’s Sunday Business Post my colleague Dr Niamh Hardiman makes a plea for better understanding of the roots of our current crisis in weaknesses in governance institutions. Such an understanding is a precondition for effective reform. She addresses weaknesses in parliamentary scrutiny, the capacity of the civil service for appropriate engagement over policy making, and the effectiveness of the public service itself. She highlights institutional explanations for tendencies for public policy to favour sectional interests, but argues that understanding the institutional weaknesses is the key to addressing them. The article is behind a paywall, but a fuller, multi-author examination of the issues is available in a book arising from a UCD project on governance, Irish Governance in Crisis, edited by Niamh Hardiman (Manchester University Press, 2012).
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.
As has already been noted the Government is in the process of implementing a commitment in the EU/IMF aid package to re-regulate aspects of the legal profession in Ireland with a view to enhancing competitiveness in the sector. The Legal Services Regulation Bill has been controversial in some of its aspects and UCD School of Law is hosting a conference, drawing in a variety of overseas and local experts, with a view to locating debates within a wider international context.The keynote speaker will be Lynn Mather, Professor of Law & Political Science, Buffalo University. Other speakers include Isolde Goggin, Chair of the Competition Authority, Julian Webb, Professor of Legal Education, University of Warwick and Ferdinand von Prondzynski, Principal of Robert Gordon University, Aberdeen. A full programme and online booking facilities are available at http://www.ucd.ie/reggov/.
The Department of Justice has published a press release indicating that the Legal Services Regulation Bill is to be published within the next few days, having received the approval of cabinet.
Regulatory reform in respect of legal services is a key commitment in theEU/IMF Programme for Financial Support for Ireland. A blueprint for reform, indicated in the financial support programme, was provided by the Competition Authority’s 2006 report on the legal professions. The detailed indications of the content of the Bill in the press release suggest the government has rejected some aspects of the Competition Authority report. Notably the proposal that a new regulator would oversee professional self-regulation (as occurs in England and Wales through the Legal Services Board established in 2009) appears to have given way to a new regulatory body which will have direct responsibility for oversight of the professions.
In addition to the Legal Services Regulatory Authority, two further new public bodies are to be established: an Office of the Legal Costs Adjudicator (who will take on regulatory functions over costs currently administered by the Taxing Master) and a Legal Professions Disciplinary Tribunal which will take over responsibility for addressing complaints of professional misconduct, currently administered by the Bar Council and the Law Society of Ireland.
The central rationale stated for the reforms is the promotion of a more competitive environment for provision of legal services, and this is reflected in proposals to allocate tasks concerning entry to the profession and the education of lawyers to the new Legal Services Regulatory Authority so as to liberalize certain aspects of professional education and end the situation under which the profession is both provider and regulator of legal education.
The establishment of three distinct agencies may be controversial and raises the question whether the variety of functions could be undertaken by a single agency. The press release indicates that the industry will be levied to pay for the new regulatory bodies (as occurs with a number of existing regulatory bodies such as the Broadcasting Authority of Ireland). Comments in the press suggest that the professions are concerned that the power of the minister to appoint members of the Legal Services Regulatory Authority will compromise the professional independence of lawyers. It is actually not unusual to find ministers exercising such powers of appointment (appointments to the Legal Services Board in England and Wales are made by a government minister, the Lord Chancellor). Clearly board members must be appointed by someone and ministers are accountable to parliament for their actions. Even the most independent of actors within the legal system, judges, are appointed by ministers (though this is not uncontroversial).
Certain of the more controversial aspects of potential reform, such as fusing the barristers’ and solicitors’ professions and introducing multi-disciplinary partnerships have been assigned to the new Regulatory Authority for research and consideration rather than be provided for directly in the Bill, according to the press release.
The recently issued Programme for Government of the Fine Gael/Labour coalition gives some hints as to the extent to which regulation will be maintained and developed as a mode of governance over the next few years. The transformation of governance modes from welfare state to regulatory state models in Europe has been observed over the last twenty years and characterised by tendencies towards separation of policy making from operations, displacement of bureaucratic discretion with greater reliance on rules and the use of arms-length (semi-)independent regulatory agencies to monitor and enforce compliance with regulatory regimes. As a governance mode regulation is attractive, particularly in hard times, as it is offers relatively inexpensive (to government) mechanisms to symbolise policy commitments in areas such as financial markets, consumer protection and the environment. The Programme for Government makes extensive use of regulatory proposals, not only affecting business regulation but also regulation of the public sector and self-regulation.
