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The Regulatory
Challenge
Wyn Grant
University of Warwick
The big picture
 In
this lecture I shall be summarising
a vast political science literature on
regulation
 We will discuss PSD related issues in
the workshops
 My underlying assumption is that
regulation is a key task that serves
the public interest – but presents
many challenges for regulators
It all started at Putney in 1647
An historical ideal type
 Limited/night
watchman/Westphalian
state
 ‘The chief end of government is to
preserve persons as well as estates’
– Major William Rainsborough
 Tasks are defence of territory, law
and order; mobilisation of finance
 1790 – debt, defence and
administration – 82% of all spending
Keynesian/command state
 1890
traditional functions still
account for 65% of expenditure,
20% social (mainly education)
 Before First World War government
accounts for 15% of GDP
 First steps towards new type of state
taken with People’s Budget of 1900
(Lloyd George)
Keynesian Welfare State
 Promise
of full employment
 System of social insurance
 National Health Service
 Public housing
 Public expenditure grows faster than
GDP – a specific political objective
 Faces a crisis as rate of growth falls
Concept of regulatory state
Term originates in work of Chalmers
Johnson on Japan (1982) as contrast to
developmental state
 Historically US was best example,
regulation preferred mechanism for
dealing with market failure
 A regulatory state as one that attaches
more importance to regulation than other
forms of policy making

What is regulation?
Not easy to define but involves application
of predetermined rules to actions of firms
or individuals for public benefit (in
principle)
 Rule-based behaviour, controlling or
permitting behaviour
 Use of institutions of scrutiny and
enforcement
 Technocratic or depoliticised, semidetached from everyday political
pressures

Moran’s interpretation
 (Originally)
saw it as ideal typical
Weberian progression
 Command state involved
hierarchical, classical bureaucracy
 ‘Club government’ – tacit knowledge
of insiders, self regulation (City)
 World of command infantilised us all,
subjects rather than citizens
Regulatory state emerges
 Old
world undermined by scandal,
weakened systems of self regulation,
e.g., financial markets (selfregulation survives in sport)
 New world of self-steering networks,
governance rather than government
 Regulatory state is a low trust state
and a risk state
Many drivers of regulatory state
Majone: EU as a regulatory state,
comparative advantage is in regulation, as
has few fiscal instruments
 Modernity multiplies risks, there is a
heightened sense of risk – a cultural
construction but important
 Low public expenditure way of meeting
public demands, costs met by regulated
 Privatisation leading to utility regulation

Scandals picked up by media
New scandals highlighted by media lead to
demands for government action
 FSA asked to regulate hamper clubs, bus
services outside London re-regulated
 But regulators may clash: Ofcom resisted
Food Standards demands on obesity
because of responsibility for high quality
tv programmes – ‘two regulators
approaching the same public policy
challenge from the perspective of their
very different remits’ – head of Ofcom

Arguments for regulation
 Reflects
growing complexity of
society, need for task specific
regulators
 They can bring expert knowledge to
responsibilities
 Decisions based on rigorous scrutiny
of evidence rather than on party
political assumptions
But their task is difficult
 Single
issue pressure groups,
reflecting more fragmented society
 Accountability of such groups to no
one, lack transparency
 Assertions not backed by evidence
publicised by the media, especially
the case in food chain issues
Arguments against regulation
Regulatory capture argument. Largely
invalid. Based on experience in US
resulting from ‘iron triangles’ of
Congressional committees, regulatory
agencies and regulated
 Asymmetries of information between
regulator and regulated. Can be a
problem, but better dealt with by
specialised agencies rather than generalist
civil servants

Arguments against regulation (2)
 Replacing
decision-making by
insiders by decision-making by
experts
 Technocratic undermining of
democracy
 Moran repudiates benign view,
empowering civil society, enhancing
transparency, now sees it as ‘more
threatening and interventionist’
What we have learnt (1)
Need to choose right policy instruments
 Over reliance in past on command and
control mechanisms, high transaction
costs, often ineffective, leads to
bargaining outcomes (but they have a
role)
 Cooperation agreements, but above all
taxes and trading mechanisms. Carbon
tax arguably best approach to global
warming

What we have learnt (2)
 Need
to review structure and
organisation and agencies regularly
 Hampton Review in UK
commissioned by Treasury, looked at
63 national regulators
 Reduction in number of agencies
 Better Regulation Executive
The regulatory challenge
 Regulators
have to work within a
statutory framework
 The consequences of making a
mistake is serious, particularly where
public safety/environmental
protection is involved
 But they also have to respond to
changing demands in society
Regulatory innovation
 Almost
a contradiction, but important
if regulators are to retain trust of
politicians and stakeholders
 Exogenous pressures picked up by
internal change agents, desire to do
a better job
 Value of policy learning from
regulators outside UK, also from
research
A need for balance
Who regulates the regulators? The courts
and ministers retain ultimate control
 Change in architecture of public policy
formation demands care about which
decisions should be made by regulators
 What sort of society we should have and
what is unlawful is a political decision
