| Review of: | Regulatory innovation. A comparative analysis edited by Julia Black, Martin Lodge, Mark Thatcher Refining regulatory regimes. Utilities in Europe edited by David Coen, Adrienne Héritier |
|---|---|
| Reviewed By: | Jørgen Grønnegaard Christensen |
| Reviewed in: | Public Administration |
| Date accepted online: | 02/11/2007 |
| Published in print: | Volume 85, Issue 2, Pages 541-568 |
Reviews
In recent years there has been a strong interest in regulatory reform. Interesting studies have appeared that contribute to our understanding of an important and fascinating field within public policy and administration. Although these studies naturally have a diverse focus, a set of general propositions have been propagated in their wake. Taken together they offer a modern view of government in a world that, within the span of two to three decades, has undergone radical transformation.
According to this generalized view, countries increasingly converge in their regulatory policies. This is accounted for by strong forces of globalization and by the role played by an international forum of deliberation (for example, the OECD) and supranational policy-making within the EU. The creation of epistemic communities of like-minded experts working in an international setting together with the forces of global competition and transnational NGOs are also seen as important. The emergence of this new world of governmental regulation that transcends national borders, according to the same literature, has led to the break-up of traditional government monopolies for public service utilities and network industries. Finally, it has paved the way for new forms of administrative organization, in which governments delegate authority to newly created agencies that enjoy considerable autonomy from their governments. This step is seen as an important precondition for establishing credibility of government regulators with regard to the now private investors who enter the market to provide business and consumers with these services.
So, interesting and inspiring as these studies have been, their bold generalizations rest on a fragile basis. Often their propositions have been derived from observations that are either quite narrow (studies of one sector in one or a couple of countries), quite superficial (the incidence of governmental agencies across the world), or logically deficient (claims of radical change derived from cross-sectional data). The two studies reviewed here are different in these respects. Neither of the studies come easily to their conclusions. Instead, (add) what these books offer are detailed and carefully designed case studies. This allows their authors to qualify our knowledge within the field of regulatory studies. At the same time, their own different research designs make them highly complementary.
The starting point for Julia Black and her associates is innovation - one of the buzzwords of contemporary regulatory analysis. Julia Black herself discusses the extreme ambiguity of the concept. The concept of innovation is often linked with the equally loose concepts of change, invention and diffusion. In her own words, it is associated with strong connotations of 'newism' and a bias of benevolence. Thus, the general impression created is that we have entered an age of rationalization. To bring some clarity to the discussion, Black defines innovation as 'the use of new solutions to address old problems, or new solutions to address "new" (or newly constructed) problems, but not old solutions to address old problems'. In the subsequent chapter, she points out that the voluminous literature on innovation has largely ignored the insights drawn through studies carried out in the 1960s and 1970s.
In accordance with the insights drawn from these older studies, Black organizes the analysis of regulatory innovation in four worlds, or analytical levels. They are the individual level (that is, the entrepreneurial actor successfully rigging the agenda for a specific reform), the organizational level (that is, innovations developed within and undertaken by typically a regulatory authority) and the state world of innovation (that is, the popular view that institutions matter, and that in some countries they create a bias towards innovation while in other countries they stack the deck against it). Finally, there is the world of the global polity where innovative ideas through transnational epistemic communities are spread from leaders to laggards.
The four perspectives to some extent frame the subsequent case studies. Together, they cover a broad field of regulatory policy. This marks them out from the majority of recent analyses that have focused entirely on the regulation of public service utilities. The four perspectives also serve as a sound reminder that government regulation does indeed have an extremely broad scope; in addition, they serve as a link to earlier studies of governmental regulation that kept a focus on both economic and social regulation. Here, the scope is further widened to cover legal regulation: that is, setting up standards for appropriate behaviour in general social and political settings. An example is Robert Kaye's study of conflict of interest regulation in both the British parliament and the US congress. Another example is Christopher Hood and Martin Lodge's comparative study of the political dynamics involved in the parallel development of regulatory intervention against dangerous dogs in Germany and the UK and to some extent other European countries. The latter instance is taken as an example of how politicians are sometimes forced to economize on rationality when events that are unimportant from a societal perspective catch the headlines. Thus politicians can decide to react uniformly in the absence of evident cross-border diffusion and in spite of their different institutional structures.