In respect of regulation of business the central themes of the programme for government include a degree of rationalization, notably seeking to bring together the various organisations concerned with the regulation of financial markets, and a new emphasis on enforcement, represented by a proposal to merge enforcement activities of the Health and Safety Authority and the National Consumer Agency. A reader might wonder why these two enforcement agencies were singled out and other enforcement organisations such as Health Information and Quality Agency, the Food Safety Authority of Ireland (which received separate attention in the document) and the Environmental Protection Agency were not included in plans for a more ambitious enforcement agency. However it is done in organisational terms there is clearly great scope for the diffuse agencies involved in enforcing social regulation (broadly defined) to learn from one another, a central theme of a recent NESC report Re-finding Success in Europe: The Challenge for Irish Institutions and Policy ( and in particular its discussion of the network built around the Office of Environmental Enforcement, pp136-141). A distinct set of proposals for sale of state assets, to be guided by a report by Colm McCarthy to be published imminently, will reduce the capacity for the state for control through ownership thus continuing the shift from welfare state to regulatory state modes.
The renewal of the regulatory state is perhaps more strongly represented in coalition plans for operation and oversight of public sector activities. This emphasis implies an analysis that Ireland’s problems lie as much with public sector as with private sector activity. The stringency of regulation of public sector organisations and representatives is targeted by proposals:
- to reinforce freedom of information legislation
- to extend the ambit of the public sector ombudsman
- to introduce whistleblowers legislation
- to more tightly regulate political party finances
- to revise legislation governing the relationship between ministers and their civil servants
- to establish an Investigations, Oversight and Petitions Committee in the Oireachtas linked to a proposed referendum to permit Oireachstas committees to undertake full inquiries (reversing the Abbeylara decision)
- to require the publication of Regulatory Impact Analyses prior to the taking of government decisions
- to introduce greater ‘choice and voice’ for users of public services such as schools and hospitals
- to put the Inspector of Prisons on a statutory basis
At first glance the proposed abolition of the HSE would shift us back towards a classic welfare state mode of governance with direct ministerial control and, we might presume, a greater degree of bureaucratic discretion. Proposals to progressively introduce primary health care services which are free at point of use also shift Ireland closer to the welfare state model of healthcare. However these measures are balanced by the proposal to free hospitals from direct governmental control and, presumably, establish a contractual basis for both the procurement and regulation of healthcare provision. Accordingly the Department of Health may be substantially restricted to policy rather than operational matters in healthcare.
A third trend identified with the shift towards the regulatory state is a reduced emphasis on self-regulation as the state seeks to take on a greater oversight role. Such a trend is found in the document in the commitment to establish in independent regulator for the legal profession, which will to some extent displace professional self-regulation. This reproduces a commitment already found in the EU/IMF aid package and which follows from the Competition Authority’s 2006 report on the legal profession.
An article by Eoin O’Dell, Trinity School of Law explains how. You can read it here.
The Irish State Administration Database was launched last week at an event which formed part of the Innovation Dublin festival. The Database was developed by an interdisciplinary team working in the UCD Geary Institute, led by Dr Niamh Hardiman of the UCD School of Politics and International Relations, with funding from the Irish Research Council for Humanities and Social Sciences. The searchable Database records details of births, marriages and deaths of all central stage agencies (including government departments) since the foundation of the State in 1922. Avid agency watchers can study the growth in agency numbers to their peak in 2008 and subsequent modest decline. The Database shows that there are currently 350 central state agencies. However, the rich data can be mined in other ways, enabling users to look at trends by reference to such characteristics as function (eg delivery, trading, regulation, adjudication), policy domain (eg health, education, transport), and legal form (eg statutory corporation, public company, company limited by guarantee). Some further information about the Database can be found here. Users need to register here to use this free resource. There will a be hands-on demonstration of the Database on 23 November, 3-5pm, in Room G-5, Daedalus Building, UCD Belfield Campus, with an emphasis on the range of potential applications. This event is open to all but requires advance booking with email@example.com.
Proposals by the British coalition government to abolish a quarter of the list of eight hundred public bodies have garnered considerable attention. The full list of public bodies and their proposed destiny can by found here. In some instances functions are being transferred into government departments and in other cases privatized. Curiously the casualty list includes some rather effective value for money regulators, notably the Audit Commission. Their local government audit functions are to be transferred to private audit firms. The Australian state of Victoria made a similar move some years ago, turning the Auditor-General into a purchasing authority in the 1990s. The policy was soon reversed as both political and capacity concerns about audit in Victoria became apparent.
The coalition government is retaining public bodies chiefly on grounds that they perform technical functions, that impartiality is required or that transparency in factual determinations is required (as with central statistical functions). There is a valuable discussion by Ian Magee of the Institute for Government here. Magee notes that value for money was not properly considered in the proposed institutional reforms. Even if the principles are correct it is not clear they are applied correctly when the Human Fertlization Embryology Authority is on the list for abolition – it has had both an important technical role and removed significant controversial decisions from the partial realm of politics over a number of years. In this instance it is said the functions are to be transferred to other regulators and this is part of broader theme in the proposals of rationalization of regulatory bodies. In Ireland the Cowen government has already commenced a programme of abolition of state agencies leading to the first significant reductions in numbers of agencies, following on from the report of An Bord Snip Nua. Data on this trend will be discussed at next month’s launch of the Irish State Administration Database, produced by a team working under the leadership of Dr Niamh Hardiman in the UCD Geary Institute.
