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Dissecting Rules

Analysis of law and regulation – ‘beneath the policy shine’

Regulation of business is an ongoing challenge in shifting winds. Rules are both a phenomenon of and a choke on progress. Australia’s COAG (Coalition of Australian Governments) has promised – again – to reduce regulation and red tape, and to lift productivity and prosperity.

Over two decades, Sandra Welsman has developed an integrated body of industry and law based work on ‘laws regulating business’ – that is, the multiple and deep effects of all sorts of regulation on small and larger businesses working to compete globally. We work with industry sectors to contribute to all types of regulation reviews – raising issues with regulation that Governments say they must address. reviews

But 2009 is showing signs of reversion. Only months since Australian politicians reinforced their concerns about regulation overload on business, international cries to reign in financial cowboys seem to be translating into a new faith in government regulation all round. At ground level however, Australia will need to weigh this against stark effects of regulation on investment, initiative and innovation.clouds

Nor is ‘national regulation’ – a seamless economy – the panacea answer, although it is a package COAG can grasp. Uniform regulations across Australia, if achievable, will not fix poor regulation structures nor negative impacts of sets of rules, intended or otherwise. Uniform poor regulation will increase costs and spread productivity and innovation losses across the economy.

Not all impacts of rules reflect policy intentions, and all regulations need to be open to cost scrutiny. Reviews often report ‘unintended consequences’  of legislative changes and the ways rules are implemented. Negative effects and costs include dulling the inventiveness Australian policymakers and communities depend on from entrepreneurs, business developers, employers and researchers.

The Welsman approach to dissecting rules involves ongoing monitoring of key regulation areas, especially RegSciLaw interfaces >>, plus tenacious and creative analysis of policy, all forms of regulation, and in particular, how regulators, businesses and groups make use of rules (as many do). This analysis extends the perspectives of businesses including SMEs. It is more critical and questioning than lawyerly reading of legislation and occasional cases (most regulatory law impacts stay well outside the courts), and more hands-on than economists with a macro-focus and reliance on regulators for advice.

Frontiers Insight offers:

  • Incisive Regulation Review – beyond economics to practical impacts of laws and detailed rule and rulemaking on operations, productivity and ongoing business innovation.
  • Dissection of rules – statutes, quasi-legislation, standards, expectations – with regard to policy and practices. Development of evidenced cases for change.
  • Analysis of structures – resourceful review of systems and power in industries; market, technical, policy, regulatory, social, economic dimensions. reviews, strategies
  • Questioning inquiry at interfaces – scientific-commercial-legal-social – including issues arising in the multiplying technical rules and standards. RegSciLaw

A letter on Australian deregulation policy and issues with rules. Dr SJ Welsman 9.2008

To whom might be concerned. Addressing the National Press Club in April 2007, then Opposition leader Kevin Rudd was fortright:

‘The truth is business regulation is now right out of control … too much of our business community’s time, effort and attention is being consumed by glorified compliance agents on behalf of governments, both Federal and State. This is stifling the incentive to take risks and to innovate. It throws sand in the engine of economic growth.”

As PM, Kevin Rudd, appointed a new Federal Minister for Deregulation (Lindsay Tanner), and a Minister Assisting (Craig Emerson), who reiterate promises to genuinely reduce regulatory load on Australian businesses and impact on productivity, innovation and investment. In late 2007 and through 2008, repeated COAG support meant a possible turning point for Australia.

However, as Minister Tanner has observed, ‘regulatory reform is littered with good intentions and deregulatory initiatives which have not ultimately delivered for business’, across Federal or State governments and all parties in power.>>

Regarding outcomes of the 2005 Banks’ review, for instance, the Minister was justifiably cautious in saying ‘we are … checking that these actions have indeed reduced the regulatory burden on business, and if not, will look to refocus effort towards that goal’.

Achieving regulation reduction is a complex challenge – that governments appear to leave in the hands of economists, agencies and regulators. Despite promises, reviews and the creation of new Offices, business regulation has escalated over the last two decades. Arguably, only through National Competition Policy efforts has regulation reform occurred, and then mainly in regulated structures in some key sectors.

Already COAG seems to have retreated from the vision of de-regulation to a view of a ‘seamless economy’.>> Clearly Australia cannot afford the regulatory foibles of nine governments, but nor is harmonisation of quantities of rules across jurisdictions the main answer to regulatory inefficiencies. Harmonisation of over-regulation will not benefit Australia.

To ‘streamline’, rules need to be removed, including blocks of regulations and instructions. Various types of ‘regulatory creep’ that increase day-to-day compliance costs above necessary, also need to be seriously addressed.

 Here are three ‘dissected’ issue areas – deeper than the usual argument about red tape, and barely considered in reviews of regulatory burdens on business, or scant academic debate.
i) Time as a test of regulation need. New rule schemes often take years to develop from concept to enactment, as do major rule changes. If a government is concerned to cut regulatory load, it would be logical to critically re-test the need for the regulatory regime at points through the development period. The benefit-cost basis for a set of rules can be changed by events over 3-5 drafting years.

Where new laws (on transport, chemicals, education, food, services etc) are to be introduced over a some years, a ‘fair-dinkum’ rule reduction process would critically review the circumstances and need for those rules at stages along the timeline and as many factors change including industry performance.

Similarly, the cost-benefit of regulations first drafted back in 2003 but not implemented until 2008, should be re-tested under new COAG red-tape reduction directives. Will the 2008 regime measurably improve sector performance compared to the prior five years of operation without the new set of rules?

If genuine regulation reform is the intention, neither governments and agencies should rely on processes used even in the last few years. Pre-2007 review reports, regulatory impact statements, consultations, or submissions from industries or businesses, are outdated. They do not reflect the new policy climate and concerted promises to cut-back regulation.

ii) Regulation costs as a continuum. A range of Australian industries (important socially and economically), attract ‘more’ media and political attention for various reasons. Policies and rules tend to reflect this higher profile. Such industries often invest in research and training to advance their operations and performance.

In these industries, as in all, the ways rules are implemented by regulators adds to costs, and  affects innovation and competitiveness. Whatever the sensitivities, costs of regulations should not be just accepted as ‘an inevitable consequence of the objectives of the regulations’.

In business reality, ‘extra costs’ incurred are a continuum of ‘expected costs’ (to achieve policy objectives) plus ‘unnecessary costs’ (eg. from design or application of rules by regulator officers). Higher costs may be inevitable but the extent of such costs (direct and indirect) should be up for close questioning in any lawful Australian industry – and in any government review.

iii) Industry structures and interfaces. Consultation with stakeholders is a key part  of regulation best-practice systems. Many sectors  fund Associations, usually with members ranging from established major firms, to small operators including innovative businesses entering the industry. Some ‘peak’ bodies cover only a proportion of a given industry.

To achieve COAG deregulation objectives, consultative processes and weighting of industry inputs also warrant reflection.Governments, regulators and reviewing offices and agencies, all need processes to bring about effective, in-depth investigation into regulation impacts within industries made up (as sought by society) of commercial competitors ranging from large to small, established firms, upcoming innovators, and local and international operators.

Relying on views or support from some, often the largest, in highly competitive industries, may not achieve minimum regulation, or optimum economic or business outcomes.