Regulatory Responsibility NZ style

I’ve posted before on New Zealand’s Regulatory Responsibility Bill which has become the Regulatory Standards Bill on its passage from advisory taskforce into the Parliament (and it’s often referred to in this post as the Regulatory Responsibility Bill or RRB). In the spirit of virtually all the other initiatives around to world to improve regulation, it does so by reference to the Michelangelo theory of regulation. This teaches us that all we have to do to get the best possible regulation is to increase the difficulty of making bad regulation. In furtherance of this approach governments around the world have regulated regulators to require new regulations to receive satisfactory regulatory impact analysis in order to become regulation. It’s a good idea (at least as far as it goes – it might be useful having some specific attention given to enhancing regulatory outcomes, and not just minimising regulatory costs). But it turns out that even the negative part of the agenda doesn’t seem to work very well.

Here are some reasons why:

The need to win elections leads politicians and their parties to develop a very good understanding of the factors that drive public opinion. Media exposure is “political oxygen”, mainstream media analyse the politics and not the policy of an issue, and the media require instant reactions and ready sound bites.

Consequently, Ministers feel the pressure to:
• respond quickly and decisively to the latest risk, accident or misdeed;
• commit to concrete action, even without evidence that the action will address the problem, or that benefits are likely to exceed costs;
• stick to a political commitment once made; and
• deliver on the commitment as soon as possible.

In the case of legislation, the pressure to deliver quickly is exacerbated by two factors – pressure to deliver results within a short three-year Parliamentary term and pressure to minimise the call made on precious House time.

The incentive issues are not just confined to Ministers:
• MPs have limited incentives to carefully scrutinise and improve proposed legislation, as it does not bring them media attention;
• Government MPs who hope to be Ministers won’t readily risk disfavour by providing strong independent scrutiny or insisting on good process;
• Public servants are often reluctant to give advice that Ministers don’t want to hear, because of their duty of loyalty to the government and their desire not be dragged into the political contest if the advice becomes public;
• Agencies tend to work in policy silos – they lack a whole-of-government perspective and are reluctant to put resources into playing a wider role;
• Private interests are often willing to lobby for regulation that will benefit their interests at the expense of others; and
• Anyone that promoted a particular piece of legislation has few incentives to look for and publicly report evidence that it isn’t working as intended.

Those aren’t my words, but the words of a regulatory impact statement.

And the regulatory impact statement is by the NZ Treasury and the draft regulation they’re analysing is the Regulatory Responsibility Bill. Now the RRB is something which takes regulatory analysis so seriously that it constitutionalises it. It’s a bill of rights which requires regulators, including legislators to regulate according to the principles of good government. So naturally it requires a regulatory impact statement. The problem is that the regulatory impact statement thinks the legislation is – well silly.

Rodney Hyde one of the very few ACT members of the NZ Parliament and champion of the beleaguered bill explains, “The Bill is straightforward and simply requires the Government to explain itself when it wishes to regulate in a way that conflicts with sound principles of law-making,”. See how it works! If the Government is doing anything that might not be the best it can do for the country, it has to explain itself. Clever really.

Anyway, Treasury, which did the RIS (pdf) was not very persuaded of any of this. For anyone who has the time it’s a good, succinct explanation of the state of play as seen by the NZ Treasury. I recommend them as being in good command of the material and it’s clear that their view of regulatory impact analysis as a tool of regulatory improvement is somewhat jaundiced.  It seems quite like mine, which is that I doubt it should be removed but it’s accomplishments are pretty modest. (They even use a tagline that I’ve used which is to describe this kind of approach as regulating regulators).

New Zealand has had some form of Cabinet-mandated regulatory impact analysis (RIA) requirements, including provision of regulatory impact statements (RIS), since 1998. In practice, RIA thinking and RIS preparation have tended to be more of an afterthought and compliance exercise.

Treasury’s view is that recent changes to the RIA requirements have led to some modest improvements in the quality of analysis presented in RISs. Significant improvements, however, seem highly unlikely based on experience with RIA in other OECD countries. Even in jurisdictions where RIA is well-established, researchers find significant non-compliance with expected standards and processes, and limited influence on actual regulatory decisions.

One of the principles of regulatory impact analysis is analogous to the principle of subsidiarity which says that you should solve problems at the lowest level of official direction. So if it can achieve the same end, an informal practice would be better than a formal one, guidance would be better than a regulation, regulation would be better than legislation and so on.  So the Treasury RIS comments:

The  case  for  new  requirements  rests  in  part  on  a  conclusion  that  changes  to existing  arrangements  won’t  substantially  improve  legislative  quality.    The Taskforce indicated it was satisfied on this, though did not really explain why. The  case  for  new  requirements  rests  in  part  on  a  conclusion  that  changes  to existing  arrangements  won’t  substantially  improve  legislative  quality.    The Taskforce indicated it was satisfied on this, though did not really explain why.

It’s all pretty ironic this move to improve regulatory process being criticised by the existing apparatus for ensuring good regulatory process. Now Hyde has released the Cabinet Submission (pdf). Ministries are not impressed.

The Ministry of Health (“Health”) supports initiatives which ensure the development of high quality legislation and contribute to good law-making processes. The Bill, as currently drafted, is unlikely to further those goals or improve the quality of legislation. For that reason, Health does not support the introduction of the Regulatory Responsibility Bill.

The Ministry of Foreign Affairs and Trade has a particular concern that the proposed “Principles of responsible regulation” do not include a principle relating to compliance with international obligations.

The Ministry of Agriculture and Forestry (MAF) has significant concerns about the Bill . . . much of the legislation it administers has an enabling rather than restrictive effect and that delays in tertiary instruments (such as may occur if the Bill is enacted) could have the effect of stifling business and trade opportunities. In respect to departmental costs, it is estimated that the additional cost to MAF in the biosecurity and animal welfare contexts alone (based on the volume of legislative work that will need to be undertaken in an average year) would be $770,000.