This guest blog is by Mick Moran, WJM MacKenzie Professor of Government, University of Manchester and is an edited text of the keynote address to the Biennial Conference of the European Consortium for Political Research Standing Group on Regulatory Governance, and was presented at University College Dublin, 18 June 2010.
Regulation and the Financial Crisis
The mess we are in.
Four quotations aptly summarise the mess we are in, and the way we got there.
‘Complex financial instruments have been especial contributors, particularly over the past couple of stressful years, to the development of a far more flexible, efficient, and resilient financial system than existed just a quarter-century ago.’ (Alan Greenspan 2002)
‘In addressing the challenges and risks that financial innovation may create, we should also always keep in view the enormous economic benefits that flow from a healthy and innovative financial sector. The increasing sophistication and depth of financial markets promote economic growth by allocating capital where it is most productive. And the dispersion of risk more broadly across the financial system has, thus far, increased the resilience of the system and the economy to shocks’ (Ben Bernanke May 2007)
‘the current economic situation is better than what we have experienced in years. Our central forecast remains quite benign: In line with recent trends, sustained growth in OECD economies would be underpinned by strong job creation and falling unemployment.’ (OECD Economic Outlook 2007)
These first three quotations sum up ‘the Great Complacency’ – the delusion that led so many economists and economic policy makers to announce that the last bubble was ‘the Great Moderation’ – a new utopian age when all the fundamental problems of a market economy had been solved.
And the fourth quotation sums up the sort of intellectual mess that the financial crash left behind. Buiter puts it with characteristic Dutch bluntness:
‘The Bank of England in 2007 faced the onset of the credit crunch with too much Robert Lucas, Michael Woodford and Robert Merton in its intellectual cupboard. A drastic but chaotic re-education took place and is continuing.’ (Wilhem Buiter 2009).
What went wrong with economic understanding?
The problems with the discipline of economics are surely threefold:
· It became corporatised: both as to education (especially in the Business Schools) and in practice (economists in financial institutions). The economist in the study was transformed into the economist broadcasting from the dealing room, laying down the law about what markets would and would not tolerate.
· It became organised into a conventional academic hierarchy. What we can learn from the recent fate of economics is that the worst thing that can happen to a social science discipline is that it gets access to a Nobel Prize
· It became professionalized: it developed a recursive world of professional economics that heightened the danger of succumbing to groupthink. Algebra is not substitute for observation.
But while economists were cheerleaders during the ‘Great Complacency’ they were not the only culprits. Hardly anybody – not policy makers, not academic students of regulation – foresaw what was coming. We all have lessons to learn. Here are three that we must urgently take on board.
Democracy matters: the end of the ‘Great Moderation’ was also the end of a ‘Great Experiment’ lasting more than 30 years: the experiment was designed to insulate regulation from democratic politics. Hence the rise of central bank independence and the spread of independent regulatory agencies. We saw the realisation of Majone’s theory of the regulatory state: a theory that asserted that majoritarian democracy could not cope with the complexity of modern market management. The Great Experiment proved to be a disaster. It led us to the catastrophe of 2008; and rescuing the financial system was only possible by turning to those despised figures, elected politicians, who it turned out were the only ones able to mobilise the cash and legitimacy to put the financial system on something like an even keel.
Ideology matters: the core of the crisis was due to the naturalisation of markets: an exercise in ideological hegemony that pictured them as subject to quasi-scientific determined laws. They need to be denaturalised both to understand the crisis and to avert future disaster. Markets are social institutions to be understood by observation not algebra.
Interests matter: Many of our standard notions in explaining regulatory catastrophe – Groupthink, coordination problems – work contingently to explain things – see my opening three quotes. But why was something like groupthink so prevalent? It was linked to three developments
1. The astonishing rise of a new Anglo-American plutocracy in the markets: the era of the Great Moderation was also the greatest era of plutocratic enrichment since the age of the Robber Barons. But unlike the Robber Barons these new plutocrats did not practice the engineering of steel of railways; they practised the smoke and mirrors of financial engineering.
2. The fantastic wealth of the financial sector on both sides of the Atlantic bought an equally fantastic amount of lobbying muscle.
3. This converted into the kind of hegemony that lay behind my opening quotes: the stories of regulation before the crisis – in the UK, in the US, even in a smaller case like Ireland –are of timidity and subordination on the part of public regulators.
We have to fashion a new ideology of public interest regulation, and a new confidence in that regulation: it existed when the American New Deal institutions found their feet; it must be rediscovered. And, as the forces of financial power might regroup, it must be rediscovered in the face of the lobbying machines of the financial markets.
