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What do we mean by 'regulatory governance'?

Thursday, April 1, 2010

The origin of this whole governance debate can be found in the 'grandfather-paper' of this topic written by Levy and Spiller (1994). The 1994 paper distinguishes "regulatory content" (as in technical regulation dealing with the input, process and output) from "regulatory governance arrangement "which focuses on restraining the regulator's discretion. The governance arrangement deals with among other, how predictable the regulatory law is and the track record of the courts in hearing and settling disputes impartially. So the focus of the governance debate is on the commitment of the state in regulating and in constraining the discretion of the regulator. It appears to me that the focus is more on the investor side of the regulation, and not really on the consumer side. 

When privatization was carried out in the UK during the 90s, experts considered that in practice, it is hard to stick to the black letter of the regulatory mandate. The mandate, according to them, has to be continuously reinterpreted. In fact, as we can see many English legislation, regulatory mandate always contain some 'public interest' clause, which broadens the scope of discretion.

Legal scholars such as Graham and Prosser thus considered that the regulator is responsible for, not only in performing regulation in technical sense, but also in furthering social objectives. This duty is both implicit (such as found in the public interest clauses) and explicit in the regulatory mandate. 

Back to the governance debate.

When Levy and Spiller (1994, above) argued that regulatory governance is primarily about restraining regulatory discretion, 1997 papers onward (for example, this one) considered that some discretion is inevitable instead, especially when it comes to the regulation of industries with rapid tech-changes. Of course, these papers still focus on the investor protection side of the debate. 

However, recent literature on governance pays more attention to the consumer side of the regulation, rather the investor side. Consider for example, Dunleavy's seminal paper "New Public Management is Dead -- Long Live Digital Era Governance" which argued that people are no longer a passive recipient of a public service, but also an actor and a partner. Other literature argued that the case where customer has no say on how the store is run, is no longer the trend. Disempowering customer from regulation has, in many instances, produces failures. For example, a steep increase in water tariff results in inability to pay. Inability to pay leads to disconnection. Disconnection leads to unpaid investment (in installing water meters and extending  pipelines to household) and in water theft. Water theft and unpaid investments leads to even higher tariffs. Finally, in the end of the day, the whole system collapse. 

Thus, the literature suggests the shifting trend from customer paradigm-- where they are a passive recipient of the service into citizen paradigm, where people are involved in the decision making process in service delivery (for example, in setting tariffs). How this is done (see paper), is through accountability, transparency and participation mechanisms. This is the new focus of the recent regulatory governance debate.