Cranfield University – Embed Project
Transcript of Audio Interview
Professor David Parker on Regulatory Impact Assessment
SM
Hello, this is a Cranfield University Podcast. I am Steve Macaulay
and I am interviewing Professor David Parker today, about regulation.
You mention regulation to many people and you get a lot of sound
and fury, particularly from business. Mention it in fields of
government and they see it as a necessity. Now you take a very
positive view, David, of regulatory impact and I would like to explore
that with you.
DP
I take a positive review of something called regulatory impact
assessment, not necessarily of regulation itself, because regulation
can take many forms. We are living in very interesting times
because over the last twenty years, we have seen the state roll back
in some areas, particularly of actual direct ownership of businesses
through privatization programmes – not just in this country, but
internationally. But we have also seen the state take on a new set of
roles, as a kind of regulator of the game. Now regulation is
necessary in some areas. One would not want to see no regulation
of airlines or of the nuclear industry or of pharmaceuticals. At the
same time there is a real risk that the government gets drawn into
more and more regulation. Thinking about the potential benefits, but
discounting the actual cost of imposing those regulations, a
regulatory impact assessment is a method which is now rolling in to
more and more countries internationally as a way of trying to ensure
that where regulation is imposed it has a net benefit to society.
SM
Now, you have just published a book in this area, Regulatory Impact
Assessment: Towards Better Regulation – what prompted you to put
these thoughts together.?
DP
I have been working in the field of regulation and related issues now
for twenty years or so and regulatory impact assessment is a method
that developed initially in the United States in the 1970s. Since 1995
it has been a recommendation to be applied by governments in
OECD countries, and today most OECD countries do to one degree
or another have a regulatory impact assessment system. In 1998
Tony Blair as Prime Minister at the time, announced that all new
regulations in Britain would have to undergo a regulatory impact
assessment – and they do. This book is an attempt to look at the
record since, what has actually happened on the ground – not just in
this country, but internationally because countries like Australia for
example, operate regulatory impact assessment. So it was to bring
together leaders in the field internationally, to transfer experiences
and explain experiences between countries and see what lessons we
can learn, because regulatory impact assessment is with us, its going
to remain with us in my view.
SM
So, what is your overall assessment about how it is working now?
DP
Steve, it is very difficult to summarise the performance of regulatory
impact assessment, particularly on an international scale. I have
looked at some developing countries, which now use this technique
or something similar and in some countries it is working moderately
well, and in others it is not really working at all because it ties into the
old issue – it’s the issue of governance and laws and cultures and
countries. But if you were looking at Western Europe and North
America, I would give it five out of ten at the moment, we have made
some progress. What it does mean at the present time is that in
more and more countries in the developed world, including the UK,
whenever a new regulation is suggested, it has to be analysed and
assessed before it is actually introduced and that has got to be a
good thing because we have had some horror stories in the past.
The dangerous dogs one is a classic, where government as a knee
jerk reaction, understandably to public concern about certain types of
dog breeds, introduced legislation which improved impossible for the
police to actually enforce. So regulatory impact assessment is an
attempt to ensure that we get good regulation, not just more
regulation, and when you bear in mind that the one estimate, and of
course these are very difficult estimates like estimates of tax evasion
– how much is going on, you don’t really know – but one estimate put
the cost of regulation in the UK as equivalent to the total amount
raised through income tax, which is around about £130 billion a year.
Now that is a colossal cost to the economy, the question one has got
to ask one self is do we get £130 billion or more benefit from this
regulation and I am pretty certain in my own mind, or I would be very
surprised if it wasn’t the case, that there will be some regulations that
really are not cost effective at all.
SM
What I would like to do is to explore the impact on the business
community. My understanding at the moment is that most
businesses don’t carry out any kind of thorough impact assessment
in the regulatory area.