The remaining contributions all concentrate on economic regulation. Martin Lodge presents a very thorough analysis of regulatory reform within rail transportation in Britain and Germany. Contrary to the most recent studies, he provides a thoughtful historical perspective which is based on a distinction between three stages in the development of regulation. In his perspective, the present stage of liberalization and market opening presents a move away from the stage of nationalization that marked the period after World War II. However, between the wars both countries went through a stage marked by decentralization and private involvement but, significantly, they were organized very differently. This sets limits to the amount of innovation at the present stage, even though Lodge warns against seeing the present changes in policy as an outcome created by a political pendulum. Mark Thatcher 's study of the use of auctions in the allocation of 3G licences within mobile telephony and Colin Scott's study of how governments have reacted to the appearance of internet gambling, show how technological changes confront governments with new opportunities and problems. In the case of 3G telephony, an entirely new technique, in combination with the successful use of auctions in different contexts, inspired the British government to use it in order to solve the regulatory problem while at the same time pursuing a fiscal goal. Its astounding success inspired other countries to follow suit, even if the situation in the meantime had changed. In the case of Internet gambling, the situation was different when governments were challenged by a real world problem that they could not easily solve. However, their different reactions show how national institutions mediate problems that are basically similar for all countries.
Julia Black presents an incisive study of how Australia, the UK and the US reformed their regulation of financial markets by adopting risk-based analysis and instruments. The main argument, supported by strong analysis, is that this innovative change was a bureaucratic response to the negative experience of the 1980s, when financial markets were suddenly subjected to melt down. To give an example from the UK, in order to pre-empt the kind of political dynamics spurring intervention against dangerous dogs, civil servants within the existing administrative organizations overseeing national financial markets developed a new paradigm. Among countries, this paradigm, inspired as it was by technological innovations in the financial industry itself, has spread. It has happened in an environment that, at the stage of innovative reform, was not politicized. It has also happened within the institutionalized world of the Basle committee, which serves as a forum of exchange for national financial supervisors.
The very design of this book combines its strengths and weaknesses. The coverage of very different fields of regulation and the application of both historical and cross-sectional analysis gives it qualities that are absent in much of the literature. The same goes for the discussion of the vague concept of innovation. But breadth in scope comes at a price. Taken together, the studies in the book are quite different in layout and design. At the same time, the conclusions drawn have strength in their critical insights rather than in their contributions to the building of cumulative generalizations. Still, given the exuberance that marks much of the literature on market creation, regulatory reform, and agency delegation, this remains an extremely timely contribution.
David Coen and Adrienne Héritier 's book is quite different, but equally important. It has a narrow focus on utility regulation, and its comparative analysis is applied to just two countries - Germany and the UK. There is a digression to the European Court of Justice and its role in correcting the market for public service utilities. The comparative perspective is expanded in important ways by the coverage of three very different sectors: telecommunications, electricity and rail transportation. At first glance, this might appear to be just another study of the way in which radical innovation has been devised and implemented in a country combining a reform-prone political climate with institutions that allow for efficient decision making, while a country lacking these features remains somewhat of a laggard. However, the experience reported in the study presents insights that contribute to a much more complex and fascinating picture.
First, even if it is true that the concentration of decision-making authority in the British government makes it comparatively easy to introduce radical change, this is no panacea for innovation. The very centralization of authority may actually block new policy ideas. Therefore, André Suck shows that the decentralized structure of the German electricity industry provided much more scope for experiments with sustainable energy than was the case in Britain's centralized system of market regulation. Second, one of the established truths in the recent waves of regulatory innovation is that its success largely rests on delegation to independent agencies that have been removed from the governmental hierarchy. However, from different perspectives Dominik Böllhoff, David Coen, and Adrienne Héritier present readers a world that is very different. Of course, delegation is an important feature, but it is neither new nor as unequivocal in its reliance on credibility-promoting agencies, as most of the literature would have it. Third, when it comes to the role played by the EU, Leonor Soriano draws attention to the political ambivalence that marks its institutions. This is also the case with the court of justice. Under EU law, utilities are defined as services of general economic interest. As such, they are subject to the promotion of competition that transcends national borders. But the very concept of a public service obligation brings the legality of national political intervention into the market into the discussion. As a consequence, the court has to strike a delicate balance between promoting the free movement of services against the public service obligation that protects national suppliers against European competitors. This makes the court an important actor in finding the proper political balance between negative and positive integration. Over time, the court has moved on this subject so that now it allows more room for exceptions grounded in the public service obligation. At the same time, it has also given a more decisive role to national courts when it comes to the adjudication of cases applying European competition law.
In his study of administrative costs of reforming utilities, Michael Bauer takes up an issue that has been neglected. While much attention has been paid to the fact that the opening of utility markets involves considerable re-regulation and the creation of new authorities, nobody has seen the administrative implications. Therefore Bauer, with his comparative study, fills a void through a careful comparative study of the three utility sectors in Germany and the UK. His well documented conclusion is that innovation and reform has created a veritable bureaucratic boom.
The volume by Coen and Héritier is much more tightly conceived than the volume edited by Black, Lodge and Thatcher. On conventional criteria, this might give a comparative advantage to the Coen and Héritier volume. But having read the two books together, the conclusion is that they are highly complementary studies of considerable quality. Their results, even if explorative, serve as a strong spur to move further along this pathway and also to undertake a critical re-evaluation of some of the seemingly generalized insights that have accumulated over the past decade.