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The Politics of RegulationInstitutions and Regulatory Reforms for the Age of GovernanceEdited by: Jacint Jordana and David Levi-Faur Edward Elgar Publishing The CRC Series on Competition, Regulation and Development Find it at isbn.nu Get 10% discount at www.e-elgar.co.uk. See details Visit the Politics of Regulation Network webpage. Download introductory chapter ( Review from the International Journal of Regulation and Governance ( |
This book suggests that the scope and breadth of regulatory reforms since the mid-1980s and particularly during the 1990s, are so striking that they necessitate a reappraisal of current approaches to the study of the politics of regulation. The authors call for the adoption of different and fresh perspectives to examine this area.
The contributors to this volume analyse how regulatory regimes that were once peculiar to the US and a few industries have, in recent years, come to define the best practice of governance over the world capitalist economy and over numerous social and economic sectors. They go on to suggest various explanations for the expansion of regulatory institutions, addressing some of the most critical problems and offering new methodological techniques to enable further study. The contributions also provide distinct cross-national and crosssectoral comparative approaches, and emphasis the changes in the economic and social context of regulation and the implications of these developments on the rise of the regulatory state. These changes, together with the general advance in the study of regulation, undoubtedly demand a re-evaluation of the theory of regulation, its methodologies and scope of application.
This book is a perceptive investigation of recent evolutions in the manner and extent of governance through regulation. Scholars and students of comparative politics, public policy, regulation theory, institutional economics and political sociology will find it to be essential reading. It will also provide a valuable source of reference for those working or dealing with regulatory authorities and for business managers in private industries and services operating under a regulatory framework.
Damien Geradin is a professor of Law at the University of Liège and at the College of Europe, Bruges. He has also held visiting appointments at a number of universities, including King’s College London, the University of Paris II (Panthéon-Assas), the University of Peking, Columbia Law School, Harvard Law School, UCLA School of Law, and Yale Law School. His works focuses on competition law and the regulation of network industries.
Fabrizio Gilardi is a researcher at the Institute of Political and International Studies of the University of Lausanne, Switzerland. He is about to finish his PhD dissertation on delegation to independent regulatory agencies in Western Europe, and has published in the Journal of European Public Policy, the Swiss Political Science Review, and Politische Vierteljahresschrift. He currently works on the diffusion of regulatory reforms in various fields.
Nicolas Jabko received a PhD from the University of California at Berkeley, and teaches political science at Sciences Po, Paris. He has published articles in the Journal of European Public Policy, Comparative Political Studies, Revue Française de Science Politique and Security Studies. His current research projects are on European political economy and transatlantic relations.
Jacint Jordana is Associate Professor in the Department of Political and Social Sciences at the Universitat Pompeu Fabra (Barcelona). His research interest focus on the analysis of collective action, regulatory public policy and Latin American governance. He has recently edited the volume Governing Telecommunications and the New Information Society in Europe (Edward Elgar, 2002).
Christoph Knill is Professor of Political Science at the University of Jena. His particular research interests include comparative public policy, public administration and European governance. He is author of The Europeanization of National Administrations. Patterns of Institutional Change and Persistence (Cambridge University Press, 2001).
David Levi-Faur is a senior lecturer at the Department of Political Science, University of Haifa (leave and sabbatical, 2000–2004) and a senior fellow of the Regulation Program at the Australian National University. His major fields of interest are comparative political economy and comparative public policy. He currently specializes in multi-level analysis of the origin and diffusion of regulatory reforms. He was visiting scholar and research associate at the London School of Economics, the University of California, Berkeley, the University of Amsterdam, the University of Utrecht, the University of Manchester and the University of Oxford. His papers have been published in leading journals in the relevant fields (such as the Journal of Public Policy, the Journal of European Public Policy, Review of International Relations, Studies in Comparative International Development, the Journal of Socio-Economics, the European Journal of Political Research and Comparative Political Studies).
Andrea Lenschow received a PhD in Political Science from New York University (1996), and has been Assistant Professor of Political Science at Salzburg University from 1997 to 2003. As of October 2003 she will be Junior Professor at the University of Osnabrueck. In her research she has focused in particular on theories of institutionalism and implementation research in the field of environmental policy in Western Europe. She as edited the volume Environmental Policy Integration. Greening Sectoral Policies in Europe (Earthscan, 2002) and co-edited with Christoph Knill the book Implementing EU Environmental Policy: New Directions and Old Problems (Manchester University Press, 2000). Currently she is participating in an EU-funded project on Environmental Policy Convergence in Europe.
