What of regulation? – Canadian Government Executive

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May 7, 2012

What of regulation?

Much of the current conversation about the federal government’s economic agenda has concentrated on its decision to cut the GST while increasing government spending. As a consequence, the net effect of the massive spending associated with the Economic Action Plan is an operating deficit of more than $40 billion for this fiscal year. It is therefore not surprising that most of the policy debate has centred on the government’s ability to handle the future fiscal demands of an increasingly expensive array of program obligations. As a result of our preoccupation with fiscal capacity, our attention has been diverted away from an equally important government instrument, namely, regulation.

The recent publication of two major reports in the United States reminds us of the ongoing need to constantly refresh our thinking about the role of regulation in a modern society. The first, “Deep Water: the Gulf Oil Disaster and the Future of Offshore Drilling,” looked at the recent explosion in the Gulf of Mexico. The second study’s mandate is well described in the report’s title, “The Financial Crisis Inquiry Report on the Causes of the Financial and Economic Crisis in the United States.”

Both of these wide ranging reports are based on two dramatic and traumatic events. Collectively, the events have shaken the confidence of Americans and others around the world regarding the degree they feel government is protecting their interests.

Coincidentally, regulation has become increasingly more important as governments have transferred more activities and responsibilities to the private sector at the same time as issues have also become more complex and interrelated. Thus the regulatory space created by government is actually growing with more independent regulatory agencies (especially in the areas of health, safety and the economy) as direct Parliamentary oversight diminishes.

One of the unanswered questions resulting from the 2008 economic meltdown was whether the 30-year commitment in the United States to deregulation was the primary cause of the problems in the global financial community. Specifically, the Financial Crisis Inquiry questioned whether, “in our effort to let the marketplace decide what was best, did the market respond by being too greedy and indifferent to the outcomes of their collective behaviour?”

As a result of their investigation, the majority concluded that “widespread failures in financial regulation and supervision proved devastating to the stability of the nation’s financial markets. The regulators had ample power in many areas and they chose not to use it.”

With regard to the BP explosion and subsequent environmental disaster, the Deep Water report to the President raises the issue of whether the industry associations that took over the regulatory role from government were more advocates for the industry than they were looking out for the interests of the public. In the end, the authors of the report argued that industry had a conflicted role and their “shortfalls have undermined the entire federal regulatory system.”

One important observation was that “one of the key responsibilities of government is to regulate – to direct the behaviour of individuals and institutions according to rules.” However, they noted that “even in industries with strong self-policing, government also needs to be strongly present, providing oversight and additional regulatory control responsibilities that cannot be abdicated if public safety, health and welfare are to be protected.”

These findings raise a number of key questions for Canadian legislators and regulatory experts. First, don’t regulators act? Second, what does oversight consist of? Third, when does self-regulation work? And what are the mechanisms for re-regulation in those instances when government would like to take the regulatory responsibilities back? Finally, what are the criteria for determining when a heavy hand instead of a light one should guide the regulatory framework?

Since a burst of regulatory energy in 2004 with the launch of the Smart Regulation Initiative, the federal government has mysteriously fallen silent with regards to answering these questions. However, thanks to the heroic efforts of those involved in the Regulatory Governance Initiative (RGI) at Carleton University there continues to be a vibrant spark of life in the Canadian regulatory policy arena. The RGI is an important first step in starting a national dialogue.

However, regulation needs more attention from policymakers, especially Parliamentarians who should be more aware of the profound impact that the deregulation efforts have made in Canada today. There are strong warnings in these two reports that should make us all pause and re-examine the principles and frameworks that drove the reforms almost 30 years ago.

 

David Zussman holds the Jarislowsky Chair in Public Sector Management in the Graduate School of Public and International Affairs and at the Telfer School of Management at the University of Ottawa (dzussman@uottawa.ca).

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