Existing regulation has not worked

As another folder in this toolkit suggests, when existing regulation has not worked this may be a ‘trigger for action’ leading to new regulation. The reasons that regulation does not work can be many and varied, including that the problem the regulation was intended to address was not directly addressed.

  • Paul Scott and David de Joux “Uncertainty and Regulation: Insights from Two Network Industries” in Susy Frankel and Deborah Ryder (eds) Recalibrating Behaviour: Smarter Regulation in a Global World (LexisNexis 2013). The origin of the cycle is generally blamed on the failure of the light-handed regulatory regime. It underwent widespread criticism, especially at the end of the 1990s;[85] yet, the actual failure of this regulatory system remains uncertain. Howell argues that New Zealand did not perform any worse than many other countries which were more heavily regulated. She attributes this success in part to:[86] … a combination of factors including the serendipitous emergence of the internet at the same time as an imperfect interconnection agreement intertwined with the 'Kiwi Share' obligations to create a near unique set of factors that led to rapid and low-priced deployment of broadband. What is undeniable, however, is that the whole regime was based on an inherent dysfunction: the vertical integration of a natural monopolist. This dysfunction is arguably at the basis of the need for reform. This had already become obvious in the mid-1990s, with the 1995 Inquiry.[87]

  • Paul Scott and David de Joux “Uncertainty and Regulation: Insights from Two Network Industries” in Susy Frankel and Deborah Ryder (eds) Recalibrating Behaviour: Smarter Regulation in a Global World (LexisNexis 2013). The issue of welfare obligations was largely a failure. The Commission interpreted the compensation mechanism as focusing solely on the losses caused by providing services in unprofitable areas, while the other industry actors claimed that those losses should be compensated by Telecom's profits. Disputes over calculation issues led to five different law suits. Information disclosure mechanisms were largely insufficient, and the exact cost of providing those loss-making services remained unclear. The reform failed to take into account the fact that Telecom was under its deed allowed to increase line rental prices according to the Price Consumer Index rather than the Industry Price Index. This would only be addressed in the Rural Broadband Initiative in 2010, with the implicit recognition that Telecom had been overcompensated for the last decade.

  • Kate Tokeley “Consumer Law and Paternalism: A framework for policy decision making - Further Analysis” in Susy Frankel and Deborah Ryder (eds) Recalibrating Behaviour: Smarter Regulation in a Global World (LexisNexis 2013). There are many different ways that the regulator can attempt to nudge or coerce consumers to change their behaviour. The philosophical debate about legitimacy will influence the question of whether hard or softer forms of paternalistic regulation are appropriate. Effectiveness will be determined by the responsiveness of consumers to the regulation.[79] Regulators will need to assess the likelihood of consumers altering their behaviour in the anticipated way.

Politicians or public want regulation

A call for regulation from the public, politicians or both may be a ‘trigger for action’. Almost always regulation is made because of such a trigger. Below are examples of such triggers, drawn from the NZ Law Foundation Regulatory Reform Project.

  • Paul Scott and David de Joux “Uncertainty and Regulation: Insights from Two Network Industries” in Susy Frankel and Deborah Ryder (eds) Recalibrating Behaviour: Smarter Regulation in a Global World (LexisNexis 2013). The decision to accelerate the roll-out and adopt a Fibre-to-the-Home policy was a matter of political choice; but policy should be guided by relevant economic studies and debate, especially when the stakes are so high. "Governments should be wary of stepping where telecommunications companies fear to tread."[205] We suggest that for telecommunications the two key questions are as follows: (1) Were there policy problems that justified the changes? (2) Were these problems well identified? For the 2000 reforms the government determined a new policy objective to ensure that the regulatory environment delivers cost efficient, timely and innovative telecommunications services on an ongoing, fair and equitable basis to all existing and potential users.

