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16 August 2005 Improving Regulatory Disciplines A sound framework of regulation
is needed to facilitate business transactions and help achieve other
economic, social and environmental goals. This does not necessarily call
for statutory intervention. The alternative to statutory regulation
is not no regulation but rather regulation by private law, including
the common law. The common law is sometimes called judge-made law
as it arises from rulings made by judges, not politicians. Typically
it develops in incremental fashion and is respectful of business
customs and practices. The common law rules on property,
contracts and torts governed commerce before the modern era. They
continue to do so and could have broader application, for example
by displacing much ill-conceived employment legislation. Statute
law may be superior to common law in some situations (for example
the common law may not be able to handle pollution from diffuse
sources well) and inferior in others. For the same reason the policy
issue is not regulation or deregulation, but rather the best form
of regulation. New Zealand implemented major regulatory
reforms over the past 20 years that increased overall the scope
for voluntary exchange. As a result its scores have risen in the
indexes of economic freedom and, consistent with other experience,
its economic performance has greatly improved. World Bank research suggests that
New Zealand generally ranks high today for the ease of doing business.
Nevertheless, the recent trend has been towards freedom-reducing
regulation in areas such as labour markets, network industries,
safety and the environment. This threatens the ongoing vitality
of the economy. Business commentary on this trend
often focuses on the costs of complying with regulations. Compliance
costs are usually the tip of the iceberg. For example, the costs
of obtaining resource consents under the Resource Management Act
can be dwarfed by the economic costs of delays or of projects not
proceeding at all. As the chairman of Australian Productivity Commission,
Gary Banks, recently noted:
Much regulation that purports to
be in the general public interest is in fact a response to self-interested
lobbying by narrow groups. A challenge is to constrain governments
in their regulatory roles so that their decisions reflect the broader
public interest. One potentially useful approach
is the requirement in the Cabinet Office Manual for a Regulatory
Impact and Business Compliance Cost Statement to accompany bills.
This aims to ensure that the benefits of proposed regulations exceed
their costs. In practice, many such statements have been of poor
quality and bad legislation has been enacted. Cost benefit assessments
are not sufficiently robust to be relied on alone. A 2001 report prepared for the
Business Roundtable, Federated Farmers and the Auckland and Wellington
chambers of commerce explored the possibility of applying disciplines
like those in the Reserve Bank Act and the Fiscal Responsibility
Act to regulatory policy making. It canvassed the idea of a Regulatory
Responsibility Act along the lines recommended by the Institute. Regulation typically affects the
value of economic assets. One feature of a Regulatory Responsibility
Act suggested in the report is an extension of the concepts of the
Public Works Act into other areas of regulation and a requirement
for compensation where private economic rights are altered in the
public interest. The report also recommended a major
one-off review of existing regulations. It is pleasing that some political
parties have given in-principle support to strengthening the disciplines
on regulatory policy, including support for the concept of a Regulatory
Responsibility Act. The barrage of new and amending
laws and regulations in recent years is making business operation
in New Zealand more difficult, and reducing the potential for economic
growth, higher living standards and wider personal freedoms. A greater attachment to constitutional principles and more respect for freedom of contract and security of property rights - that is, for the rule of law - is needed, together with processes of the kind recommended by the Institute, if regulatory excesses are to be reduced in a sustained way. Roger Kerr is the executive director of the New Zealand Business Roundtable. For more information, contact: Roger Kerr Web: www.nzbr.org.nz |