Regulatory performance: the role of Institutions

Gary Banks

Presentation to OECD’s 8th Expert Meeting on Measuring Regulatory Performance

15 June 2016

Sydney, Australia

From the OECD Council 2012 ‘Recommendation’

• “Establish mechanisms and institutions to provide oversight of regulatory procedures and goals, support and implement regulatory policy & foster regulatory quality.”

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What is ‘good’ regulation?

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• A sound rationale and clear objectives

• Targets the main source of a problem

• Proportionate to scale/risk

• Avoids undue prescription

• Complements other regulations

• Understandable and consistent

• Can be effectively administered and enforced

• ( and remains ‘fit for purpose’)

The Regulatory Life-cycle

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Delivery Review

Development

Consultation

Obstacles to ‘good’ regulation

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• Technical complexity

− assessing impacts can be difficult

• Political and societal pressures

− vocal interest groups can be hard to resist

• Bureaucratic ‘inertia’

− appeal of controls and status quo

A case of ‘bad’ regulation: 2011 cattle export ban

• 30 May 2011: National TV exposé of alleged maltreatment of Australian live cattle in Indonesia

• 8 June 2011: Australian Government bans exports

• 9+ June 2011: Protests by exporters and Indonesian Government

• 6 July 2011: Ban removed, ‘protocols’ developed

• 2012 - 2013: Indonesia imposes its own import restrictions against Australia

• 2014: Indonesian Government reconsiders following ‘soaring’ domestic beef prices

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The ‘regulate first’ syndrome

1. An ‘issue’ or problem emerges

2. A knee-jerk response to regulate

3. Then analysis to justify it

4. A poorly informed decision to proceed

5. Poor statutory guidance to the regulator

6. Risk averse implementation/enforcement

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Much existing regulation needs reform

“Do agencies often have to work with legislation that is out of date or not fit for purpose?” (NZPC Survey, 2013)

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Strongly agree

Agree

Neutral

Disagree

The costs add up …

• PC 2010 estimated $8bn in ‘red tape’ costs alone

= $12bn GDP foregone

• ‘Seamless National Economy’ gains = $6bn (2011)

• Potential welfare losses from all cost categories

could (greatly?) exceed 5 per cent of GDP

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Productivity and participation matter most for living standards over time

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Participation

rate

Productivity

rate Hours

Per week

Unemployment

rate Working

Age share

Best Worst Best Worst “Best” “Worst” “Best” “Worst” “Best” “Worst” 2.0% 1.2% 3.5 7% 63% 55% 34 30 86% 81%

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Incentives • Liberalise trade regulation • Terminate anti-competitive regulation that fails ‘the public

benefit test’ • Phase out government local procurement preferences Capabilities • Human capital

− enhance school governance, VET provision, …

• Innovation system − re-focus on market failures …

• Infrastructure − utility governance, access regimes, …

• Government services − extend choice and contestability, …

Flexibility • Workplace regulation ‘rebalanced’ • Environmental regulation (native vegetation, …) • Occupational licensing coherence • Zoning, development approvals simplified • Reduce sectoral red tape (chemicals, …) • Strengthen ‘mutual recognition’ • Etc

Key productivity & participation reforms are regulatory

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Evidence-based policy

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Best Practice Common Practice

Detailed design

Implementation

Decision

Assessment

Options

Decision

Detailed design

Implementation

Review

Issue Issue

vs ‘policy-based evidence’

• It helps with the ‘what?’ and ‘why?’ questions

• It enlightens the potential beneficiaries about what is at stake

− thereby building public/political support

− as well as enabling more ‘inclusiveness’

• It provides governments with ammunition

− against interested and political opposition

• It reduces ‘unintended consequences’

− including political ones!

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An evidence-based approach has ‘technical’ and ‘political’ roles

• First, understand the problem

• Then explain why government action should help

• Assess merits of different options -- regulatory and non-regulatory

• Develop implementation and review strategy for preferred option

• ‘Consult, consult, consult’ throughout

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The tasks of Regulation Impact Assessment

“Formal process requirements are in place” (OECD)

Source: 2015 Regulatory Policy Outlook

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28 24

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Consultation RIA Ex-post evaluation of existing regulation

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24

20

34 33

29

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The OECD on principle vs practice

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• “The OECD’s first survey (2015) shows that countries have come a long way in improving the way they regulate. … Nevertheless implementation varies greatly in both scope and form.”