An international and interdisciplinary conference on regulatory governance is being held at UCD next week, 17-19 June, under the auspices of the European Consortium of Political Research Standing Group on Regulatory Governance. There will be more than 200 papers presented. Streams include 8 panels on regulation and the financial crisis, and also streams on regulating for sustainability, the politics of regulation, the governance of risk and technology regulation, non-state regulation and regulating network industries. A variety of disciplines are represented, including political science, socio-legal studies, business and economics. The programme, including details of registration, is available on the conference website. The conference papers are being uploaded to this site also and are freely available.
There has been a fair amount of discussion on this blog about issues of constitutional reform. Some readers may be interested in a interdisciplinary conference to be held on Friday afternoon, 21st May, at the Clarion Hotel, IFSC which includes contributions from economists, political scientists and lawyers on the question ‘Does Ireland need Constitutional Reform. Programme below and further details from firstname.lastname@example.org.
The UCD Constitutional Studies Group presents a conference on
Does Ireland need constitutional reform?
with the support of the School of Law, UCD.
Clarion Hotel, IFSC
May 21st, 2010.
Session 1: Why constitutional reform?
1.00pm: An Iterative Constitution: dynamics of a rule-based legal system – Dr. Stephen Kinsella.
1.20pm: Re-placing the Constitution in the context of reform – Dr. Maria Cahill.
1.40pm: The problems of public understanding and constitutional reform – Dr. Oran Doyle.
2.00pm: Questions and discussion.
Session 2: Electoral and parliamentary reform
2.20pm: Reforming the Seanad – Senator Ivana Bacik.
2. 40pm: Is electoral reform the wrong answer to the right question? – Prof. David Farrell.
3.00pm: “Relaying the playing field – Implications of political reform for the constitutional law ground rules of political competition – Dr. John O’Dowd.
3.20pm: Questions and discussion.
3.45pm: Coffee break.
Session 3: Improving public governance
4.00pm: Sacred spaces and blurred boundaries: Administrative reform and constitutional governance – Muiris MacCarthaigh.
4.20pm: Enhancing government accountability to the Oireachtas – Eoin O’Malley
4.40pm: An accountability branch of government? – Dr. Eoin Carolan
5.00pm: The place of the media in the constitution – Dr. Carol Coulter.
5.20pm: Questions and discussion.
5.45pm: Close of conference.
In yesterday’s speech the Taoiseach said:
Restructuring of Departments and agencies inevitably entails disruption and costs but I am satisfied that with the changes I am making, the benefits will outweigh the cost…
Costs, of course, include changes to name-plates, stationery, web-sites and so on, as well as the HR dimension of moving staff around. Benefits are more problematic. The UK National Audit Office has recently reported on Reorganising Central Government and concluded that the UK government has averaged £200M a year over the last few years on reorganisations of government departments and other units, but with scant evidence that such expenditures are justified. They state:
Central government bodies are weak at identifying and securing the benefits they hope to gain from reorganisation.
The NAO makes a number of proposals for more systematic evaluation before reorganisations take place, the establishment of a central team ‘with oversight and advance warning of all government reorganisations’ and better parliamentary scrutiny. There is, of course, a problem with such analysis in that reorganisations of the kind announced by the Irish Government yesterday are chiefly driven by political concerns. They are significant as much for what they symbolise as for what they may achieve by way of enhancing governmental capacity for action.
Novelist John Lanchester is giving a public lecture at the London School of Economics this coming Thursday linked to the launch of his new book, Whoops – an anlysis of the financial crisis. The FT and the Sunday Times both carried extracts over the weekend. I was particularly struck by his comments on behavioural economics:
I have a confession to make about Kahneman and Tversky. I’d never heard of them until Kahneman won the Nobel, and when I first read about their work it seemed to me to consist of things that were surprising only to economists.
You can read the full extract here.
See the BBC Report here. As a non-economist it is intriguing to have the prize awarded to to two people whose work (separately and not jointly) has profoundly shaped the fields of regulation and law in which I work. I wondered what the impact of their research had been on the field of economics in Ireland.
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.
Very interesting article in the Huffington Post (hat tip: http://9thlevelireland.wordpress.com/), seeking to demonstrate that, for a variety of reasons, there is limited independence from government on monetary and banking issues amongst the economics profession in the United States. You can read it here. I will leave it to others to suggest how these arguments might play in Ireland where there is less scope (and appetite) for putting economists on the payroll or for control of opportunities to publish in key journals. On the other hand, at the same time as contributors to this blog are tackling government over key aspects of banking policy, the universities and the government are battling over autonomy (the latter for financial rather than intellectual reasons).
There is much of interest in the background papers prepared by departments and agencies for the Special Group on Public Service Numbers and Expenditure Programmes, released under FOI legislation here. Those with time on their hands may want to assess Group recommendations against the views of the relevant department on what cuts could be made and the potential costs of such cuts. Lawyers may be interested in examining the redactions and justifications under the FIO Acts 1997 and 2003.
