1. The Regulatory Challenge Wyn Grant University of Warwick

2. The big picture  In this lecture I shall be summarising a vast political science literature on regulation  We will discuss PSD related issues in the workshops  My underlying assumption is that regulation is a key task that serves the public interest – but presents many challenges for regulators

3. It all started at Putney in 1647

4. An historical ideal type  Limited/night watchman/Westphalian state  ‘The chief end of government is to preserve persons as well as estates’ – Major William Rainsborough  Tasks are defence of territory, law and order; mobilisation of finance  1790 – debt, defence and administration – 82% of all spending

5. Keynesian/command state  1890 traditional functions still account for 65% of expenditure, 20% social (mainly education)  Before First World War government accounts for 15% of GDP  First steps towards new type of state taken with People’s Budget of 1900 (Lloyd George)

6. Keynesian Welfare State  Promise of full employment  System of social insurance  National Health Service  Public housing  Public expenditure grows faster than GDP – a specific political objective  Faces a crisis as rate of growth falls

7. Concept of regulatory state  Term originates in work of Chalmers Johnson on Japan (1982) as contrast to developmental state  Historically US was best example, regulation preferred mechanism for dealing with market failure  A regulatory state as one that attaches more importance to regulation than other forms of policy making

8. What is regulation?  Not easy to define but involves application of predetermined rules to actions of firms or individuals for public benefit (in principle)  Rule-based behaviour, controlling or permitting behaviour  Use of institutions of scrutiny and enforcement  Technocratic or depoliticised, semi- detached from everyday political pressures

9. Moran’s interpretation  (Originally) saw it as ideal typical Weberian progression  Command state involved hierarchical, classical bureaucracy  ‘Club government’ – tacit knowledge of insiders, self regulation (City)  World of command infantilised us all, subjects rather than citizens

10. Regulatory state emerges  Old world undermined by scandal, weakened systems of self regulation, e.g., financial markets (self- regulation survives in sport)  New world of self-steering networks, governance rather than government  Regulatory state is a low trust state and a risk state

11. Many drivers of regulatory state  Majone: EU as a regulatory state, comparative advantage is in regulation, as has few fiscal instruments  Modernity multiplies risks, there is a heightened sense of risk – a cultural construction but important  Low public expenditure way of meeting public demands, costs met by regulated  Privatisation leading to utility regulation

12. Scandals picked up by media  New scandals highlighted by media lead to demands for government action  FSA asked to regulate hamper clubs, bus services outside London re-regulated  But regulators may clash: Ofcom resisted Food Standards demands on obesity because of responsibility for high quality tv programmes – ‘two regulators approaching the same public policy challenge from the perspective of their very different remits’ – head of Ofcom

13. Arguments for regulation  Reflects growing complexity of society, need for task specific regulators  They can bring expert knowledge to responsibilities  Decisions based on rigorous scrutiny of evidence rather than on party political assumptions

14. But their task is difficult  Single issue pressure groups, reflecting more fragmented society  Accountability of such groups to no one, lack transparency  Assertions not backed by evidence publicised by the media, especially the case in food chain issues

15. Arguments against regulation  Regulatory capture argument. Largely invalid. Based on experience in US resulting from ‘iron triangles’ of Congressional committees, regulatory agencies and regulated  Asymmetries of information between regulator and regulated. Can be a problem, but better dealt with by specialised agencies rather than generalist civil servants

16. Arguments against regulation (2)  Replacing decision-making by insiders by decision-making by experts  Technocratic undermining of democracy  Moran repudiates benign view, empowering civil society, enhancing transparency, now sees it as ‘more threatening and interventionist’

17. What we have learnt (1)  Need to choose right policy instruments  Over reliance in past on command and control mechanisms, high transaction costs, often ineffective, leads to bargaining outcomes (but they have a role)  Cooperation agreements, but above all taxes and trading mechanisms. Carbon tax arguably best approach to global warming

18. What we have learnt (2)  Need to review structure and organisation and agencies regularly  Hampton Review in UK commissioned by Treasury, looked at 63 national regulators  Reduction in number of agencies  Better Regulation Executive

19. The regulatory challenge  Regulators have to work within a statutory framework  The consequences of making a mistake is serious, particularly where public safety/environmental protection is involved  But they also have to respond to changing demands in society

20. Regulatory innovation  Almost a contradiction, but important if regulators are to retain trust of politicians and stakeholders  Exogenous pressures picked up by internal change agents, desire to do a better job  Value of policy learning from regulators outside UK, also from research

21. A need for balance  Who regulates the regulators? The courts and ministers retain ultimate control  Change in architecture of public policy formation demands care about which decisions should be made by regulators  What sort of society we should have and what is unlawful is a political decision