A short history of red tape and efforts to bust it (Part I)


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.

Part II follows …

About Ken Parish

Ken Parish is a legal academic at Charles Darwin University, with research areas in public law (constitutional and administrative law) and teaching & learning theory and practice. He has been a legal academic for almost 12 years. Before that he ran a legal practice in Darwin for 15 years and was a Member of the NT Legislative Assembly for almost 4 years in he early 1990s.
This entry was posted in Law, Politics - national, regulation. Bookmark the permalink.

14 Responses to A short history of red tape and efforts to bust it (Part I)

  1. observa says:

    The most obvious cost is housing affordability as this analysis shows-
    http://www.news.com.au/business/red-tape-puts-us-in-house-bind/story-e6frfm1i-1225999927684
    Working in the building game you’re acutely aware of all the red and green tape, the latter in particular being used increasingly by the usual rent-seeking NIMBYS. Driving into ‘99% reductions by Xmas’ Canberra/ACT a couple of years ago, the senses were assaulted in the paddocks by- ‘This is a windmill free zone’ near Hall. Strictly Hunter Valley black presumably.

    The other biggie is consumer protection legislation. I look back at my parent’s generation (1920s baby boomers)when most left school at Grade 7. Never before in our history have so many been so educated to paper the walls of every fast food outlet in the nation and yet never before have so many required so much protection from themselves and their own decision-making, by so well remunerated few. It seriously begs the question- Is our education system that bad nowadays?

  2. Tom N. says:

    As you link you provided indicates, Ken, the efficient markets hypothesis relates to the informational efficiency of financial markets – not the many other markets that comprise an economy. Thus, your suggestion that the puncturing of (strong versions of) the hypothesis during the GFC is an “obvious problem” for the case for reliance on market forces (with government information provision) overgeneralises the lessons that can reasonably be garnered from the GFC.

  3. Ken Parish says:

    Tom

    I’m sure you’re correct. As I frequently confess, I’m not an economist. However, in my non-expert understanding financial markets include the stock market and capital markets, and so the extent to which they function rationally impacts markets in goods and services generally due to capital flow decisions e.g. to what extent will the financial markets fund construction of housing for people who may well never be able to repay their loans? To what extent will they provide overdraft finance to small business and on what terms and why?

    Moreover, many of the cognitive biases discussed in critiques of the efficient markets hypothesis are behavioural phenomena about people and human decision-making generally not just those engaged in financial markets. Take, for example, confirmation bias. Read just about any comment thread of just about any blog and you’ll see multiple examples of it. Thus, although I don’t oppose Gillard’s MySchool website initiative, I have significant doubts about whether making even quite extensive comparative information about school performance available to parents will make much difference in the school they choose for their kids or their demands and expectations on teachers once they get there. Legislating to ensure that consumers have available to them accurate information about products and services they may want to buy is certainly a good thing, but it’s not a magic solution that could sensibly be regarded as a substitute for more general regulation of the behaviour of participants in markets for any given goods or services. That’s all I’m saying here.

  4. Marks says:

    Perhaps another factor in the amount of regulation is related to the factors observa noted, inasmuch as regulation is also a consequence of public activism requiring the government ‘do something’ about problems, perceived or otherwise (observa’s example was windmills).

    I would imagine that at the time of Federation, the number of people communicating with the average MP was small relative to today. However, nowadays with everything from shock jocks to email campaigns and blogs, there are so many people out there demanding that something be done about more and more subjects, that it is very easy to get into a prescriptive mode just so that an MP can point to a piece of legislation and say: “The XYZ party has moved an amendment to the MNO Act, Section 1, Para ii, subsection 3, subpara iv, clause 24(b)”

  5. Jim Belshaw says:

    Ken, the earliest Australian reference I have seen to explosion of legislation was in a NSW context and dated to 1926!

    In 1980, then PM Fraser became worried about the growing regulatory burden on industry. I found myself on a regulatory review task force. We went through regulation after regulation that in some way affected industry. The problem that quickly emerged was that while we all agreed that there was too much regulation, every single rule or regulation had its defenders inside and/or outside the system. Nothing happened in the end.

    I think we have the same problem today. I call it the what if problem. What if something goes wrong?

    It’s not just formal legislation or subordinate regulation, but a cascade that works through multiple layers. There are just too many protocols, policies, procedures, standards, operating rules to the point that no one can really follow them any more.

    I have been trying to argue a case for policy, administrative and management simplification. In fact, I get pretty broing on the topic. I find, as I found in 1980, that as soon as I move from the general to the specific, responses tend to change from positive to negative.

    I wonder if any meaningful change is possible without fundamental cultural change to reduce the impact of the combination of yes but with what if!

  6. Tom N. says:

    Ken – no great disagreement. No market is perfect, as economists (and I am one) have long known, but places like the Productivity Commission have been talking about congitive limitations, and factoring them into analyses of whether and how to regulate, for many years.