• (Translation: Big gaps remain between principles and practice.)

0

20

40

60

80

Exempted

Non-compliant

Compliant RIS

Number ofproposals

'Highly significant' proposals Other proposals

Australian RIA survey (2012) found compliance lowest for most important regulatory actions

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Types of institutions to support regulatory performance

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• Research and evaluation bodies

• Bodies to promote adherence to good process

• Regulators

• Bodies responsible for system design and review

Institutional requirements for evidence bodies

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• Analytical capability (including quantitative)

• Ability to test work with stakeholders

• Ability to avoid ‘undue influence’

• Direct linkage to regulation-making processes

Assessing key evidence/evaluation bodies

Institutions Analytical capability?

Linkages? Transparency? Independence?

Units within Ministries

✔✔ ✔✔✔ ✔ ✔

Private consultants

✔✔ ✔ ✔ ✔✔

Government research and advisory bodies

✔✔✔

✔✔

✔✔✔

✔✔✔

‘Productivity Commissions’ of Australia and NZ

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• Independent statutory bodies advising on key areas of policy/regulation

• In-depth research and public inquiries

• Transparent processes (hearings, draft reports)

• Economy/Community-wide decision criteria

Reports by the APC on regulation

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• Regulatory issues

− Labour laws, public utilities, consumer protection, gambling, insurance, intellectual property etc

• Sectoral ‘stocktakes’ of red tape

− Resource industries, chemicals, transport, etc..

• Benchmarking studies

− OHS, Planning/zoning, local government, etc..

• Reviews of Regulatory Policy

− RIA framework, Ex post review methods, regulator governance, etc..

OECD recommendation on ‘oversight’

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• A standing body charged with regulatory oversight should be established close to the centre of government… The specific institutional solution must be adapted to each system of governance.

Functions of oversight institutions

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• Foster awareness of good practice

• Provide training and guidance to regulators

• Monitor observance

• Ensure quality control of RIA/RIS

− reporting

− challenging/vetoing

• Oversee ex post reviews of existing regulation

The range of institutions

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• Parliamentary level

• Cabinet level

• Individual portfolio level

• Whole-of-government administrative level

− within a central agency

− a separate (statutory) body

Key design issues for central oversight bodies

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• How much ‘power’?

− breadth of role (across the 'cycle')

− watchdog or gatekeeper?

• How independent?

− location, staffing, resourcing, etc

• How transparent?

− when and about what?

• How accountable?

− reporting, review

• Reducing harms vs raising costs

• Public interest vs fair private treatment

• Consulting/engaging vs capture/clientelism

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The ‘balancing act’ for regulators

Reviews of regulator performance in Australia and NZ. Some findings:

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• Lack of risk-based enforcement

• Excessive information demands

• Lack of transparency, consultation

• Poor internal communication to enable ‘learning by doing’

• Training needs

Key ‘design’ matters for regulators

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• Clarity of role and mandate (in statute)

• Appropriate independence (‘undue influence’)

• Effective internal governance and management

• ‘Adequate’ resourcing

• Mechanisms for consultation/engagement

• Review processes for decisions

• Reporting and accountability requirements

The Australian Government’s new ‘Regulator Performance Framework’

• “to encourage regulators to undertake functions with minimum (cost) impact necessary to achieve objectives and to effect positive ongoing cultural change…”

• KPIs in six areas:

1. ‘Facilitating efficient operation of regulated entities’

2. ‘Communication: clear, targeted, effective’

3. ‘Actions proportionate to issues’

4. ‘Inspection/monitoring streamlined and coordinated’

5. ‘Open and transparent dealings’

6. ‘Contributing to improved regulatory frameworks’’

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Stewardship of the ‘system’ is also needed

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• Systems, like regulation, are experimental (and need keep up with other changes)

• Monitoring and review are essential

• A function distinct from ‘quality control’

• Belongs in a central agency, with capacity to collect data, review overall framework, advise government

• But political leadership remains crucial to sustained regulatory performance