The Annual Report of the Financial Services Consultative Industry Panel has been widely reported, and in particular an Addendum which addresses the theme Structural Reform of Financial Regulation in Ireland. The Irish Times report was headed “Quality of regulatory staff must be a priority…” and captures effectively the views of the Panel to the effect that the structure and rules associated with financial regulation may be less important than the personnel recruited to carry out the regulating. The Panel suggests that at all levels of the regulatory organisation responsible for financial regulation there should be staff with the necessary knowledge and expertise in national and international financial markets and that this can only be achieved through the recruitment of senior managers from the financial sector, with appropriate financial rewards.
I should first say that my expertise is in regulatory regimes generally, not in financial regulation in Ireland or any other jurisdiction. From this generic perspective I agree that an emphasis on the people, the knowledge and the competencies within the regulatory organisation is correct and that this may be more important than the content of the rules (since an effective regulator can blow the whistle on practices which are permitted but undesirable). However, expertise is not the only requirement for a credible and effective regulatory regime. Such a regime additionally requires a degree of independence both from the industry and from ministers. The requirement of such independence is not simply a matter of legitimacy – there is likely to be limited tolerance for putting foxes in charge of chicken coops in the current climate – but also a key aspect of effectiveness.
Expertise is a complex idea. Industry experience is valuable because those who have it know how things are done and understand the strategies of those they are overseeing. They understand the narratives put forward by regulated businesses and know what to look at to assess their credibility. Thus strong industry expertise gives a regulator a form of independence in the way that it uses knowledge. But in some instances it is equally important that a regulator is is capable of challenging the working knowledge of an industry. On one analysis the primary failure underlying the current financial crisis is the failure of banks to understand the systemic risks which their actions created. A regulator which fully mirrors the industry which it oversees is unlikely to be able to re-think the appropriateness of industry conduct, but only to assess whether particular businesses are within the normal range of what is considered appropriate at a given time.
A further issue surrounding the recruitment of regulatory staff from an industry arises from the observation that regulators who exhibit a high degree of shared experience (educational, industry, inspection) with those they oversee are liable to be less stringent in their application of regulatory rules than those with less shared experience. This ‘relational distance’ hypothesis, developed by Donald Black in the 1970s, has been tested and found to have considerable validity both in the context of business regulation in Australia ((by Grabosky and Braithwaite, 1986) and in the context of regulation of public bodies in the UK (by Hood, Scott and others, 1999). In the latter study we were struck by examples of regulatory design which opted for a deliberate ‘mixed relational distance’. So, for example, within the Inspectorate of Prisons, noted for robust independence and with a strong track record of re-thinking the appropriateness of prison standards, the head of the Inspectorate was routinely recruited from outside the prisons industry (a judge, a retired general, etc), whilst the next tier down within the organisation comprised seconded prison governors with strong industry expertise.The mixed approach can be developed at other levels of a regulatory organisation. In a small country such as Ireland we should be aware that shared educational and social experience is likely to be as important in generating low relational distance as shared industry experience. I believe this is one of the reasons why some have suggested a need to look outside Ireland for key regulatory officials in the financial sector (as has happened in the case of the Garda Inspectorate).
I do not think this mixed approach to staffing regulatory agencies is inconsistent with the views of the Consultative Panel. But it is important to recognise that an approach to staffing the new regulatory structures which fails to look beyond the experience and knoweledge of the industry is likely to be limited both in effectiveness and legitimacy.
I am opening this strand to facilitate discussion about the many recommendations made for reform of the legal system by the McCarthy Report. Whilst there are lively discussions going on here and in many other media concerning proposals for cuts there has been little discussion of the extensive proposals for the legal system beyond a focus on the abolition of the tipstaff posts within the Courts Service and merger of various ombudsman functions. The law pages of neither the Sunday Business Post nor the Irish Times give any mention to the Report. For convenience I list some of the highlights below:
Management of the courts and supporting the Judiciary
Rationalise the network and operations of the District and Circuit Courts
Abolition of Tipstaffs grade
Judicial review of judgements – ‘Courts should be given the necessary powers to correct themselves with the consent of both parties. Furthermore, those involved in the case should not be awarded costs if they insist on Judicial Review without initially engaging with the original court in its efforts to correct its decision.’
Address ‘out-dated practices which are sharply at odds with what is expected throughout other areas of the public and private sectors. In particular, the Group recommends that the Courts should:
• provide for Monday sittings;
• open the Courts for the full year (rather than closing for prolonged periods of time);
• introduce pre-trial hearings to deal with technical matters in advance of jury selection;
• streamline the selection of Juries (for example by providing the Defence an opportunity to object for stated reasons to individuals on a long panel of potential jurors, before jurors are
called to serve); and
• use court real estate more efficiently (e.g. using a court room to hear one case in the morning and one in the afternoon rather than one a day).
