The war on red tape and the struggle to improve regulation

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  • Published Date: 09 February 2022

Since the 1970s, successive Australian governments have consistently expressed a desire to reduce regulatory burdens. Yet regulation continues to grow, often in response to community demand. A paper in the Australian Journal of Public Administration examines the role of regulation and the challenges of regulatory reform and initiatives to reduce ‘red tape’. It argues a new approach to reform is needed to deliver better societal, economic and democratic outcomes from regulation.

Understanding regulation

Virtually every aspect of life is subject to some form of regulation, broadly defined—from the air we breathe to the time we live by, from the food we eat to the money or credit cards we use to buy it. Regulation includes the deliberate use of taxes, levies and subsidies; incentives, contracts and grants; licences, registration, permits and accreditation; informational tools such as disclosures; and choice architecture. These are all in pursuit of public policy objectives, as determined and expressed through democratic debate and decision-making.

Regulation is typically introduced by governments to solve collective action problems that cannot be solved through contracts or other ‘private’ governance arrangements. This is often in collaboration with non-government organisations, and frequently in response to demands from citizens.

When it works seamlessly and invisibly, regulation promotes trust, predictability and stability. It is as essential as the redistributive and spending functions of government for citizens to live their lives and for businesses and markets to operate.

It is difficult to assess when and why regulation does or does not achieve its desired goals. Although there is general and bipartisan agreement that regulation should be effective and fair, there is less agreement about when regulation is unnecessary, excessive or unjustifiable. This assessment is often political rather than a technical exercise.

Regulation and red tape

The term ‘red tape’ may be used interchangeably with ‘regulation’. This is used to describe regulatory requirements that exceed the minimum amount of intervention necessary to tackle an identified problem. However, regulation and red tape are not the same thing. Using the terms synonymously makes for a flawed argument when calling for regulatory reforms.

The article argues the war on red tape and regulation waged by governments and business is essentially a political contest between fundamentally different views of what regulation means and what it represents.

Regulation and economic performance

A critical question is whether, and if so, how too much regulation hinders economic performance. One consistent criticism of regulation is the short- and long-term costs it imposes on business and the community. This is in terms of compliance, as well as restrictions on competition, innovation and flexibility.

There are two issues to consider about the costs of regulation and its relationship to productivity and economic growth:

  1. Citing total compliance costs is not the same as distinguishing between necessary and unnecessary costs. Compliance costs are necessary if they are required to achieve the objectives of the regulation.
  2. The relationship between regulation, compliance costs and productivity is unclear.

The Productivity Commission and the OECD are in agreement that the fundamental reform of economic regulation structures across most developed economies has facilitated economic gains. These reforms include the removal of regulated monopolies and oligopolies and the enabling of competitive markets in formerly highly regulated sectors like aviation, banking, telecommunications, and energy.

The potential for regulation to have a positive effect on productivity and economic output depends on how regulation is designed and administered. It is therefore unhelpful to characterise ‘regulation’ as either beneficial or harmful to economic growth and innovation.

How much regulation do we have? How much is too much?

In economic terms, there is too much regulation if the benefits outweigh the costs, noting that measuring aggregate costs and benefits is a difficult exercise with methodological problems.

Several proxy measures of regulatory burdens have been developed, including:

  • the number of Acts and regulations passed in any one year
  • the number of pages or words
  • the number in force in any year
  • the number of regulatory agencies and their staff or budgets
  • the number of regulatory restrictions.

These measures are not an answer to the question of how much regulation is ‘too much’. For example, measuring regulation by the number of Acts or regulations passed each year is different from the net number of such legislative instruments in force, as a number may also be repealed each year.

The challenge of regulatory reform

The article proposes three answers to the question of why reform efforts have failed to reduce regulatory burdens, red tape or both:

  1. The ‘weapons of war’ tend to become less effective and more subject to resistance from regulators over time. These weapons include regulatory impact statements, regulatory targets, repeal days and sunset clauses.
  2. The short attention span and volatility of the political and bureaucratic structures dedicated to regulatory reform run counter to the consistent and non-partisan effort needed for enduring change.
  3. Governments are being overwhelmed by public support for ‘more’ and ‘more effective’ rather than less regulation.

The bottom line

There is no question that regulatory reform is necessary. The regulatory policy settings of governments should be founded on an acknowledgement that good regulation is essential to economic and social functioning.

One approach to reform is to think of regulatory systems as an asset of value and advancing its leadership, culture and capability with government adopting a stewardship role. The paper also suggests a professionalisation of the regulatory workforce with regulatory experts doing the regulatory work

Acknowledging it will take time to train an expert regulatory workforce, an interim approach would be to subject new regulatory reform measures to independent assessment, such as by audit offices. Experienced regulators should also play a greater role in identifying improvement processes both for existing and new regulations, not as gatekeepers but as regulatory centres of excellence.

The combination of commitment to regulation as a public good, professionalisation of the regulatory community and regulator-led improvement initiatives would improve regulatory performance and capability.

Want to read more?

The ‘forever war’ on red tape and the struggle to improve regulation - Arie Freiberg, Monica Pfeffer and Jeroen van der Heijden, Australian Journal of Public Administration, January 2022

The original article is available via individual subscription to the journal or institutional access through a library service such as a university library, state library or government library.

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