Saturday, March 22, 2014

Murray Sherwin: What can be done about regulation

Last week the Productivity Commission released its draft report  into regulatory institutions and practicesRegulation affects all New Zealanders every day. Hundreds of regulatory regimes and many thousands of officials and inspectors work in regulation. It’s an essential component of modern, successful societies. But when regulation is done badly it can cause more harm than good. Last week, the Productivity Commission released its draft report into regulatory institutions and practices. 

Nobody knows this better than businesses about the impact of regulation. That’s why the commission was so keen to talk to them about their experiences with regulators. We received 53 submissions and had 92 face-to-face meetings – including many with New Zealand’s largest and most-regulated firms. 

But we also wanted to understand how other businesses thought about regulation. That’s why we commissioned a survey of more than 1500 businesses about how they perceive regulations and the regulators they work with.

The results were sobering. Only 24% of businesses thought the reasons behind regulators decisions were clear. Only 28% of businesses understood what they got for the fees regulators charged them; so it’s no surprise 48% of business didn’t think regulator charges were fair or reasonable. 

Forty-four percent of firms thought regulators were rarely or never held accountable for the quality of their work; 49% said regulators rarely or never work together to reduce paperwork businesses have to fill out; and 37% said regulators didn’t understand the issues facing their business.

It wasn’t all bad news though. Only 16% of businesses thought regulators were unwilling to work with them to help them comply with regulatory requirements and 43% thought compliance officers were friendly and non-combative (only 12% disagreed).

These findings had a strong influence on our draft recommendations for improving regulations. Our key conclusions are based around six areas.

Six action areas

First, the regulatory system isn’t flexible enough. We have a “set and forget” mentality… until something goes badly wrong. The government spends a lot of time thinking about new regulations but not nearly enough about how effective and necessary the existing stock of regulation is. More systematic evaluation of existing regulations will help ensure requirements that are necessary stay current and that requirements that are unnecessary can be removed. 

Second, there are too many unjustified inconsistencies between the institutional arrangements and regulatory processes of different regimes. Readers will understand how this imposes unnecessary costs on business. It also makes life harder for government and officials than it needs to be. We can’t afford to run 200 bespoke regulatory regimes and cleaning up some of the inconsistencies will be a win-win for government and business.

Third, the commission agreed with the concerns from business about the capability and knowledge of regulatory staff. In fact, front-line staff say they’re concerned about their capability and access to training as well.  We can do more to lift their skills and understanding across the system.

Fourth, we think the checks on regulators could be stronger. The courts do a fine job but not every business can afford to challenge regulatory decisions in a court. That’s why we recommend looking at whether the Ombudsman is funded appropriately. We think Parliament could play a stronger role through the Regulations Review Committee to ensure new regulations are well-drafted, fair and don’t impose unreasonable costs.

Fifth, we need to do much better at monitoring the performance of regulators. Weak monitoring of standalone regulators by government departments doesn’t provide much confidence to ministers or the public that regulators are doing a good job, or early warnings of potential regulatory failures. More effective monitoring should provide a robust view of how our regulators are doing.

Our final message to the government is that the regulatory system needs a leader. Regulation is a huge system within government but compared with the management systems that control government expenditure and taxation, we know very little about the regulatory system. A minister with responsibility for regulation as a whole needs to be responsible for setting a strategic plan for government regulations, including how they will be better evaluated and improved.

Former US President James Madison said if men were angels, no government would be necessary. Until that time, there will always be a need for regulation. Our report aims to ensure regulation is as effective and efficient as possible, while protecting the rights of individuals and businesses. That’s not easy but it is important.

Comment and feedback on the draft report are welcome. Murray Sherwin is chairman of the Productivity Commission