The efficiency of the Courts system could be improved by providing prospective judges with judicial training prior to going on the bench and ongoing professional development, by providing the Presidents of the Courts with meaningful powers and functions in the area of discipline and the
issuing of practice directions, by establishing a Judicial Council to address serious disciplinary issues and by strengthening the independent role of the Judicial Appointments Board in the appointment of judges.’
Reduce the number of County Registrars
‘The feasibility of introducing a limited number of short-term non-pensionable law graduate internship placements contracts of 1 to 2 years clerking for a group of judges to assist judges with research should be explored.’
Reduce surplus security personnel at the Four Courts
Review charging system
Introduce a limited means testing system for criminal legal aid
Extend digital audio recording to the Civil Courts
An Garda Síochána
Better co-ordination to reduce time spent by Gardaí in court
Rationalise the Garda station network
Transfer responsibility of immigration control at entry point to INIS
Review of Garda pay and allowances
Regulation and Oversight
Merger of ComReg and the Broadcasting Authority of Ireland (*corrected 22 July)
Merger of Property Registration Authority (PRA) with Ordnance Survey Ireland and the Valuations Office (*corrected 22 July)
Establishment of an Ombudsman Commission (taking on the role currently undertaken by the Office of the Ombudsman, the Children’s Ombudsman and the Information Commissioner)
Merge the Property Services Regulatory Authority with the Private Residential Tenancies Board
Transfer the disability functions of D/JE&LR to the Office for Mental Health and Disability in the Department of Health & Children
Improve Value for Money in the Coroners Service
Abolish Law Reform Commission
Reallocate the statutory employment and occupational benefits
responsibilities of the Equality Tribunal to the Employment Appeals Tribunal
‘Reduce expenditure on the gender mainstreaming [and integration] and transfer the function to the Department of Enterprise, Trade & Employment’
Reduce the allocation to equality organisations and projects
Abolish the Office of the Minister for Integration
Staffing levels in the youth detention centres should be reduced
‘Duplication of legal advice – The Group is of the view that other State bodies may be unnecessarily seeking legal advice for the same or similar matters particularly regarding the interpretation of legislation. This duplication leads to wasteful expenditure and the Group concludes that as far as possible public bodies should be able to avail of the expertise of Government legal services, via their parent Department in each
‘Legal Costs – The Group has noted the practice of different state organisations pursuing legal cases against one another e.g. the Commissioner for Aviation Regulation vs. Aer Rianta. This duplication unnecessarily increases the burden of legal costs borne by the State. The Group proposes that there should be compulsory arbitration of legal disputes involving State bodies. Any State body wishing to resolve a legal dispute with another State body would be required to inform the relevant Minister who would then be responsible for mediating a solution or arranging for other forms of independent mediation. Legislative change should be initiated to implement this proposal if necessary. The Group notes that the revised and updated Code of Practice for the Governance of State Bodies provides that where a legal dispute involves another State body, every effort should be made to mediate, arbitrate or otherwise before expensive legal costs are incurred and that the Department of Finance should be notified of such legal issues and their costs. ’
‘Distinction between junior and senior counsel – The Group has looked at the difference in the level of legal fees payable to junior and senior counsel. The Government, at its discretion, grants Patents of Precedence at the Bar on the recommendation of an Advisory Committee consisting of the Chief Justice, the President of the High Court, the Attorney General and the Chairman of the Bar Council. The Group is of the view that this distinction is unnecessary and contributes to higher legal costs payable by the State. Other jurisdictions function adequately without this hierarchy of legal professionals. The Group notes that this practice applies across the entire legal industry but considers that the removal of this distinction is unlikely to have a significant negative impact on the legal system.’
There has been much discussion in the press over the last few days over two issues affecting the universities: the issuing of an Employment Control Framework by the Higher Education Authority and the delivery of a report to the Minister for Education on the reintroduction of fees for undergraduate education. The two are linked because each has the potential to affect the autonomy of the universities in important ways. More broadly they raise questions of institutional design that apply also to other significant aspects of the machinery for governing the economy concerning the relative autonomy from government ministers of both state-owned enterprises and regulatory bodies. The current fiscal and financial crises are likely to put all of these relationships under pressure and beg the question whether exploiting the capacity for government to exert greater centralized control is simply opportunistic or offers a principled basis for addressing weaknesses. Let me declare at the outset that I am parti pris since, like many contributors to this blog, I hold an academic appointment in a University.
