A recent debate on regulatory reform

Getting the balance between too much regulation and too little is a challenging job. In my own work, I try to focus more on the quality of regulation and its ultimate effect, rather than simply the number. However, it is clear that there can be too many laws and regulations for business, and the public in general, to navigate. So, developing a strategy to reduce the number (or what is sometimes called, the “stock”) of regulations and improve their quality is important.

In the US, on 23 August 2013, North Carolina Gov. Pat McCrory signed into law the Regulatory Reform Act of 2013. This enacts the most comprehensive review ever of the state’s regulations. Over the next ten years, all North Carolina regulations will be subject to review and potential amendment or repeal. As a result, regulated industries and businesses will have the opportunity to seek long-sought rule changes, but doing so with the risk that other less favourable changes may occur (Ref. Lexology).

The aim of the bill is to “improve and streamline the regulatory process in order to stimulate job creation, to eliminate unnecessary regulation, to make various other statutory changes, and to amend certain environmental and natural resources laws”.

Jacobs and Associates have labelled these strategies for regulatory reform as the “regulatory guillotine“.  They argue this approach is designed to rapidly reduce regulatory costs and prepare countries for more sustainable reforms. The guillotine strategy was used in various forms by OECD countries in the 1990s, and since then has been applied in a number of developing economies. In 2008, they reviewed the use of this strategy in eight countries.

It is interesting to observe the response the NC governor’s initiative has produced. An editorial in the News & Observer claims has labeled the bill “reckless”. The concern is that the law will allow developers to get around a number of regulations protecting water quality in the state. The editor writes:

No one supports pointless regulations. If regulations exist, there should be a good reason for them, a reason that applies not only to the time of their adoption, but to present circumstances. Regulations that require unnecessary protections or no longer apply do not serve the common good and can become impediments to commerce.

However, the concern is that this will ultimately erode good regulations that currently serve a purpose:

Regulatory agencies will not be able to carry out their missions if they are engaged in a lengthy review of every regulation and the effort of having them readopted.

There are, of course, different sides to this argument. Good regulation performs an important role. It may impose a cost on business, but this cost can, and should be, justified. However, we know that all regulations are no good: some are old and no longer relevant, and some poorly conceived and executed. The job of government is to ensure its policies, laws and regulations are relevant and achieve their desired outcome – this involves a process of constant revision. However, in some cases a guillotine strategy may be too blunt (if you’ll excuse the pun). This strategy appears to work best when it has been agreed (usually by government, business and other stakeholders) that the stock of regulations has grown too old, too big and in need of drastic change.

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