Regulatory Governance: the rule of law and gains from reform Sue Holmes Regulatory Management and Reform OECD April 2002

Benefits of Regulatory Reform Boosts consumer benefits reduces prices for services and products such as electricity, transport, and health care, and increases choice and service quality. Supports sustainable, non- inflationary growth Improves competitiveness Reduces the cost structure of exporting and upstream sectors in regional and global markets. Fosters flexibility and innovation

Benefits of Regulatory Reform Increases job creation creates new job opportunities, and thus reduces fiscal demands on social security. Reduces risk of crisis due to external shocks Maintains and increases regulatory protections in areas such as health and safety, the environment, and consumer interests by introducing more flexible and efficient regulatory and non- regulatory instruments, such as market approaches.

Sectoral effects of regulatory reforms (1) Price reductions in real terms (%) Road transport Germany30France 20 Mexico25United States 19 Airlines United Kingdom33Spain30 United States33Australia20

Electricity Norway (spot market) United Kingdom Financial services United Kingdom70.4 United States Telecommunications Finland66.5 Japan41.6 United Kingdom63.6 Mexico21.5 Korea Price reductions in real terms (%)

Economy-wide effects of regulatory reform GDP, long term effects (%) USA0.9 Japan5.6 Korea8.6 Germany4.9 Netherlands3.5 France 4.8 Greece9-11 Sweden3.1 UK3.5 Spain 5.6 Source: OECD: various reports,

Four Stages of Regulatory Policy Development Regulatory Management Regulatory Quality Improvement Deregulation Regulatory Governance

Rule of Law Markets without regulation would be like soccer matches without rules, a level playing field and a referee

Governance Principles that apply to budgets, regulation and administration –transparency –accountability –results focus rather than instrument focus –efficiency –inclusive participation in decision-making –managing change - adaptability –coherence –the state is steering not rowing

Four Stages of Regulatory Policy Development Regulatory Quality Improvement ry Deregulation - removing Regulatory Quality Improvement - individual regulations Regulatory Management - strategy and coherence Regulatory Governance - democratic principles 1980s early 1990s late 1990s 2000 plus

OECD Regulatory Governance Principles Deregulate where markets work better than governments Re-regulate where markets cannot work without governments Establish systems to ensure laws are coherent and well managed Ensure regulations are made in ways to ensure democratic principles

The Regulatory Checklist of the 1995 OECD Recommendation l Is the problem correctly defined? l Is government action justified? l Is regulation the best form of government action? l Is there a legal basis for regulation? l What is the appropriate level of government for this action? l Do the benefits of regulation justify the costs? l Is the distribution of effects across society transparent? l Is the regulation clear, consistent, comprehensible and accessible to users? l Have all interested parties had the opportunity to present their views? l How will compliance be achieved?

Regulatory Impact Analysis (RIA) Best practices Maximise political commitment to RIA Allocate responsibilities for RIA programme elements carefully Train the regulators Use a consistent but flexible analytical method Develop and implement data collection strategies Target RIA efforts Integrate RIA with the policy making process and begin as early as possible Communicate the results Involve the public extensively Apply RIA to existing as well as new regulations

1997 Report to Ministers on Regulatory Reform l Adopt at the political level broad programmes of regulatory reform (objectives and frameworks for implementation) l Review regulations (economic, social, and administrative) l Ensure that regulations and regulatory processes are transparent, non-discriminatory and efficiently applied l Review and strengthen where necessary the scope, effectiveness and enforcement of competition policy l Reform economic regulations in all sectors to stimulate competition, and eliminate them except where clear evidence demonstrates that they are the best way to serve broad public interests l Eliminate unnecessary regulatory barriers to trade and investment by enhancing implementation of international agreements and strengthening international principles l Identify important linkages with other policy objectives and develop policies to achieve those objectives in ways that support reform

Regulatory Reform and Good Governance l Role of Government: capacities to make and review laws l Role of Parliament: Main producers of laws and keepers of the stock l Role of Judiciary: Judicial review and appeal mechanisms l Role Subnational Level: Results are reduced if they dont reach to citizens and businesses Role of Regulators: Efficient, transparent, accountable and sustainable rules at arms length from politicians and producers for consumer gains.

Sectoral Regulation Independent Sectoral Regulators arms length from government transparent accountable: legally defined objectives and reporting requirements vs regulatory functions embedded in line ministries financial independence potential risks may slow adoption of cross-sectoral technological change capture democratic accountability fragmentation of policy financial independence a challenge for regulatory design

REGULATORY POLICY Criteria, processes and institutions Regulatory management system Improve quality of new regulations Upgrading quality of existing reg. FRAMEWORK CONDITIONS Competition policy Market openness Government capacities ECONOMIC EFFICIENCY AND DYNAMISM GROWTH AND INVESTMENT and PROTECTION OF PUBLIC INTERESTS Regulatory Governance

The first result of the rule of law is trust, which greatly benefits all people and is among the greatest goods. The result of trust is that property has common benefits, so that even just a little property is sufficient, since it is traded, whereas without this even a great amount is not sufficient.