Turning specifically to the universities the Employment Control Framework is reported by the Irish Times to impose restrictions on recruitment of new staff, promotion of existing staff and retention of temporary staff with a linkage between compliance and continuation of state funding. Although issued by the Higher Education Authority it is apparent that the Department of Education and the Department of Finance each had a significant role in shaping the document. The Framework has been widely interpreted as an attack on the autonomy of the Universities and in breach of the provisions of the Universities Act 1997. My learned friend Steve Hedley offers his interpretation of the legal provisions here. There is discussion in the Sunday Tribune of the Irish Federation of University Teachers challenging the Framework in litigation, but in the medium term the legislation may not be important since the government’s effective control of the Oireachtas means that legislation can be changed to give effect to the Government’s favoured position if a court rules against it in judicial review proceedings. The more important question is the normative one whether it is advantageous to the capacities of the nation for ministers to assert more direct control over the universities through control over key staffing issues. Insofar as the position of the university heads may be ascertained it appears to be that such restrictions appear to undermine their flexibility to determine the deployment of their resources to prioritise particular areas of research, to innovate and to match teaching capacity to needs. Under the terms of the legislation the allocation of resources is the responsibility of the HEA, whilst prioritization is a matter for the Universities themselves. This principled separation of responsibilities has been considerably eroded in fact (but not in law) by the shift of resources away from formulaic block grant (based largely on student numbers) towards competitive awards of grants under such schemes as PRTLI, SIF and the programmes of Science Foundation Ireland and the Research Councils. Universities have been incentivised by such competitions to shift resources into areas favoured by the government. Competition is not the only mechanism at play, since most schemes have a significant element of peer review and government deploys its hierarchical capacity to steer and approve decisions (with the potential for importing political priorities) within many of the schemes.
The discussion around the reintroduction of fees linked to a student loans scheme has the potential to affect the autonomy of the universities in the other direction, to the extent that the scheme permits the universities to grow their revenues directly through undergraduate student recruitment. The government has not yet committed to any of the variety of mechanisms which have been proposed (discussed in yesterday’s Sunday Business Post), suffice it to say that the separation of upfront fees from a loans scheme is likely to give the universities greater autonomy, whereas the linkage of additional revenue to a graduate tax is liable to give the government greater control.
The relationship between the two issues lies in the issue of funding dependence. Permitting universities to charge undergraduate fees, separate from a related loans scheme, reduces the capacity of the government to threaten funding sanctions to universities which breach government requirement s such as those set down in the Framework.
How does this all link to the Irish economy? It is widely held that the role of the universities in providing research, stimulating innovation (not only in science and technology, but also through translation of research into policy and creative domains) and in education at both undergraduate and graduate levels is relevant to Ireland’s future economic capacity (although there is disagreement on the extent of the universities’ significance). Comparative analysis demonstrates that there is no single model of university-government relations within the other OECD member states. The French government retains a high degree of central control over key aspects educational provision and academic appointments, whilst a mixed economy of public and private provision in the United States gives substantial autonomy to many higher education institutions. The UK balances substantial autonomy for the universities with a form of hyper-regulation over teaching and research quality which has never been seen in Ireland. The Irish regime under which universities are required to self-regulate explicitly (teaching) or implicitly (research) is a style which I refer to as meta-regulation. There is already a meta-regulatory alternative to the Employment Control Framework in the form of an Irish Universities Association document which caps employment numbers, but under which the control is exercised by the universities themselves.
A tangential issue arising from the Employment Control Framework is whether there is a continuing role for the Higher Education Authority if, in fact, ministers are determining conditions of grant for universities. A key aspect of the UK regime is the role of buffer organisations (such as the Higher Education Funding Council for England) which both funds and holds higher education institutions to account for their expenditure. In a fairly similar regime of universities governance to that of the UK the Australian government abolished the buffer institution, the Australian Universities Commission, in 1976 and took its functions in funding and oversight into the education ministry. Given current strictures on public finances and controversies about the added value of quasi-autonomous non-governmental organisations (quangos) an agency that cannot demonstrate its distinctive role may be under threat.
Whilst these issues of institutional design can hardly be neutral in their effects in terms of the role of universities (and others such as state-owned enterprises and regulators) in sustaining and developing the Irish economy, we appear to have more questions than answers in the search for defensible (I would not dare suggest optimal) solutions.
There is a consensus that the practitioners and discipline of economics have been key beneficiaries of the financial and fiscal crises. The views of leading economists as to where we are and what we should do are widely sought across the media and within government. A conference organised at TCD earlier this week on the issue of political reform was part of a deliberate effort by political scientists to demonstrate the relevance of their discipline and the Irish Times has been publishing opinion pieces and articles drawing on the conference . Earlier in the week UCD’s John Coakley argued that informal institutions (in the form of political culture) have significantly shaped (and restricted) the state’s capacities. Today’s piece by Neil Collins of UCC argues that there has been a striking neglect of the potential of formal institutions in shaping effective governance. He concludes that ‘It is time for a rebalancing of academic attention from the economic to the political agenda.’
As an outsider to both disciplines it is striking that both have a good deal to say about the way that institutions matter in shaping both expectations and capacity for action. I am led to think that if a rebalancing is required then it might be towards thinking more about the way that formal and informal institutions limit what can be achieved (and deliver unintended consquences), but that a better understanding of those limits might support modest reform proposals which more effectively link the specification of desirable outcomes to the mechanisms through such outcomes might be reasonably be expected to be achieved.
