Failed Regulation and Their Remedies

Understanding Regulation: Theory, Strategy, and Practice (prt.3)

Photo by @laimannung Edited by yschiang

Explanations of failure

1. Rhetorical

Albert Hirschman’s progressive policy interventions: ‘futility’, ‘jeopardy’, and ‘perversity’.

• The futility position urges that, regardless of regulatory effort, no change to the existing problem will occur. People, for example, will not change their behaviour, regardless of regulatory intervention.
• Jeopardy arguments contend that, despite the worthwhile character of a particular regulatory instrument, its deployment would risk wider achievements and/ or lead to a chain of undesirable side-effects. The inherent benefits of the narrow proposal would thus tend to be outweighed by the costs of the wider loss of other achievements (a widely used variant is the so-called ‘slippery slope’ argument). For example, the adoption of a particular information requirement would open the door (the ‘flood gates’) to much wider and extensive requests and requirements.
• Perversity are used to suggest that regulatory interventions achieve the exact opposite of their intended outcomes. Those explanations were organized into accounts that emphasize respectively: (1)the pursuit of the public interest; (2)the contest between different interest groups; (3) the power of ideas; and (4)institutional factors.

2. Analytical

Decision-making is inherently bounded. One reason why regulation can go wrong, therefore, is the inherent uncertainty and ambiguity of knowledge.

The interaction between different regulatory instruments and regimes is not necessarily one that can be predicted. Because knowledge is limited, the likelihood that regulatory strategies achieve their intended effect in all cases is very low.

Given the limits of our knowledge and understanding, one key strategy therefore is not to rely on grand schemes, but rather to employ incremental ‘trial-and-error’ approaches towards regulatory change.

Regulatory Remedies

Regulatory failure is a mixture of sectoral lobbying, if not capture, and bureaucratic self-interest. Unintended consequences, whatever their origin, is an inherent aspect of social life.

These explanations suggest that we are faced with often contradictory advice on how to deal with regulatory failure. Space here does not allow us to offer an exhaustive review of remedies (which would restate much of the rest of this volume), but it is worth discussing three general recipes for regulatory improvement.

Coordination.

• Problems of over- and under-regulation are often associated with failings in coordination.
• Different regulators often focus on similar or the same activities, but do so using inconsistent methodologies and penalties.
• One of the most widely accepted suggestions is that such complex operations are vulnerable to the ‘normalization of deviance’. (small deviations from the norm prove to be acceptable at each individual stage of production but agglomerate over time and successive production stages so that they eventually lead to disastrous failure.)
• The often-proposed remedy is that of ‘more coordination’ to centralize information, to maintain control, and to impose a more uniform regulatory process. Whether ‘coordination’, in whatever form, will in itself avoid further regulatory failures is questionable — as discussions of ‘polycentric’ and decentred regulatory regimes reveal.

Organizational reform and learning.

• Much has been said about the largely symbolic nature of organizational change. Organizational change follows the so-called ‘logic of appropriateness’. According to the ‘logic of appropriateness’, the inherent bounded rationality encountered in decision-making means that regulatory reform will not be conducted on the basis of exhaustive and comprehensive analysis.
• Dominant understandings within organizations ‘filter’ data, and any information that seems to contradict the dominant cause–effect under- standings about regulation is likely to be filtered out of the system in order to avoid disturbing day-to-day functioning. This filtering-out is dangerous for any organization, however: the processes of rejection expel not merely information that deviates from the norm but also any potential signs of failure and keys to understanding this. A possible remedy for such narrowness is to introduce a ‘challenge function’ into organizational operations. (eg. ‘challenge committee’, peer reviews’, ‘court jester’ concept).

Clumsy solutions/hybrids.

• A reliance on any single approach to ‘solving’ regulatory failure is inherently limited — it invites side-effects and exploitation by opposed interests. Emphasis has been placed on the importance of using redundancy and mixed strategies to deal with regulatory failure.
• The general stress of cultural-theory-based approaches has therefore been to advocate so-called clumsy solutions — that is, approaches that mix elements from various ‘pure’ strategies in order to compensate against side-effects. Similarly, it is difficult to see how clumsy solutions can easily be engineered, or whether they tend, in practice, to emerge in an accidental, ‘layering’ fashion.
• Although such an ‘organic’ growth of resilience through clumsiness might be regarded as bringing advantages over those approaches that believe in intelligent design, such arrangements will nevertheless be exposed to the kinds of regulatory failures that are associated with layering approaches — and which were noted above.