Martin Lodge is Lecturer in Political Science and Public Policy at the Department of Government and the ESRC Centre for Analysis of Risk and Regulation at the London School of Economics and Political Science. His research interests include the comparative study of regulation, especially network regulation, as well as comparative public administration and policy. His publications include On Different Tracks: Designing Railway Regulation in Britain and Germany (Praeger, 2003).
Joe McCahery is Professor of International Business Law at Tilburg University Faculty of Law and a research fellow at the Tilburg Institute of Law and Economics and the European Corporate Governance Institute (Brussels). He holds a visiting appointment at Leiden University Faculty of Law. Previously, he held an appointment at Warwick University, where he also received his PhD degree. He was a law clerk for Judge Nathaniel R. Jones of the United States Court of Appeals for the Sixth Circuit. He has written widely on corporate law, corporate finance, the political economy of federalism, and securities regulation.
Iain McLean is Professor of Politics, Oxford University and a fellow of Nuffield College. He has worked on case studies of railway and mine regulation. Publications include ‘Railway regulation as a testbed of rational choice’; Aberfan: government and disasters, with Martin Johnes (Ashley Drake, 2000), and Rational Choice & British Politics: an analysis of rhetoric and manipulation from Peel to Blair (Oxford University Press, 2001).
Anthony Ogus is Professor of Law, and Research Fellow at the Centre for Regulation and Competition, in the University of Manchester. His main research interest is in law-and-economics and its application to regulation. He has written a monograph on this (Oxford University Press, 1994). He is currently studying regulation in developing countries.
David Sancho is lecturer at the Political and Social Sciences Department of University Pompeu Fabra (UPF) and at present holds the position of Vice Dean of Management and Public Administration Studies at this university. His various research fields are centred on the study of public policies and governmental intervention: regulation, telecommunication policy, promotion of the information society and modernization strategies of public management through the use of the new information and communication technologies.
Patrick Schmidt is an assistant professor of Political Science at Southern Methodist University, Dallas, Texas. Before this he was the John Adams Research Fellow at the Centre for Socio-Legal Studies and a research fellow of Nuffield College, Oxford. His study of the roles of lawyers in American occupational safety and health regulation will be published in 2004 by Cambridge University Press. His current fieldwork focuses on the involvement of lawyers in the regulation of global financial markets.
Volker Schneider is Professor of Political Science at Konstanz University, where he holds the Chair on Empirical Theory of the State. His research interests are state theory, organized interests, evolution of political institutions and policy networks. He has recently published: Private Organizations in Global Politics (with Karsten Ronit) (Routledge 2000), and ‘Institutional Reform in Telecommunications: The European Union in Transnational Policy Diffusion’ (in Maria Green Cowles et al., Transforming Europe, Cornell University Press, 2001).
Colin Scott is Reader in Law in the Centre for the Analysis for Risk and Regulation at the London School of Economics. Key publications include the co-authored studies Telecommunications Regulation: Culture, Chaos and Interdependence Inside the Regulatory Process (Routledge, 2000) and Regulation Inside Government (Oxford University Press, 1999).
Marc Tenbücken has studied Politics and Management at the Universities of Constance and Geneva, and at MIT. Currently he is working as an academic assistant and preparing his PhD thesis. His research interest are policy processes in the European Union and regulatory reform in infrastructure sectors. He has recently published Corporate Lobbying in the European Union
This chapter provides an assessment of the status of the economic theory of regulation. In the 1970s and 1980s the economic theory of regulation, with seminal contributions from Stigler and other members of the Chicago School, provided some major insights into the origins and nature of regulation. The principal hypothesis that regulation benefited, and was therefore sought by, the regulated industries rather than other interested groups, was an important antidote to the familiar public interest models. This work was complemented by that of the Virginia School, with its focus on rent-seeking behavior. Anthony Ogus examines how well the economic theory of regulation has survived in an era of deregulation and regulatory reform. His conclusions are that the revitalized public interest approach to economic analysis, sometimes associated with the Yale School of law-and-economics, provides necessary tools for the study of contemporary regulatory policymaking.
