Salma Hayek, who is apparently unrelated to Friedrich and may well be totally uninterested in either rule of law or regulatory reform … That isn’t gratuitous, is it?
Chris Berg of the conservative thinktank Institute of Public Affairs takes aim at the proliferation of regulation of Australia’s economy and society over the last couple of decades:
Another year, another 6,369 pages of law. Spread over 150 acts, that was the Commonwealth’s total new legislation in 2010. …
The received wisdom about Australia’s political and economic history over the last few decades is wrong.
Think we’ve been living in an era of deregulation? In an era of small, timid, “neo-liberal” government?
The data suggests otherwise.
The Australian Government has been massively, overwhelmingly, and comprehensively expanding its intervention into all aspects of the economy.
Compare 2010’s 6,369 pages to the 1980s, when the parliament only passed around 2,000 pages of law every year. Twenty years before that parliament would pass even less: just 500.
Graphs from the Rule of Law Institute confirm Berg’s argument. Berg also stresses that the Howard government was just as guilty as Labor in terms of expanding the volume of regulation, so there are obviously factors at work here that aren’t just ideological. Moreover, it isn’t obvious that either society or the economy have become drastically more inherently complex than they were in the late 1980s. That this is the case is confirmed by the Rule of Law Institute graphs, which show that the actual number of Acts and sets of rules and regulations hasn’t increased, but their average length has more than doubled.
Regulatory reform is a topic about which Troppo colleague Nicholas Gruen writes from time to time. Nicholas has tended to focus on the noteworthy lack of success of “regulatory impact statements” as a red tape-busting mechanism, including suggesting other ways of addressing the phenomenon to which I’ll return below.
It seems that reducing the volume and complexity of regulation, as opposed to progressively increasing it over time, mustn’t be all that simple. I want to explore in this post some of the forces that conspire to produce this ever-increasing web of suffocating regulation.
Of course, the first question to ask is: does a given area of activity actually need regulating at all? It might be a sector where market forces will solve any apparent problem, perhaps with some light-handed government action to ensure that potential consumers of the goods or services in question have enough reliable information to make a rational choice for themselves. However, one obvious problem with that solution is the deficiencies of the rational/efficient markets hypothesis, shortcomings that became all too evident in the wake of the GFC (albeit that, as Berg stresses, defective regulation also played a prominent part in the genesis of the GFC).
A second and related possibility is that the area in question might be one where the “nanny state” simply has no business intervening, at least on a classical liberal approach. Adults arguably have a right to make stupid choices as long as no-one else is hurt. Smoking, drinking and presently illegal drugs are the classic examples, although we might think that the rest of us should not be required to subsidise stupid choices through paying for the chooser’s extra health care costs through the tax system.
A third possibility is that a self-regulating industry code might sometimes be a better way to go. Certainly my experiences with the Banking Ombudsman as a working lawyer in private practice until a few years ago indicated that it was arguably more effective than the public sector Commonwealth and State ombudsman institutions, although the financial sector is formally regulated at least from a prudential supervision viewpoint by APRA and more indirectly the RBA. My experiences with the insurance industry ombudsman were less positive. Moreover, and as Richard Ackland frequently points out, the legal profession’s self-regulatory performance seems often to have more to do with protecting its own interests than those of its customers/clients. The same is true of the various doctors’ unions including the AMA and specialist colleges.
Nicholas Gruen suggests one way in which the evident temptations and conflicts of interest inherent in self-regulation could be mitigated so that flexibility and simpler, more effective regulation might be achieved without compromising consumer protection. Nicholas argues that industries or individual businesses might be permitted to opt out of the official regulatory regime in their area of activity in favour of their own internal quality control system, subject to regular official audits of their performance in meeting specified consumer protection targets. I’m not sure that this would necessarily be any simpler or cheaper but it’s an interesting idea.
Nevertheless, once government decides that a given area needs regulating, it’s worth exploring why we always seem to end up in a cycle of every-increasingly lengthy and complex regulations. There are three main identifiable stylistic approaches to regulation.
One is to vest wide general administrative discretions in the Minister or departmental CEO, usually with some guidance from a legislative list of relevant factors to be considered. The Minister/CEO then typically delegates these discretions to more junior officers and seeks to ensure consistency by promulgating policy manuals or guidelines. However, this approach offends the traditional classical liberal rule of law doctrine which was perhaps most succinctly explained by Friedrich Hayek:
Stripped of all technicalities this means that government in all its actions is bound by rules fixed and announced beforehand – rules which make it possible to foresee with fair certainty how the authority will use its coercive powers in given circumstances, and to plan one’s individual affairs on the basis of this knowledge.
The uncertainty or lack of predictability of outcome engendered by conferring wide administrative discretions on the executive government can be avoided by instead drafting more prescriptive but simple rules. However in many areas that will result in a “one size fits all” inflexible regime likely to lead to drastic unfairness in many if not the majority of cases. No doubt that’s why the regulatory technique most commonly seen in modern legislation (but most glaringly in federal tax and migration legislation) is the extraordinarily detailed, voluminous, prescriptive regime. Retired High Court Chief Justice Sir Harry Gibbs once described federal income tax law as “a disgrace … absurdly voluminous … obscure to the point of being incomprehensible”.
You would imagine that it should be possible to devise an optimally “light-handed” balance of discretion, prescriptive provisions and outsourced self-regulation to achieve an effective compromise between certainty, predictability and consistency on the one hand and brevity, flexibility and individual fairness on the other. But that isn’t what usually happens. Instead regulatory approaches invariably trend over time towards the voluminous and prescriptive. Why?