My post last week on Smart Regulation drew out a number of responses which argued, in essence, that there are too many regulatory agencies in Ireland. For some the proliferation of regulatory agencies is taken as an indicator that there is too much regulation. I do not think it is possible to draw inferences about the quantity or intensity of regulation from the numbers of agencies.
What is perhaps more interesting than the bare numbers of regulatory agencies is their growth. It is noted in the Government report Bodies in Ireland with Regulatory Powers (2007) that since the White Paper on Regulating Better declared a virtual moratorium on the creation of new regulatory agencies in 2004 (‘The Government will create new sectoral regulators only if the case for a new regulator can be clearly demonstrated in light of existing structures’) ten new agencies had been created and a further nine were planned. The admitted failure of government to follow its own self-denying ordinance raises the questions what has happened to regulatory agency numbers, how can the pattern be explained, and what does it mean?
Bodies in Ireland with Regulatory Powers concluded that of the 213 bodies with statutory regulatory powers eight of these were non-state bodies, 114 were local authorities, nine were regional fisheries boards, and 15 were government departments. This leaves 67 central state agencies with regulatory powers, but not all of these are primarily regulators, and some are not regulators of business. The Labour Court, for example, is chiefly an adjudicatory body and the Higher Education Authority is chiefly a transfer agency (although the handing out of cash clearly is used for regulatory purposes), and the Revenue Commissioner are mainly concerned with collecting taxes.
New UCD Geary Institute Research suggests that numbers of agencies for which the primary function is regulatory held fairly steady at just under twenty between 1950 and 1990 but that the number increased by 50 per cent in the 1990s and had more than doubled from the higher base to 68 by 2008 (Source: Mapping the Irish State project database (funded by IRCHSS)).
How can this growth be explained and what does it mean? Some of the agencies established since 1990 were created to meet European Community obligations to regulated independently both of dominant incumbent firms and of government departments with stakes in the industries concerned – notably communications and energy. In other instances there was a concern to establish the credibility of a regulatory function previously exercised in a government department – the Food Safety Authority of Ireland provides a key example. In some instances there has been a sense that government departments will struggle to develop and sustain the expertise and focus necessary for a regulatory task. In other instances the establishment of new agencies can more readily be explained by a combination of fashion (regulatory agencies have become a stock solution to all manner of public policy problems) and political need to demonstrate symbolically a commitment to sorting out some high-profile problem. The Health Information and Quality Authority springs to mind as an example of this. Politics may also play a role government sees the potential to shift the blame when things go wrong with regulatory regimes – examples are legion so I shall not name names.
Does the growth in regulatory agencies demonstrate that there is too much regulation? Actually it tells us little about the quantity and intensity of regulation. It is perfectly possible to have masses of regulation with few or no regulatory agencies (Japan is a case in point). One might argue that all these agencies are very costly, but typically they have relatively small budgets and their financial significance 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).
The growth of regulatory agencies tells us more about the changing style of government in Ireland. There has been a trend away from direct provision of services in the network sectors towards regulated oversight of private provision ( and this common to many European countries) and, distinctly, a shift towards external oversight with a greater degree of transparency at arms-length both from government and from industry. Ireland provides a core example of a regulatory state. Indeed, the limited direct state provision of welfare services historically supports an argument that in some ways Ireland was a regulatory state avant la lettre.
As I hinted in my previous post the challenge of enhancing the efficiency and effectiveness of regulatory governance is unlikely to be met through an exclusive focus on cutting or merging regulatory bodies (as Brian Lenihan proposed in the October budget), but rather through developing a better understanding of where the capacity to develop and deliver on regulatory objectives lies, and finding ways to harness that capacity (whether it lies with state agencies, firms or civil society organisations or more typically a mixture) through the varied processes of meta-regulation.
The ‘smart regulation’ dimension of the ‘smart economy’ has not been much discussed. Conceived of properly and implemented well smart regulation offers a way for governments to better understand and harness the different ways of mixing instruments and actors to get regulatory tasks done. It invites all stakeholders to think outside the usual boxes and then frequently re-visit institutional choices to fine tune regimes where outcomes are inappropriate.
In the Government’s White Paper Building Ireland’s Smart Economy ‘smart regulation’ was linked to broader public sector reform. The smart regulation measures were described in the following way:
‘Reduce the administrative burdens for citizens and improve the quality of regulation through tools such as e-government, regulatory impact analysis and by enhancing the accessibility of the statute book.’
In essence this usage is consistent with that of the Canadian Government’s 2004 Smart Regulation programme which adopted a business usage of the acronym SMART – Specific, Measurable, Attainable, Realistic, Timely. The best examples of SMART regulation, in this sense, involve reviewing proposed and existing regulatory rules to ensure they are proportionate to the aims sought and targeting enforcement more effectively at higher risk areas of activity. These measures are the primacy focus of Better Regulation programmes adopted in Ireland and in most OECD member states.