This chapter examines three events in the history of British regulation that exemplify some key theoretical debates. McLean compares three distinct theories: the so-called public interest models, the economic theories of regulatory capture, and the adaptation of the median-voter hypothesis as an explanation for regulatory decision-making. The first case is railway regulation from 1825 to 1872, with four notable railway regulation acts. Of these, the Railway Clauses Consolidation Act 1845 and the Regulation of Railways Act 1844 remained a huge influence on regulation in both the UK and the USA throughout the nineteenth century. In this case, regulation of safety arose from electoral pressure; regulation of price and quantity was a political initiative from an exceptionally determined minister (W.E. Gladstone). The second case is about the consequences of a colliery waste tip that slid down a mountain of waste into Aberfan, a mining village in South Wales. To explain this regulatory failure McLean analyses why risk was not assessed properly, invoking cultural factors and the existence of regulatory capture. The third case refers to the wave of privatizations under Thatcher governments during the 1980s, without the prior establishment of new regulations; McLean analyses this as an example of policy guided by median voter seeking. On the basis of these three cases, McLean argues that all three theories of regulation are viable, but not for all the cases: they are supported by different bodies of evidence, depending on each case. Information management, but also historical contingencies, seem to have an important role in explaining which theories best match which cases.
Fabrizio Gilardi chapter focuses on explanations for the diffusion of independent regulatory agencies (IRAs) in Europe. The creation of such agencies can be observed in all West European countries and in a wide range of sectors, such as utilities, financial services, food safety, consumer protection and general competition. Why do governments delegate to agencies they can only partially control? Gilardi suggests that the most promising avenue for research is the new institutionalism in its three forms: rational choice, historical and sociological. Rational choice institutionalism has a long tradition in the US, where, in its principal–agent and transaction costs variants, it has been extensively used to analyse delegation to the executive and to bureaucracy. This constitutes an excellent starting-point for the study of delegation to IRAs, but more for the questions it raises than for the answers it offers. In effect, in the case of delegation to IRAs, what can be observed is that principals make agents purposely independent rather than, as predicted by principal–agent theory, designing control mechanisms that are as accurate as possible. This means that some powerful incentives must be present that lead governments to engage in this extreme form of delegation. Rational choice institutionalism identifies two such incentives. The first is the need to make credible commitments, and the second is the desire to mitigate the effects of the uncertainty of political property rights. In many regulatory settings, credible commitment capacity is a very valuable asset, as it is the only means for governments to achieve their goals. Delegation to IRAs is a way for governments to remove their future freedom of action, and thus to improve the credibility of their commitments. On the other hand, the problem of political uncertainty refers to the fact that elected politicians, by reason of the democratic process, are not able to exercise power for ever. This suggests that politicians should be expected to find a method to make their policy choices last well beyond the moment, which can be postponed but not avoided, when they lose their political property rights over a given policy area. This means that current politicians may wish to bind future politicians. Again, delegation to IRAs is a possible solution.
Historical institutionalism and sociological institutionalism, argues Gilardi, share many similarities, but it is useful to treat them separately. Beginning with historical institutionalism, the main argument is that ‘functional pressures’ such as those highlighted by rational choice institutionalism are strongly mediated by national institutions, and in particular by state traditions and structures. For example, Britain has a long tradition of regulation through commissions, whereas France has been much more suspicious of independent agencies, seeing them as threatening the unity of the state. In the end, the argument refers to path dependency: change is possible only on a given path. Thus, national and sectoral paths are likely to have an impact on the design of IRAs.
Sociological institutionalism, on the other hand, strongly emphasizes institutional isomorphism. Social processes legitimize certain types of institutional choices rather than others. From this perspective the creation of IRAs is explained by the fact that governments seek legitimacy for their regulatory policies, which can be achieved by using socially valued institutional models such as IRAs. The three forms of institutional isomorphism – coercive, mimetic and normative – are thus likely to be at the origin of the diffusion of IRAs across Europe. The last part of the chapter is devoted to a discussion of the observable implications of the three theories, as well as of the available empirical evidence. The concluding section summarizes the main arguments and sketches a research agenda on IRAs in Western Europe.
Damien Geradin and Joe McCahery critically examine in this chapter the theory of regulatory competition. The departure point of this theory is that governments compete for factors of production – and also to attract habitants – when they regulate. Thus, regulation should satisfy citizen preferences if competition is effective. In general, it is argued that decentralized regulation produces more efficient results, because at the level of local government competition is greater (there are more governmental units competing). Damien Geradin and Joe McCahery summarize the main lines of this theoretical perspective and point to their normative implications. They then criticize the oversimplification of the theory and suggest an alternative approach, labeled ‘regulatory co-opetition’. This approach considers three main dimensions of competition and cooperation, including ‘extra-governmental’, in which nongovernmental actors also play a role. They argue that this multi-dimensional approach clarifies the complexity of actual regulatory strategies, in which different combinations of competition and cooperation are present in relationships between different actors involved in the regulatory arena. Each dimension influences the regulatory behavior of actors, creating pressures and opportunities. If public interest theories and rent-seeking theories are based on hypotheses about the fundamental interest lying behind the actors’ behavior, regulatory competition theory, but also the alternative co-opetition model, are based primarily on some hypothesis about the aggregate effects of multiple actors with regulatory powers. Although this interpretative framework is mostly inspired by economic reasoning on the functioning of markets, is appears clear that the politics of regulation has to be analyzed somewhat to make sense of regulatory developments, in so far as too many options remain open.
