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).
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).
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
Other
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
case.’
‘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.