Regulatory Policy 2.0: The Next Generation

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The 24th session of the OECD Regulatory Policy Committee started with a roundtable discussing the future of regulatory policy (alternatively known as Better Regulation or regulatory reform). There has been a lot of progress in implementing regulatory management tools since the OECD Council adopted its Recommendation on Regulatory Policy and Governance in 2012. If only a limited number of enthusiasts knew in the 2000’s what is regulatory impact assessment or administrative burdens, nowadays these terms are part of everyday conversations in various level of administrations and even in the (at least specialised) media.

However, the implementation of those tools is still uneven in many jurisdictions and, moreover, their use is often only formal. There is still a long way to go before we can say that Recommendation is adhered to by all OECD countries. At the same time, the world is evolving and was, even before the Covid-19 outbreak, far from being the same as in 2012 when the Recommendations was issued. The question then is, is regulatory policy, its vision and its tools, still valid and, more importantly, is it fit for the future?

The question then is, is regulatory policy, its vision and its tools, still valid and, more importantly, is it fit for the future?

The answer to the first question is relatively easy

Despite the problematic and uneven implementation, regulatory management tools have proven to be useful and contribute to making “better policies for better lives. However, the vision of regulatory policy is still deeply rooted in the circumstances of early 2000s and needs to be updated. Which leads us to the second question. Regulatory policy most likely is fit for the future but there are some changes that need to be made, both to the vision but also to the better regulation toolbox and the way it is used.

Here are some observations from the roundtable discussion without any particular order of importance:

Regulatory management tools have played, even in a simplified form, an important role during the COVID-19 crisis. Despite the fact that all governments had to introduce unprecedented numbers of measures and regulations often in a haste and there was sometimes not enough time for a full-fledged RIA or stakeholder consultations, it was still important to take into account different alternative solutions, think about their costs and benefits as well as potential risks and take into account the view of those that will be affected by the introduced measures.

Ex post evaluation will be crucial once the crisis is over. It is imperative that countries look back and evaluate their actions during the crisis, both to learn what worked and what did not, but also to ensure that appropriate scrutiny is placed on fast-tracked or emergency measures to ensure their effectiveness and efficiency over time.

During the crisis, it became even more important how regulations are being delivered, i.e. implemented, enforced and communicated so high levels of compliance are ensured. The delivery stage of the regulatory governance cycle has been underestimated so far. It is foolish to introduce measures stakeholders do not comply with, for example because they are too complicated so stakeholders do not understand what is required from them, or simply because stakeholders do not understand the purpose and urgency. Regulatory delivery needs to become an important part of the better regulations toolbox in the future even after the crisis.

In connection to this, risk assessment and risk management will probably play a more prominent role in designing and implementing regulations in the future. The crisis has tough us that not all risks can be avoided and that there are inevitable many trade-offs to be taken into account (protecting lives vs saving businesses). While cost-benefit analysis will still be important, risk-risk analysis might be added to the toolbox as well.

What will be the role of regulatory policy in post-pandemic world?

Regulatory policy will play a crucial role in the period of post-pandemic economic recovery

During the pandemic, some regulatory burdens have been reduced or removed either to speed up some administrative processes (vaccine approval) or to compensate businesses for economic losses (reduced requirements for installing restaurant terraces). At the same time, some administrative procedures proved to be extremely burdensome and ineffective, for example, those for obtaining government subsidies for businesses that had to stop operating. Without any doubt, there will be a need to reduce unnecessary regulatory burdens to stimulate the economy.

At the same time, some of the important priorities of governments across the globe will need more new regulations, or at least better regulations. Regulatory policy has rarely been used to its full potential in achieving current priority goals for governments across the globe, such as the Sustainable Development Goals. If governments are to achieve the SDGs, fight against climate change or deal with the negative effects of population ageing, policies and measures adopted by them must be based on the best available evidence, something regulatory management tools can help achieving. For that, regulatory policy needs to be better mainstreamed and aligned with political environment, to increase policy and regulatory coherence.

To regain trust of citizens, governments must improve its stakeholder engagement strategies. Often, well-organized and politically-connected groups have outsized influence in the regulatory process and can shape regulatory policy to benefit their interests at the expense of more diffuse interests. To “democratise” the regulation-making process and make it truly inclusive, views of “willing and unable” but also those that might be “able but unwilling” must be taken into account. Engagement has to start earlier in the regulation-making process and administrations must be more proactive and innovative in reaching to the less represented groups of stakeholders.

Crises aside, emerging technologies are presenting regulatory challenges that will necessitate a paradigm shift in policymaking internationally. More agile and resilient regulatory practices are needed to unlock the potential of these technologies, while upholding protection of health and safety, environment, social justice, and other societal goals. Regulatory policy might become more of a hit-and-miss approach, with more emphasis on experimenting and necessarily more emphasis on continuous evaluation.

“States must cooperate to fully achieve their public policy objectives and to ensure the well-being of their citizens”. OCED International Regulatory Cooperation, April 2020

The pandemic has also served as a stark reminder that no country can act effectively in isolation. Issues including securing online privacy, limiting the losses of biodiversity, ensuring cyber safety, to ensuring the resilience of global value chains, are all issues that go well beyond the remits of one jurisdiction.  Accordingly, the tool of International Regulatory Cooperation will be necessary for helping to address this challenge.

Maybe most importantly, participants to the roundtable agreed on the need to “humanise” regulatory policy. It needs to shake off the stigma of being inherently a “pro-business” agenda, focusing on reducing regulatory burdens for businesses and being a different, fancier name for deregulation. President Biden, in its Modernizing Regulatory Review memorandum, calls for recommendations “to ensure that the review process promotes policies that reflect new developments in scientific and economic understanding, fully accounts for regulatory benefits that are difficult or impossible to quantify, and does not have harmful anti-regulatory or deregulatory effects”. The “recommendations should provide concrete suggestions on how the regulatory review process can promote public health and safety, economic growth, social welfare, racial justice, environmental stewardship, human dignity, equity, and the interests of future generations.” Similar tendencies are appearing also in other administrations. Stressing the benefits of regulations, better analysis of distributional effects and providing evidence advancing the values agreed on by the society will be the biggest challenge for the upcoming years. The OECD, as always stands ready to help its members to advance the regulatory policy agenda in this direction.

  • Guest post by Daniel Trnka, Deputy Head, Regulatory Policy Division, OECD. The opinions expressed in this post are those of the author, and they not reflect the opinions or views of the OECD.