Research Note: Governing through Regulation: Public Policy, Regulation and the Law

Research note by Eric L. Windholz

Regulation has come of age as a primary tool of governance.  Regulation today is the expanding part of governance, and the policy preference of government in many areas of state activity.  Regulation also has become more complex and challenging.  Governments and regulators find themselves simultaneously being asked to create an environment in which innovation, new technologies and markets can flourish while protecting citizens from the worst excesses of these forces; to safeguard an ever-increasing array of rights and to provide protection from an ever-increasing array of risks; to balance market efficiency with societal demands for justice, equity and fairness; and to do so in a manner that minimises the compliance burden on regulatees, the fiscal burden on taxpayers and the regulatory burden on society generally.   And all of this at a time when many people’s confidence in governments’ ability to address the challenges of the 21st century is diminishing.

Regulation’s increasing prominence and complexity inevitably attracted the attention of academics from different disciplines including public policy, law, public administration, politics, economics and sociology.  The study of regulation has evolved, however, from an issue on which these disciplines have something to say, to become a discrete discipline with its own theories, concepts, technical language and accumulated body of specialist knowledge.  Numerous theories have been developed to explain the growth, nature and importance of regulation in modern democratic liberal capitalist societies, with terms such as the ‘regulatory state’, ‘regulatory capitalism’ and ‘regulatory governance’ entering our lexicon.  Important advances also have been made in the practice of regulation, with regulators evolving from traditional prescriptive ‘command and control’ models to become ‘modern regulators’ employing a range of ‘responsive,’ ‘smart’ and ‘better’ regulatory techniques designed to persuade, assist, incentivise and occasionally nudge regulatees to comply with standards that increasingly are performance-based and outcome-orientated.

The rich body of knowledge that has developed explaining the regulatory endeavour contains valuable lessons, insights and perspectives to assist us to better design and deploy regulation in the public interest.  At the same time, however, this body of knowledge has become increasingly complex and contested.  For every theory there are one or more alternate or counter-theories, and numerous critiques.  Moreover, many academics are more inclined to write for other academics than for policy-makers, regulators, practitioners and students of the area.   The typologies and classification systems they have developed to explain the regulatory endeavour often are not intuitive to the regulatory community.

The book Governing through Regulation: Public Policy, Regulation and the Law” aims to demystify and make sense of the theoretical literature and marry it with the real world of regulatory practice.  The book delivers on its aim by providing the reader with a series of frameworks with which to explore and examine the regulatory endeavour without being overwhelmed by its complexity.  Through these frameworks, the reader is introduced to important theoretical concepts and practical issues central to modern regulatory practice. Understanding these concepts and issues better equips us to diagnose and analyse regulatory issues, to construct and deconstruct regulatory regimes, and to think strategically about how best to regulate complex and emerging issues.

A number of important lessons emerge from the book’s examination of the regulatory endeavour.  First, is that regulation is both a complex policy reform and a contested political project.  Understanding this duality — and the challenges it presents — is important.  The duality means that regulation employs both technically rational and politically rational processes, combining systematic, analytical and evidence-based methods with consensus and coalition-building consultation, negotiation and compromise.  Of the two, however, politics tends to be the master, and technical analysis the servant.  This is an important lesson.  All those involved with the regulatory endeavour should be alert to efforts to hide politically contentious decisions in the neutral language with which most technical approaches are described.  At the same time, however, technical rationality should not be sacrificed on the altar of political rationality.  Every effort should be made to place political decision-making on a more technically rational foundation.

Second, is that regulating is both a science and an art.  The science is evident in the many systematic and technical approaches championed by the better regulation movement.   These include the use of stagist policy cycles, regulatory impact assessments and responsive and risk-based regulatory strategies.  We also recently have observed the increasing use of behavioural sciences to shape more effective regulatory tools.  However, effective regulation also requires the exercise of judgement that cannot (and should not) be totally systemised.  This exercise of judgement is the artful part.  The book identifies and explains the elements of the regulatory endeavour aided by systematic analytical methods, and makes transparent those elements where judgments are crucial.

The third lesson is that context is king.  There is no single ‘best’ approach.  Regulatory initiatives and instruments successfully employed in one context can be ineffective or even counterproductive in another context.  Their applicability to a particular situation should be carefully considered.  And new regulatory ideas should not be adopted uncritically as articles of faith, and their proponents feted as deliverers of messianic truths.  Ideas should be starting points, not end points.  We should not be dogmatic about any regulatory theory, instrument or strategy.  At the same time, however, frameworks for navigating the complexity of the regulatory endeavour are useful.  They provide practitioners with helpful decision-making processes and procedures to assist them to carefully analyse each issue’s individual context and needs, to weigh and balance those needs against the benefits and costs of different options, and to select the appropriate mix of regulatory policy settings accordingly.

The fourth lesson is that because governing through regulation is inherently difficult, mistakes need to be tolerated and learning facilitated.  The issues with which governments and regulators must deal are complex.  The potential causes of regulatory failure are many.

Settling on the right combination of regulatory tools and approaches first time is likely to be the exception, not the rule.  Plans will not always be right; and things will not always go to plan.  Mistakes will happen.  What is important is that we learn from those mistakes.  This, in turn, requires us to admit our mistakes.  However, such admissions can expose individuals to reputational damage, and undermine confidence in the regulator and regulatory regime.  It also is a message politicians and the public do not like to hear.  Tolerance of mistakes nevertheless is essential to creating a learning environment.

The fifth lesson is the importance of regulators maintaining a credible deterrent.  This is a lesson that runs counter to the much of the current regulatory zeitgeist that advocates for ‘red tape’ reduction and the use of the least interventionist and burdensome technique.  Broad based rejections of prescription and deterrence as regulatory tools are misplaced, however.  For regulation to be effective, there needs to be a credible deterrent.  The fear of being detected and sanctioned is essential to generating and assuring compliance.  It encourages compliance by those who otherwise might seek to avoid their obligations, provides a level-playing field for those who are complying, and reassurance to those for whose benefit the regulatory regime exists.

All these insights point to the sixth and final lesson, namely that regulators must own their narrative.  This communicative element is central to gaining and maintaining legitimacy which arguably is a regulator’s most important resource.   The regulatory endeavour is difficult enough for regulators without allowing others to set the expectations against which their performance and legitimacy will be assessed.  Regulators need to take responsibility for clearly articulating their role and purpose, and the value of their activities.  In an era in which regulation and regulators are seen as political targets, regulators should be proactive in establishing in the minds of their legitimacy communities the social and economic contributions they make.  Of course, care must be taken to avoid elevating rhetoric above substance.  The use by a regulator of strategic communications to exaggerate the extent to which it is delivering on its regulatory objectives is likely to be effective only in the short-term, and detrimental in the long-term.  Rhetoric without action is not a recipe for success. Eventually some event or disaster will reveal if the emperor is not wearing clothes.

In conclusion, governing through regulation is inherently complex and messy.  Sometimes it fails; at other times, it may not be fully successful.  Overall, however, it has operated for the benefit of society.  And while there is unlikely to be a perfect regulatory regime, it is hoped that this book is an advance in that direction, and that readers will find it both enlightening and useful.

  • E. L. Windholz, Governing through Regulation: Public Policy, Regulation and the Law, Routledge, 2017

About the Author

 

Dr Eric L Windholz, Senior Lecturer, Centre for Commercial Law and Regulatory Studies, Monash University, Australia. Research interests: Regulatory theory and practice; federalism and harmonisation; regulating sport; occupational health and safety.