The Australian Financial Review
Chairman, former BCA Business Reform Task Force
Governments everywhere strive to improve the quality of their regulation-making processes knowing that bad regulation can lead to poor economic and social outcomes in an increasingly competitive world.
In January this year, US President Barack Obama issued an executive order to improve regulation and regulatory review in the United States. The general principles he outlined included a requirement to promote predictability and reduce uncertainty as well as an agency-wide review to remove outdated regulations that stifle job creation and make the economy less competitive.
Over the past 12 months, there have been a number of significant regulatory interventions made by the government in Australia. Just last week the Treasurer rejected the proposed merger of the Australian and Singapore stock exchanges.
There is a rightful role for regulation in the economy. The entire community benefits from good regulation that supports the effectiveness of markets, needed to underpin economic growth. Good regulation gets the balance right, recognising the roles played by the formal device of the law and the informal device of reputation as enhanced by competitive markets.
In the interconnected world we live in, it is important, for example, that we get the balance right in privacy regulation. Clearly individuals should have confidence in the way their personal information is used, yet there needs to be consistency in laws to avoid fragmentation and duplication of associated legislation, including between the Commonwealth, states and territories. Privacy legislation of itself should not impede the potential take-up of productivity-enhancing innovation.
The challenge for government is to articulate an overarching policy on regulation.
Achieving this requires a whole-of-government commitment. Such an approach necessitates more than one or two champions and a minister for deregulation. It needs a hearts-and-minds commitment from the Prime Minister, Cabinet ministers and those devising policy within the Australian Public Service.
This means taking regulatory impact assessments – the duty to explain – seriously. It is important these statements are not prepared so late in the policy development process that they become little more than an ex post justification for policy decisions already taken.
In answering the question of what is the right approach to regulation, one concept worthy of consideration is the notion of “regulatory governance”.
Regulatory governance is the framework of regulatory structures and processes designed to produce, and sustain, good regulatory outcomes. It is about achieving regulation that can be shown to be in the public interest because it serves a clear purpose.
Regulatory governance has much in common with the corporate governance framework companies use to set and assess objectives, handle risk and optimise performance. Effective corporate governance structures encourage companies to create value and provide accountability and “control systems” commensurate with risk.
Like corporate governance, regulatory governance can create control systems that focus on effective accountability by imposing discipline on regulators and regulation makers.
The main elements of regulatory governance include identification of the problem; options available to solve it; and structures and processes intended to optimise regulatory outcomes.
Responsibility for a framework of regulatory governance rests on government. A coherent and coordinated approach is more likely to be effective.