Regulation inside government – some thoughts on definitions, perspectives, objectives and further work with focus on regulatory tools Carlo Thomsen, Senior Adviser, Norwegian Ministry of Government Administration and Reform, OECD Workshop on Regulation Inside Government, Mexico City, March 2006

2 What is regulation inside government? Regulation ” Regulation are the instruments by which a government places requirements on enterprises and citizens. They include all primary laws and all other subsidiary rules, issued by all levels of government, as well as rules issued by non-governmental bodies to which governments have delegated regulatory powers. They cover economic, social, and sector-regulation among others, as well as administrative regulation.” * Inside government Financed by the public and organised as part of a public body (the state or a local public authority). Three types of regulation inside government –Regulation that also affects the public sector, but primarily are aimed at society and the private sector –General rules inside public sector about decision making, procedures, budget etc. –Specific rules concerning specific public entities (such as ”independent” regulators – in Norway mainly organised as part of the public sector but vested with considerable autonomy by law) What regulation inside government not are: –not instructions and single decisions, but rules –not day to day management, but the framework for management * Definition used in OECD documents

3 The size of public sector compared to the private sector in Norway To work for better regulation inside public sector could have an important effect on the efficiency of society as a whole. Not to work with better regulation inside public sector could mean a less efficient and less effective public sector. Why should we focus on regulation inside public sector?

4 Why regulate inside government As a starting point for the work for better regulation inside public sector we have to look into why it is necessary and rational to regulate also inside public sector, where other control mechanisms could be used. Within the public sector there is a need, and to some extent a strategy, to delegate power and authority for two reasons : 1.Scarce time and resources (and size) makes it necessary to organise government in specialised entities 2.Different kinds of weaknesses of incentives and decision making systems inside public sector make delegation with autonomy for some public entities (like regulatory authorities) necessary.

5 The different needs for regulation inside public sector The two reasons for delegation makes it necessary with different degrees and kinds of regulation: –Type 1 makes it necessary with general rules for decission making and other kind of rules that can give a certain degree of predictability and legal protection for the citizens. But the cost of overruling the decisions at a lower level by the government or minister could and should to a certain degree be small. (But if the overruling happens to often the benefits of delegation would be smaller than the costs). –Type 2 makes it necessary with more specialized regulations (in addition to the general regulations), and the cost of overruling the decisions of the autonomous bodies should be high.

6 More regulation – and more regulation inside government? Source: Lovdata, ØKAN-analyse Pages of primary and secondary law in ”Norsk Lovtidende” EEA Some illustrations of the situation in Norway

7 Norway: Increase in public consumption, and decrease in user satisfaction since 1992 Source: Statistisk sentralbyrå, TNS Gallup, FAD 1992=100 Public consumption User satisfaction Could part of the explanation of the gap be the increase in regulation (inside public sector)? Some illustrations of the situation in Norway

8 NorwayDenmarkFinlandSweden Source: OECD Norway uses more resources on compulsory primary and secondary school than most other Nordic countries Cost in Norwegian kroner for each pupil, 2001 Some illustrations of the situation in Norway

9 NorwayDenmarkFinlandSweden Source: PISA-undersøkelsen, OECD Still Norway has more pupils with reading problems than most other Nordic countries Share of 15 year old pupils with poor reading capabilities, 2003 Could part of the explanation be the volume and quality of regulation (inside public sector)? Some illustrations of the situation in Norway

10 Some hypotheses as a starting point 1.Growing regulation inside government has imposed unnecessary burdens upon public sector with loss of productivity and efficiency as a consequence. The hypothesis could be divided in two: a)The volume of regulation inside public sector has increased over the last decades b)The complexity of regulation inside public sector has increased (with the possibility of conflicting goals and a more urgent need for coordinationand harmonization) 2.There are marked differences between sectors and countries. 3.Different potential for better regulation: In countries with big public sectors and high ambitions for the public sector there is a higher potential for better regulation inside government (that will enable the public sector to function better) than in countries with small public sectors and small ambitions for the public sector. A starting point for working with regulation inside public sector could, in lack of exact knowledge, be a set of hypotheses:

11 Regulatory tools and evaluation mechanisms I We need more information and knowledge before we can pinpoint best or good practices when it comes to regulatory tools for regulation inside government. The framework for using regulatory tools might be slightly different when it comes to regulation inside public sector: –It is necessary to take into consideration that inside public sector pressure groups and groups with vested interest probably will focus on the need for more regulation and the aspect of quality of services (with the need to regulate standards of quality etc.). –There are not to the same extent (as regulation concerning business) pressure groups that are interested in keeping the costs down and the level of regulation down to a minimum.

12 It is probably essential to focus more on costs, benefits and effects of regulation and to have effective tools for communicating this knowledge to the public opinion than for regulation in general: –The need for an empirical and knowledge based regulation process - use of RIA - might be even more essential inside public sector since there could be more pressure for detailed regulation to secure standards and quality of services (as opposed to less regulation and burdens). –The need to ask weather regulation is a necessary and efficient tool, and to consider alternatives to traditional ‘command and control’ regulation is as essential for regulation inside public sector as when it comes to regulation concerning business and the private sector. –Evaluation should be used also as a instrument to find out when and how the regulatory tools work to refine and improve them. Regulatory tools and evaluation mechanisms II Some point concerning the focus on and use of regulatory tools and evaluation in the work for better regulation inside public sector:

13 Ex post evaluation should be used as a systematic tool to get rid of unnecessary regulation, change low quality regulation and reduce administrative burdens. But the experience from several reviews of regulation in Norway shows that even if one get rid of a few outdated laws, and eases administrative burdens to some extent it is difficult to reduce the amount of regulation in general. The need to assess effective compliance and enforcement. This is especially important, because the compliance to formal procedures in undertaking RIAs might be met, but the actual analysis of costs, benefits and effects might not be good enough. There seems to be mainly two reasons for this problem: –The methodological and analytical difficulties in measuring costs, benefits and effects. –Political logic, with focus on re-election and the need for quick results, (especially when there is no stable and clear political majority) might undermine the possibility of regulation based on evidence and knowledge of costs, benefits and effects of different alternatives. There is no reason why this shouldn't also be prevalent problems concerning regulation inside public sector Regulatory tools and evaluation mechanisms III

14 Objectives and focus for further work The main objective should be to ensure regulation of the best possible quality so that the public sector could function more effectively and efficiently. There is a need for comparative data and analysis between countries and between sectors to estimate need for reform, and to identify good and best practices. OECD could greatly contribute to this. –An idea could be to develop a Index on Regulatory Quality Inside Public Sector –From my point of view learning and implementation of regulatory tools have to take into account the different framework that regulation has to work within (political and socio-economic systems, different kind of traditions when it comes to law, and differences in size and complexity of different countries). An index could be a useful tool, but has to be supplemented by analysis. There is a need for looking into the regulatory tools and see if the same approach and practises that seems to work well with regulation concerning business and private sector also will work well for the public sector.