Martin Lodge highlights various perspectives on the problems of accountability and transparency. The ‘traditional’ legal literature centres on political-constitutional concerns, ‘transaction cost’ accounts point to the importance of ‘slack’ for ‘other-regarding’ actions, and a ‘traditional public service’-oriented literature suggests changes in the public service ethos and accountability owing to perceived marketization via regulatory reform. This chapter advances beyond traditional subjects by underlining the doctrinal basis of the different criticisms and accounts of regulation. Martin Lodge’s argument is advanced in three steps. First, he explains the diversity in accounts of accountability and transparency in the literature by locating them in distinct administrative doctrines. Second, he advances a ‘transparency toolbox’ to distinguish various ‘value-free’ instruments through which regulation can be made accountable and transparent. These instruments are then linked to the contrasting administrative doctrines of fiduciary trusteeship and consumer sovereignty to show the variety of potential instruments through which accountability and transparency may be incorporated into regulation. In the third part of the chapter Lodge discusses the factors that impact on the selection of instruments, drawing both on analytical concerns (based on the transaction-cost literature) and on empirical evidence, from the developed world as well as the developing world. Accountability and transparency are not just ‘good things’ that should be enhanced as much as possible, he concludes, but essentially are contested instruments. Any solution to these problems affects the distribution of power in any regulatory regime, involves trade-offs, and provokes responses that can be self-defeating. For this reason they are important instruments in the battlefields of the politics of regulation.
Colin Scott examines in this chapter governance ‘beyond’ the regulatory state. Three core assumptions of the regulatory reforms are scrutinized: regulation is instrumental in character; the state is necessarily central to regulatory governance; and state law is a central instrument of regulatory governance. The chapter focuses on one aspect of the critique concerning the centrality of state law to regulation. It argues for shifting the focus of analysis from law to the wider range of norms and mechanisms through which control is asserted or achieved, however indirectly. The issue at the heart of Scott’s approach is the extent to which we can or should think of regulatory governance functioning in a manner not dependent on state law or within which state law is not central. Scott explores different theories in search of support for the notion of the post-regulatory state – in which state law is not the key to regulation – such as the limits of control by the law, or the dimensions present in guaranteeing a basic social order. The theories reviewed focus on the relation between social order and state regulation and on the existence of multiple sources of social order (such as iterated cooperation and cohesive communities). This line of theoretical reasoning based on socially emergent properties represents the opposite extreme to the intentional perspectives based upon individual interests, but also addresses regulatory behavior and regulatory institutions of all kinds, not only formal ones.
David Levi-Faur deals with problems of comparative analysis in a global world where variations occur simultaneously in different arenas of political action. Levi-Faur identifies four popular comparative approaches to the study of politics and policy in general and regulation in particular. These are titled: the national patterns approach (NPA), the policy sector approach (PSA), the international regime approach (IRA), and the temporal patterns approach (TPA). While these approaches are not necessarily contradictory, they represent different assumptions about the determinants of political and regulatory change. Each of these approaches omits some important sources of variations and commonalties in the regulation of the economy and society. Levi-Faur presents a technique that could maximize their explanatory power in the context of medium-N comparative designs, especially those designs that combine two or more comparative approaches to the study of regulatory change. This technique complements the stepwise approach of Steven Vogel and further strengthens the ability of the researcher to increase the number of cases without compromising the strengths of the case-oriented approach.
Nicolas Jabko discusses the political foundations of the regulatory state. Jabko takes issue with the approach that attributes the worldwide multiplication of independent regulatory authorities to the evolving functional requirements of a modern economy, namely the shift away from dirigiste policies and towards a more market-based model of public supervision of the economy. Based on a comparative analysis of new regulatory mechanisms recently set up in the European Union, Jabko argues that the emergence of the regulatory state at the European Union level is the result of political manoeuvring rather than evolving functional requirements. In sectors where market forces and technological modernization prevail, old style regulators constantly have to adapt in order to defend their turf; therefore, would-be regulatory entrepreneurs are generally out-manoeuvred, and new regulatory agencies are rarely created. By contrast, regulatory innovation occurs often in policy sectors where technological evolution is so slow that significant increases in economic efficiency cannot come from incremental regulatory intervention; under certain conditions, the very inertia of this situation creates manoeuvring room for new regulatory–political initiatives. In sum, the chapter concludes that regulatory innovation is more a function of politics than of economic modernization.