One reason is simply because they can! Computers and now the Internet make it much easier for bureaucrats to produce voluminous legislation and for lawyers to access it than was the case before the 1980s. I suspect that’s one reason why we’ve witnessed the explosion in the sheer number of pages of legislation produced each year observed by Chris Berg.
Another reason is that it’s very much in the interests of both bureaucrats and lawyers for the law to be voluminous and complex. Lawyers obviously benefit when their clients can’t find or understand relevant laws without legal professional assistance. Bureaucrats are in the business of administering the law, and the more laws they must administer the more junior public servants and bigger budget are needed to do so. Power and prestige follow size and budget. New Managerialist approaches don’t seem to have affected that tendency to any significant extent.
A further and partly ironic reason may be the advent of plain English legal drafting. Some argue that the use of “legalese”, while incomprehensible to non-lawyer readers, at least permits brevity without sacrificing necessary precision. Others dispute that use of plain English necessarily results in either greater length or less precision.
The last and in some ways most interesting reason I want to explore for the explosion in the volume of regulation in Australia is the contest between parliaments and the courts evident especially since the 1970s. I’ll focus first on migration law and then on tax law as paradigm examples of this contest. In migration law, University of Sydney’s Mary Crock observes:
By the early 1970s, the courts’ attitudes to executive power were changing. Old distinctions between “judicial” and “executive” power and between “rights” and “privileges” in people affected by an exercise of power had begun to be broken down … Easy access to the Federal Court encouraged litigation. More importantly, judicial review proved to be a very effective weapon for disgruntled migrant applicants. Unlike the other avenues of appeal or review available which were universally recommendatory in their function, the Federal Court had the power to intervene directly in the decision-making process. It could order a stay of deportation and decisions that were found to be ultra vires could be remitted to the decision-maker to be decided in accordance with the law.
Traditionally, the courts had read broad legislative discretions as a Parliamentary directive to hold back from reviewing decisions made in the exercise of such powers. Throughout the 1970s and 1980s judicial attitudes to apparently unfettered powers turned the notion of ministerial accountability on its head. Instead of seeing such provisions as a way of empowering the Minister, the courts began to see such legislation as an indication of the breadth of the Minister’s responsibility to decide cases in accordance with all relevant considerations. The change in approach increased greatly the scope for judicial intervention. Almost any fault of omission or commission in the decision-making process became a ground for arguing that an error of law had been made. In some instances, the rulings of the Federal Court made it virtually impossible to distinguish between the judges’ purported application of the “rule of law” from a simple review of cases on their merits.
The High Court has more recently placed significant constraints on the Federal Court judicial activism described by Crock. However, in other respects recent High Court constitutional decisions have tipped the balance of power even more strongly in favour of the courts and against Parliament. The Court has ruled that neither the Commonwealth Parliament nor State parliaments possess the constitutional power to remove a superior court’s judicial review jurisdiction in relation to “jurisdictional errors of law” made by executive decision-makers. Most errors of law that administrators can commit have been held to be “jurisdictional” in nature.
In the migration area, Parliament has responded to this judicial adventurism by enacting voluminous and prescriptive legislation, spelling out exhaustively every element that must be satisfied to qualify for every one of the many classes and sub-classes of migration visa; by moving albeit only partly successfully to create “non-compellable, non-reviewable” Ministerial discretions; and by attempting unsuccessfully to put migration decisions generally and as far as possible beyond judicial review. The latter gambit was taken by the Howard government in the wake of the Tampa affair in 2001, but resulted in the High Court ruling in Plaintiff S157 v Commonwealth that Parliament simply had no constitutional power to remove the High Court’s judicial review function.
For most visa classes, spelling out eligibility criteria exhaustively and prescriptively has been quite successful at insulating decisions from effective judicial review. An applicant either qualifies or doesnt, there’s no room for argument. However, for the visa classes applicable to refugee asylum seekers that approach isn’t really an option. The criteria for refugee status laid down by the Refugee Convention certainly aren’t discretionary as such, but they unavoidably involve very difficult subjective judgments about risk and fear of persecution that aren’t amenable to the sort of detailed “check list” prescriptive approach that works with other visa categories to insulate against judicial review. That’s mostly why both the Howard and Rudd/Gillard government adopted the expedient of privately outsourced offshore processing of asylum seeker applicants. It was intended to put the decision-making process completely beyond the jurisdiction of Australian courts. The Rudd/Gillard Christmas Island version of this approach was blown out of the water by the High Court last November in Plaintiffs M61 and M69 v Commonwealth, which I discussed here and here. In the second of these posts I suggested that doing a deal with East Timor for a revamped offshore processing regime might be successful at placing decisions beyond judicial review by Australian courts, at least if East Timor plays ball with Australia (which I somehow doubt will be the case) . I also argued in a third post that Australia might be better advised to abandon the whole notion of offshore processing and mandatory detention of asylum seekers, but that seems unlikely to occur in the foreseeable future.
I had intended to outline the history of income tax law as an equally spectacular example of the contest between Parliament and judiciary as a major factor in the explosion in the volume of legislation highlighted by Chris Berg. However this post is already quite long enough, so I’ll leave that to a separate article in which I’ll also canvas a couple of ideas of my own for generating effective regulatory reform and simplification.