DP
Well one could extend the logic regulatory impact assessment to
looking at internal management decisions, but if we are looking at it
from a public policy perspective and how business interrelates to that,
going back to my figure if its £130 billion, £70 billion, it is a lot and
indeed the Chambers of Commerce each year bring out a figure and
the last one I was saw was that since 1998 new regulations imposed
a net cost to business of just under £40 billion. So business clearly
has a major self interest in being regulation wise. Now you can think
of regulation as purely a constraint on your strategic management –
as something that, a bit like tax, bit like a lot of things in life, you
would rather it wasn’t there and let’s shove it to one side and worry
about it when it affects us. In my view that is not sensible. I think
regulation should be a core component of strategic management
today, because we live and businesses operate in a highly regulated
environment, no matter where they are. We are all affected by
Heath and Safety at work, we are all affected by regulations of
industry, environment – environmental regulation is becoming an
increasingly important topic. So there is no way that business can sit
back and say it is nothing to do with me and I have never come
across a businessman who has actually said that. Its usually the
response is well, its not something we can do anything about, the
government imposes it. Now that is not correct and if you look at
some of the really successful companies in Europe today and in
North America, they are very proactive in regulation, they anticipate
the regulation and they influence the regulation. Now if you are
coming onto regulatory impact assessment, one of the most
important aspects and one of the greatest benefits of it as a tool and
technique in government, is it requires government to consult before
it regulates and we have something that has been developed within
the OECD and elsewhere called a standard cost model, which most
businesses should know something about – I suspect they don’t –
which is a way of evaluating quantitatively the costs and benefits of a
regulation. Now in this consultation exercise business is invited to
express its views. I am shocked at times at the number of
businesses that don’t and indeed a major complaint coming from the
British government at the present time is the lack of responses to
consultation exercises. So, in a way, if business then says well this
regulation has been a disaster since it was introduced, its their fault.
They had an opportunity to get involved and influence this regulation
in advance. Now I am not saying that many businesses do get
involved, but I think there has to be more emphasis on that as a core
aspect of strategy and this doesn’t mean shunting regulation into a
regulatory office – some companies have a little regulatory office.
Just as we realized twenty years ago, thirty years ago, you couldn’t
have a separate little strategic planning office, separate from
everybody else, doing its own thing – so regulation shouldn’t be
shunted away and I think there should be regulatory expert at least at
Board level or just below Board level to advise all businesses.
SM
So, give me some examples of the kind of questions that you would
expect an organization to be asking themselves?
DP
Clearly there are a whole set of issues relating to existing regulations
and from time to time governments do review their regulation –
indeed there is a pressure on governments, I think quite rightly, to
have a regular review of existing regulations to make sure that they
have not outlived their usefulness, but if we are talking about new
regulations, I think there are a number of stages. First of all, a
business/companies should be anticipating what might be coming up
in terms of regulation, what are the major public policy issues of
today? Now if you take the present moment, environment for
example, what is that likely to mean for us? Is there any possibility
that regulations might be coming up in Europe or in the UK, or if we
operate internationally, North America, or wherever it is we operate.
The second then is, what are likely to be the impacts of this
regulation on us? Can we anticipate it? Can we model it in some
way and what it is going to be? And thirdly, what are the
opportunities for us to convince government that if they just alter the
regulation in this respect there would be a net cost saving, plus no
real impact on the overall benefit of the regulation. So what I think
companies have got to realize is that we are living in this regulatory
state and it is not going away. And indeed, there is Steve, a link into
something which companies I think are much more au fait with at the
moment, certainly talk a lot more than regulation, which is corporate
social responsibility or corporate responsibility. Now the two are
linked, they are part of the same thing because the whole concept
behind corporate responsibility is that you act responsibly, however
that is defined, so that government doesn’t intervene. Now if
government intervenes it regulates, so you can see the corporate
responsibility and regulation as addressing the same sort of issues
and it may well be that as part of the process and consultation
companies can convince government not to regulate because they
will self regulate. Self regulation, co regulation are very fashionable
topics and it does require business to get involved, and as I say, once
again to be proactive rather than simply reacting to what is going on.
SM
So there is quite a gap there between what you would see is the way
a company should be dealing with regulation, both existing and future
regulations and the way they are now. What are your thoughts on
how to close that gap?
DP
Well, I think firstly businesses have to realize that there is an issue,
there is a problem. Secondly then, as part of their strategic planning
get a clear idea of how they should be responding to regulation and
what kind of resources they need to put into it. I mean, it does vary
from business to business, all businesses are affected by regulation,
but some are affected more than others, so you would expect some
businesses to spend more on regulatory issues than others. I think
thirdly then, is to have a really clear knowledge base in the
organization about which are the major regulatory bodies, what are
the type of regulations, what are the consultation processes? How
can we get involved? Now, to be fair the CBI, the Chambers of
Commerce and so on, they do a fair bit of this, but just as you would
not outsource your core competencies as we say in management
schools, the question is whether you should simply outsource all your
regulatory issues and my view is no – simply because it is not an
outsourced activity. It is something that you need to have
competence of in your own organization, not least so that you know
which questions to ask the CBI and the Chambers of Commerce –
you know what the issues are. I wouldn’t personally recommend that
you simply just rely on these organizations to serve your needs, and
to be fair Steve, so that I don’t get inundated by e-mails after this,
many businesses are good at this. There are some very good
companies, Volkswagen is classic in the way that they proactively
use regulation. Some businesses are very good, some are as
always in life, OK and there are some that are struggling and not
really involved at all. And I think it is really bringing up the
competence of the people lower down in the organization on
regulation.