Christoph Knill and Andrea Lenschow focuses on two central issues: changes in the nature of the regulatory state and the emergence of multiple regulatory forms. However, the authors use the comparative method in a different way. Taking as a case study the European Union – which has witnessed not only the shift of regulatory activities to a new institutional centre, but with this shift also the evolution of new regulatory patterns – they identify and compare four different modes of regulation in the governance of the European Union. These are new instruments, regulatory standards, self-regulation and the open method of coordination. Then a discussion is developed about the different political dimensions to which they are linked. Thus, each mode of regulation is considered to be linked to a specific mechanism of steering. The authors present an evaluation of the problems of governance that each mode of regulation implies.
Marc Tenbücken and Volker Schneider chapter deals with regulatory reforms and institutional innovations in the field of telecommunications. Comparing the OECD countries, the authors observe that all Western industrial nations have opened their telecommunications markets, dismantled state monopolies, and established national regulatory authorities (NRAs). Liberalization measures starting in the United States in the early 1980s triggered a global chain-reaction that eventually reached every Western industrial nation. However, a closer look at the national level reveals that significant national differences prevail in the institutional transposition of the reform process. The authors demonstrate that despite convergence, considerable differences exist between the NRAs in terms of their organizational structure and regulatory competencies. The international diffusion process did not lead to the adoption of a unitary NRA model. Whereas the impact of the organizational structure on the level of independence is quite similar across countries, significant national differences exist in the delegation of regulatory functions to NRAs. The results obtained from the cross-national comparison enable the authors to create an index, ranking NRAs according to their degree of independence with respect to the government.
Patrick Schmidt chapter is devoted to the role of lawyers in regulatory processes. As a highly influential professional collective, lawyers play a central role in many aspects related to regulation, and often research in this area fails to take account of the overwhelmingly ‘legal’ character of regulatory politics. Patrick Schmidt analyses this issue by examining the significance of legal interactions in the networks of actors concerned with regulation in the US, taking as a case study the effective running of the Occupational Safety and Health Agency (OSHA) dealing with interest groups, courts and other governmental units. Drawing on extensive interviews and documentary evidence, the chapter explores the way agenda-setting and issues for decision are presented in legal language in the context of credible threats from potential litigants and courts. The author defends the hypothesis that the legal foundation of regulatory politics does more than provide certain incentive structures and tools for individual actors, although it certainly does that. In the aggregate, as the OSHA case suggests, a focus on legal interactions explains the organic development of policy-making and policy output, as the development of precedents and legal norms in particular cases shapes the playing-field for continuing interaction. In sum, this chapter shows us the importance of professional and cultural values and procedures as imbued in micro-level regulatory interactions.
Jacint Jordana and David Sancho chapter concentrates on regulatory designs and institutional constellations, and basically consists of an examination of how political institutions work within the regulatory state. Considering that innovations such National Regulatory Authorities (NRAs) do not exist in a political vacuum, the authors observe that new regulatory institutions are embedded in institutional settings that were created in previous historical periods and for different forms of public action. Therefore, the accumulation of different institutions with intervening capabilities apparently tends to make the role of institutions for decision-making in regulatory policy much more complicated than in most traditional interventionist policies. This institutional accumulation resulted in more complex institutional settings that combined comprehensive and specialized public bodies aiming to shape public policy according to different public mandates and with different and often contradictory goals. Thus, delegation to autonomous regulatory agencies represents in fact only one segment of the whole institutional arena in which regulatory policy is made and implemented.
To make sense of this type of situation, the authors discuss several dimensions for analysing it, in particular by addressing two basic issues: the distribution of responsibilities in the regulatory arena, and the nature of power structures in the institutional constellation. The number of veto players, the character of delegation to NRAs, and also the possible existence of time stabilizers are the basic decision-making procedures considered in the chapter as devices that intervene in the configuration of the institutional constellation for the making of regulatory policy. Overall, this final chapter is intended as a framework for comparative analyses of institutions involved in regulatory policy, considering that, after the diffusion of regulatory reforms and institutions in recent decades, it is necessary to adopt a more general view of institutional interdependencies in regulation than the traditional Anglo-Saxon configurations offer.
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