Regulation and the Governance Agenda in the 21 st Century Josef Konvitz, Public Governance Directorate

Context 1.The Crisis 2.Is regulation necessary for globalisation? 3.Relations between regulations and the regulated. 4.Crystallizing issues that are not new. 2

Definitions/History Definitions  Regulation by rules  Regulation by other policy instruments  Command and control History  From local to national (to 1900)  By sectors 3

OECD Regulatory Policy Concept Regulatory quality is the driving principle behind reform today 4  Deregulation where markets work better than governments  Re-regulation and new regulatory institutions where markets cannot work without governments  More efficient government and social regulations to achieve high standards of health, safety and environmental protection at lower economic cost

2005 OECD Recommendations for Regulatory Quality  Less focus on regulatory reform  Promote concept of dynamic, long-term, pro- active effort  Economic and social objectives are mutually supportive  Regulatory quality, competition and market openness are mutually supporting 5

Main Elements of a Regulatory Policy  What is a “good” regulation? The 1995 OECD Checklist for Regulatory Quality The 1997 OECD Recommendations on Regulatory Reform The 2005 OECD Principles for Regulatory Quality and Performance  Set a Regulatory Policy Efficiency, transparency and accountability  Assure political support Institution building  Set a strategy to drive the Policy Capacity building for Improving rule-making Reviewing existing regulations  Implement the Policy 6

Regulatory policies improve the functioning of markets  Boosts consumer benefits Reducing prices for services and products such as electricity, transport, and health care, and by increasing choice and service quality.  Supports sustainable, non-inflationary growth  Improves competitiveness Reducing the cost structure of exporting and upstream sectors in regional and global markets.  Fosters flexibility and innovation  Increases job creation By creating new job opportunities, and by doing so reducing fiscal demands on social security, particularly important in ageing populations.  Reduces risk of crisis due to external shocks 7

Gains from reform: 1998 to 2003  Greater homogeneity across OECD countries for « good » regulation: Quality regulation, not just de-regulation Incentive-based regulation in place of command-and- control  Setting priorities on sectors where change will do the most good  The countries that have made the most progress had been the most restrictive Reducing high degree of state control (price controls, legal restrictions) Using multilateral agreements to open trade, investment Removing barriers to entrepreneurship 8

Lessons of experience  Leadership as most important ingredient for success  Crises as catalyst for change  Harmful effects of a short-term perspective  Role of central regulatory bodies to change administrative culture  Need for communication strategy to build constituency for reform  Getting the level of intervention right 9

Narrow focus: The administrative burden is not everything Administrative Burdens (Administrative compliance costs imposed by regulation) Public Sector (Regulation Inside Government ) Private Sector Businesses Inspections Reporting Permits Citizens Inspections Reporting Permits = time is money Tools: one-stop shops, reduced reporting frequencies, benchmarking exemptions, unified data bases… Other compliance costs 10

Responsible regulation Regulatory Quality Net welfare benefit of regulations CostsBenefits Compliance costs Enforcement Multilevel duplication, Gold plating Delays, lag Complexity, incoherence (contradicting rules) Displaced investment, protected markets and professions Legal certainty Reduced administrative burdens Fewer negative externalities Better use of resources, take-up of innovations, More flexibility and choice Social and environmental welfare (public service delivery) Competitiveness and entrepreneurship Capital Administrative Burdens -public, private Indirect Regulatory Capacity for integrated approach 11

Towards the future: interface between the public and private sectors  Management of complexity of policy objectives, with often unexpected outcomes  Greater use of alternatives to regulation  Evaluation of regulations and of their social and economic impacts  Risk awareness  Extending coverage to public services such as education, health, environment 12

The Crisis - I  Regulatory gaps, capture  Multi-level  Pressure on the process 13

The Crisis - II  Housing and education  Entrepreneurship  Innovation and risk 14

After the Crisis  Tools (RIA)  Policies (Ministers)  Institutions (core; agences)  Stronger role for the state but limits on what the state can do: Collective security – cross-border Quality of Life – cross-sectoral, regional 15