    It didn’t take the GFC and critiques of the EMH to raise those considerations. Nor does the existence of cognitive limitations and other behavioural biases necessarily mean that market forces, in some cases coupled with information provision by government, are not to best option available – ie less imperfect than alternatives such as more directive government intervention.

    Thus, the point I am making is that, in addressing the threshold of “should we regulate?”, observing that market forces are imperfect and that informed individuals can still depart from rational behaviour is not a sufficient condition for finding in the affirmative.

  7. FDB says:

    Pages schmages.

    Personally, I like the idea of legislation being thought out meticulously and drafted in such a way as to be useful, rather than leaving room for bluster and ad hoc redefinition.

    Simple law is for simpletons.

  8. paul walter says:

    Hullo, Prof.Hayek.
    Now can I take your daughter out to dinner?

  9. observa says:

    “Simple law is for simpletons.”
    And therein lies the nub of the problem. I strongly suspect it’s been the rise of the ‘graduazzi’ class that has begat so much complex regulation. ie supply begets its own demand and that is increasingly responsible for the disparity in income and wealth we experience in developed countries everywhere. I spend most of my time in business dealing with the complexity of administration and regulation to the point of exasperation and yet I know only too well I am rewarded for that in the long run, far above those who actually toil at the building sites on wages. If you can manage both like the few self-employed tradeys can(and I’d rate them as members of the graduazzi) you are in clover like my electrician son nowadays, albeit he has an experienced mentor to dot the ‘i’s and cross the ‘t’s for him. Increasingly there is a two tiered economy. Those with the technical/educative capacity that can accommodate the regulatory/administrative burden and those that drown in it. The more that drown, the more the demand for even more publicly funded graduazzi to come to their aid. Essentially a Catch22 for the non-graduazzi among us.

    Where you’ll see that non-graduazzi frustration increasingly boil over is at the coal-face of interaction with the graduazzi class and their mounting legacy. My niece works part time at the Registrar of Motor Vehicles while the kids are at school and she and her workmates now need a permanent security guard and protective screens to counter the boilover frustrations of the many who have to deal with the one stop shop for a plethora of administration and regulation. You need a thick skin but she’s an experienced graduazzi mother of three.

  10. D W Griffiths says:

    I could try to say something deep about regulation, but first – Ken, take down the picture.

  11. Ken Parish says:

    DW

    May I suggest you post on Part II, which has no picture at all? I’m afraid I find the oppressively sanctimonious attitudes expressed by a couple of rad fem commenters on one of Nicholas’s previous posts just so utterly objectionable that I’m not prepared to give them any quarter whatever. I’d rather be guilty of childishly petulant and rather tasteless sexism (to all of which I confess).

  12. observa says:

    And here’s the problem in a nutshell. Firstly the good burghers of Randwick full of themselves and their good intentions, raising the hackles of every little bloke like Mr Petrou who believes his home is his castle, or at the very least a modest castle needs running water-
    http://www.smh.com.au/environment/conservation/an-unkind-cut-that-led-to-a-record-fine-20110201-1acgo.html
    while Mr Carlin can no doubt well afford to thumb his nose at the like burghers of Port Adelaide Enfield and their heavies in the Dept of Environment, Resources and Development-
    http://www.adelaidenow.com.au/news/south-australia/fine-but-tree-lopper-says-theyre-dangerous/story-e6frea83-1226000767789

  13. Paul Frijters says:

    Ken,

    an issue close to my heart. The regulatory expanse is a real emerging socio-economic trend crying out for an adequate explanation.
    You worded my own opinion on this well by your short paragraphs on costs of supplying regulation and personal benefit:

    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.

    These are all very valid supply side stories, that would immediately give you a possible remedy, i.e. to restrict the number of places in law degrees at universities.

    I would also point to the demand side issue though in that populations, both locally and at the national level, seem very fond of regulation. Just think of the flood, the cyclone, and the financial crisis. People get hurt, are upset, and demand something must be done to ensure less hurt next time. Government supply reassuring regulation and would get booted out if they fail to react that way. The belief in the ability of government to supply protection against the outside world seems particularly strong at the moment.

  14. derrida derider says:

    Paul’s right, but I think it needs just a little more explaining. The demand is real, strong and has always been there since universal suffrage was introduced. But I don’t think the demand curve has moved much. The supply curve on the other hand …

    Without computerisation and lots of what Observa calls “the graduazzi” (lovely rterm, BTW – both less pejorative and more accurate than “the elites” or “the chattering classes”), it would be totally impossible to have such complex regulation across a wide range of fields – especially taxation and social security. The direct cost of regulation has dropped like a stone, and it’s the direct costs and benefits that figure in the regulators’ calculus. Indirect costs, which have not changed nearly so much, are borne by others.

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