Ministry of Economic Development {MED) considers that there i5’a significant risk that the Regulatory Responsibility Bill could also have a negative impact on business and the wider economy. The lack of clarity associated with the meaning of some of the Bill’s prinCiples, the way in which they might be interpreted and applied by the courts, and opportunity for legal challenge could create a regulatory environment with significant levels of ongoing instability and uncertainty for business.

Postscript: Rodney Hide defends the Bill here.

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5 Responses to Regulatory Responsibility NZ style

  1. Ken Parish says:

    Thanks Nicholas. All very interesting. I too find myself mostly in agreement with NZ Treasury’s analysis, although it’s hard not to notice the self-serving Sir Humphrey dimension of it.

    It seems to me that there are some parallels between the constitutional principle of subsidiarity and the Toyota/Total Quality Management principle of opening up management/lines of communication to workers at the “coalface” (and even consumers and outside experts). That sort of open communication/receptiveness is critical to quality regulatory reform. In turn this is in considerable part what I understand you’re on about in your Gov 2.0 stuff (which I confess I haven’t read in whole).

    However, it isn’t obvious that public sector managers have any tangible incentives to adopt such practices. In fact in the short term it’s probably more a headache/risk than a benefit for a senior manager. I suspect you and Paul Frijters might have been shouting past each other on this point in your recent discussion. One of the keys must surely be to engineer incentives for senior managers to embrace this sort of reformed, more open process. Tying remuneration and promotion prospects to success in implementing Gov 2.0 opennness, for example. In the private sector the incentives are much clearer, because TQM processes demonstrably boost profit and product quality. In the public sector you need to deliberately engineers those incentives along with ways of measuring success that are fair and non-distorting. Fairly tricky, I suspect. I’m sure you cover this stuff in your report, but as I say I’ve been remiss in not reading it in full (I’m fishing for a lazy reader’s quick summary).

  2. Nicholas Gruen says:

    Hi Ken,

    Incentives are important, though much misunderstood by economists.

    I suspect that in an environment as complex (or perhaps despite my hatred of the modern usage, I should say ‘nuanced’) as the public service, it’s very difficult to specify in advance the kind of behaviours you’re trying to ‘incentivise’.

    I have always been suspicious that bonuses are likely to work well in the public service – and indeed they don’t work too well in the private sector except where what you’re trying to incentivise is easily measured (like sales).

    One thing that comes out of the Toyota handbook is the significance of intrinsic motivation and of teamwork. Fortunately those two things go together. But they receive very short shrift in public sector discussion of it’s own work. I wonder how many other government reports mention intrinsic motivation – at least the Gov 2 report did. I think it’s somehow key. The idea in the Toyota playbook that’s fundamental is that people generally prefer doing good work to bad work and so the organisation’s task is to assist them in realising this aspiration.

    (As an aside one of the speakers at Manning Clark’s funeral explained his management philosophy – as explained by Manning. “I like to find out what people really want to do and then encourage them to do it”!! I love that.)

    Anyway, all this sounds nice, but the Toyota system is in the context of clear metrics which teams can access to show them how they’re going – build quality, rate of build etc. Those things can be agreed throughout the organisation.

    It’s much harder coming up with any such metrics in the public sector – in fact near on impossible at least in policy areas I would have thought.

    One thing I have always thought would be worthwhile would be the release agency by agency of employee opinion about how well the organisation is managed, how well employees are engaged. But this is a long way from a recipe to ‘implement’ government 2.0.

    On the form incentives take, the main ‘incentive’ in the system at present is promotion and it seems that’s an old wisdom of organisations. I am not sure one can do too much more than that. But there’s a lot wrong with that too – because of the idea that once promoted one is the best person for the job to which one has been promoted and all equally senior positions over and above people who’ve not been promoted. And of course what really matters are the values according to which decisions are made on who is promoted. They invariably come to take on all sorts of implicit values – I suspect there is no alternative – but the result is much perpetuation of insider cultures.

    (I once recall overhearing a public servant with whom I was working giving a reference for a colleague and underling. He began by saying that his collegue had lacked ‘judgement’ but that his ‘judgement’ had much improved. I wonder what work that word ‘judgement’ was doing in the conversation. And whether good judgement happened to correlate rather strongly with agreeing with your bosses views?)

    My own pet idea is that the public sector should think about itself as on a continuum between the private sector – where there’s serious money to be made – and academia which is curiosity driven to a substantial extent. This analogy doesn’t work that well today because academics are being ‘incentivised’ in their own ways (much of it dysfunctional).

    I’d like to see more effort being put into rewarding of self starting success and gregarious, organic and productive collaborations being made within organisations. Google 20% time is an attempt to do this, though if I were implementing the idea within the public service it would be as a reward to those who’d already shown some initiative. Likewise in my ideal world. public servants who’d distinguished themselves would earn sabbaticals every few years if they wanted to, to work on some policy problem in a more sustained way than is normally possible in the public service. The ratio might be – say – one year in five-seven, though one might also enable people to go offline for two or three months at a time on research of immediate import.

    So those are ‘incentives’, but I’d be pretty wary of incentives linked to ‘metrics’, though metrics are all the rage these days – even in academia. It is deliciously ironic that we berate our academics and tell them to be relevant and then incentivise them to publish in global journals the selection criteria of which tend to mean that the work is not relevant to Australia.

  3. Pingback: Rafe’s Roundup 5 April at Catallaxy Files

  4. Nicholas Gruen says:

    A usual suspect weighs in – in support.

  5. Nicholas Gruen says:

    This fellow is not too impressed!

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