  • Derek Gill “Applying the Logic of Regulatory Management to Regulatory Management in New Zealand” in Susy Frankel and Deborah Ryder (eds) Recalibrating Behaviour: Smarter Regulation in a Global World (LexisNexis 2013). Regulations are often introduced because of the political imperative to be seen to be doing something. It is the action of introducing regulations that is important politically in the short-term, not whether the legislation actually changes behaviour in ways that achieve the stated outcome. Financial sector regulation examples include the Sarbanes-Oxley Act 2002 (US), introduced after Enron, and the Corporations (Investigation and Management) Act 1989, introduced in New Zealand after the 1987 share market crash. As discussed in this Regulatory Reform Project the leaky building saga is a tale of repeated packages which were claimed would solve the problem. This line of reasoning suggests that regulatory management regimes may be adopted because of a political imperative to do something, rather than being based on a dispassionate rational calculation that the benefits of a regulatory management regime exceed the costs.

  • Derek Gill “Applying the Logic of Regulatory Management to Regulatory Management in New Zealand” in Susy Frankel and Deborah Ryder (eds) Recalibrating Behaviour: Smarter Regulation in a Global World (LexisNexis 2013). There are contested views about regulations, which often reflect unarticulated assumptions about the roles performed by different actors in the regulatory system. Different people make differing assumptions about: Views of politicians – will civic-minded politicians seek the public interest or will self-interested politicians seek rents and votes? Views of policy – is policy a rational process of assigning policy instruments to best achieve objectives or is policy an emergent process of muddling through? Views of citizens – will civic-minded citizens actively participate in policy debates if given the opportunity or will they remain rationally ignorant? Responses of citizens – will citizens and businesses generally comply with regulations or are avoidance and evasion likely to be pervasive? Role of bureaucrats in policy – will the bureaucrats responsible for developing policy act as benevolent mandarins aiming to maximise the public interest or as bureau maximisers or bureau shapers acting to maximise the interests of their public agency? Role of bureaucrats in delivery – will bureaucrats use discretion benevolently or passively (simply implement the rules) or malevolently? Role of the courts – will courts resolve disputes efficiently or do courts often fail? Will disputants use the court system?

  • Mark Bennett and Joel Colón-Ríos “Public Participation in New Zealand’s Regulatory Context” in Susy Frankel and Deborah Ryder (eds) Recalibrating Behaviour: Smarter Regulation in a Global World (LexisNexis 2013). In this chapter, our aim is to examine how the reasons for and against participation apply in two specific regulatory contexts. In so doing, we will identify key considerations or indicators that can be used by government to determine the level of participation that might be appropriate, and the types of mechanisms that might be used to facilitate public involvement, in light of the specific features of the regulatory area at issue. These key indicators relate back to common reasons for participation, and include: the aims of participation, the scope and scale of the decision, whether there has been prior political and community debate and public endorsement of the regulatory choice, whether there are significant needs to gain further information from participants, what kind of deliberation is desired and what kind of decision making power the public participants are to be accorded.

  • Brent Layton “Regulating the Building Industry – A Case of Regulatory Failure” in Susy Frankel (ed) Learning from the Past Adapting to the Future: Regulatory Reform in New Zealand (LexisNexis, 2011). It would be wrong to conclude from these rough calculations that the weathertightness problem does not matter, or was not a regulatory failure, or should not be treated seriously. For many of the individuals affected, the damage to their residences and investment properties was a major financial and emotional blow. Moreover, New Zealand would have been much better off if it had captured the innovation benefits but avoided the weathertightness issues. The difficulties identified in 2009 with the operation of the Building Act 2004, however, highlight that achieving both these aims is not easy.

  • Brent Layton “Regulating the Building Industry – A Case of Regulatory Failure” in Susy Frankel (ed) Learning from the Past Adapting to the Future: Regulatory Reform in New Zealand (LexisNexis, 2011). The Treasury’s Regulatory Impact Analysis Handbook identifies that one of the early tasks in designing and assessing potential regulatory actions is to identify the root cause of the problem, and not just its symptoms.[59] More specifically, Treasury advises to consider whether the problem arises because of market failure, regulatory failure, unacceptable hazards or risks, or social goals and equity issues.[60]