Regulation: The Basics

Leveson Inquiry

Royal Courts of Justice, 5 October 2011

Donald Macrae

donald@dmacrae.co.uk

Hierarchy of Norms

Norms / Values

Order

Policy

Fundamental values of that society, usually backed by criminal sanctions.

The way we do it in this jurisdiction, e.g., Company Law, Trusts, driving on the left. Can also have criminal sanctions but not based on values.

Law as a policy tool, e.g. Economic regulation, reducing teenage pregnancy. Either it works or it doesn’t.

“The Law” is a broad concept.

Changing Behaviours

Interventions must be packages of measures.

We are dealing with complex adaptive systems – a moving target.

http://archive.defra.gov.uk/sustainable/government/publications/uk-strategy/

The Risk Landscape

Government is only one of many actors in this complex system of interests and incentives – and not always the most influential.

Compliance chains

We may be able to take advantage of some of that complexity by working with trends, incentives, motivations and other key players.

“Regulation is a response to market failure” – classic economics rationale.

But sometimes the market can deliver better, perhaps with some help. The food chain is the best example of standards and compliance being driven by each link in the chain, through to the customer. Some inspection and enforcement functions can be left to insurance companies or even to customers.

So, before rushing into government-based, rules-based solutions, analyse the relationships between the key players and see how they might operate more efficiently to deliver what you need.

But first, you need to be clear about what you need . . . . . . .

Identify the right problem

Two rules of thumb:

• gather different perspectives on the problem from a range of stakeholders: the “usual suspects” usually have a narrow view of the world – get the “wrong” people in the room as well.

• keeping asking “why?” as each layer of the problem is proposed: eventually you get to the real basics.

This may seem too obvious to be worth stating but is where many policies fail.

You probably have layers of problems.

Maintain perspective

If your first Recommendation is to ensure high level political support, start working on Plan B.

Coercion is rarely enough. Consider also:

• self-regulation by key players;

• “choice architecture” and other angles from behavioural economics;

• an enabling framework, perhaps with an institutional element;

• a code, principles or guidelines, instead of legislation (or even with statutory backing);

• enabling individuals to be “inspectors”, through conferring rights, remedies or even just information;

• how to investigate and decide on complaints.

Questions

What is the problem – or problems - you are trying to solve?

Do you understand the relationships across all key stakeholders?

Is government best placed to solve it, or are there more influential players?

Should you try to prevent the problem arising – or instead be better placed to deal with the consequences if it does?