SM
So we have covered the business area – I would like to return to
government. You have made some comments that suggest that
government, although they carry out the exercise of impact
assessment, don’t in practice do that in the way that you would like.
DP
Some regulatory impact assessments are done well, some are done
a lot less well and indeed in this country the National Audit Office
does from time to time, usually at least every year or two years, issue
a report on regulatory impact assessment. So they have identified
an unevenness in the application across government departments.
So I think that the first thing is that we need to get all the government
departments up to the required level and the better regulation
executive in government is that its mission to do that, so things are
improving. I think more fundamental than that is, what I always say
to my students is my mother’s response to a problem, which is they
should do something about it. Who is they? Well presumably
government should do something about it and I think there is a kind
of knee jerk response when anything happens, whether its BSE,
whether it’s a rail crash or whatever it is – somebody should stop it
and I think that sensible government needs to get across to the public
generally that its not just a question of government stepping in, but at
what cost and can the government rectify this problem anyway, or is
it a problem which is best rectified by business itself or public itself
because you can get very, very strange and negative effects. I
mean we do know that when Railtrack was closed down after the
Hatfield crash that more people flew or when by cars, mainly by cars,
and of course the death toll on the roads is much higher than on the
rail, so whether it saved life by putting on a low speed restriction on
the tracks across the country and so on, is questionable. We have
got lots of cases internationally of this, where government step in to
do something in response to public pressure, whereas I think what
the government should be doing more is explaining to the public why
they are not stepping in, or why if they do step in there are these
negative consequences to think about. And I think other than that
we have got to get a much clearer behaviour within government of
consulting before they do something. Too often we do knee jerk
regulations – I say we, governments internationally, European
Commission, which incidentally operates regulatory impact
assessment now, and has done since 2002. The whole purpose of
regulatory impact assessment I think as much as anything is to slow
down the response of government. That may sound odd, but its to
get government to think before it acts, plan before it acts, consult,
make sure that where government intends to regulate, it needs to
regulate at all and if it is going to regulate what is the best way of
regulating and consulting all the interested parties to get views about
that. Where regulatory impact assessment is a danger is that
governments may adopt it because it is internationally fashionable
now, the OECD requires it, the World Bank now requires it in
developing countries that it assists. Governments may manipulate it
because it is a technique and the idea behind it ultimately is like a
cost benefit analysis in very general terms. Now, you can get any
answer you want from a cost benefit study depending on what
numbers you input. So there is a danger that regulatory impact
assessment becomes a nodding through exercise – it supports the
ministers pet idea at the moment. We must move away from that. I
think we have done a good job in the UK, they have done a good job
in the US, there is scope for improvement elsewhere.
SM
So, I think you have mentioned a couple of very valid areas that
organizations can and should, as you say, plan before they act both
in government and in organizations generally. Now, we mentioned
at one point about corporate social responsibility and the importance
that organizations themselves can take this up – would you like to
say some more about that?
DP
Yes, I think it is interesting the way that the boundary between
regulation and corporate responsibility is becoming increasingly
blurred because when you look back in history at the societies who
operated in the past, we have often operated without much regulation
and the question is why was it successful, why today do we need all
this regulation whatever it is costing us and I think that we are going
to find going forward now is increasing recognition that there are
other ways of solving the problem and one primary thrust will be this
issue of businesses taking it on themselves to rectify a problem and it
comes back to what I said about building this in to your strategic
thinking and strategic planning because if you see a problem coming
up and there is a possibility that government will regulate with all the
costs and rigidities that that introduces is for you, along with other
businesses in your industry, to come forward with a formula for
solving the problem voluntarily and say we will respond this way.
And many industries are doing this at the moment and will continue to
do it. In my view provided the problem is solved, if we can solve it
without all the costs of government bureaucracy then that’s a good
thing and that is what we should be aiming for.
SM
So, you mentioned David at the start that regulation provokes a lot of
sound and fury, what I think usefully you have done here is to give
some sensible ways forward that both government and organizations
and businesses can usefully take forward.
DP
Yes, that is absolutely right. I mean there is not point in just
complaining about it, hoping it will go away because it is not going to
go away. We are sophisticated societies today, we expect things to
be done well and to be done properly, so it is up to business to
demonstrate that we can do things well and properly – as I say once
again, without necessarily incurring the costs of government
regulation.
SM
It’s a very valid point David, thank you very much.
DP
It has been a pleasure, thank you very much indeed.
© Cranfield University 2008