Interview: Professor David Parker
Regulatory Impact Assessment
SM
Hello, this is a Cranfield School of Management podcast. I am Steve
Macaulay and today I am interviewing Professor David Parker – he is
a recognised authority on regulation. 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 view of something called Regulatory Impact
Assessment, not necessarily regulation itself because regulation can
take many forms. We live in very interesting times because over the
last twenty years we have seen the state rolled back in some areas,
particularly of actual direct ownership of businesses through
privatisation 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.
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 is drawn into more and more regulation.
Thinking about the potential benefits, but discounting the actual costs
of imposing those regulations, and 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 28 years or so. 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
Professor David Parker
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, it’s going to
remain with us in my view. I should point out, incidentally it goes
under various titles. Sometimes it’s simply referred as impact
assessment – but it is with us, it’s developing and the question is to
make it work better.
SM
So, what is your overall assessment about how it is working now?
DP
Steve, it’s 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. In some countries it is working moderately well
and in others it’s not really working at all because it ties into the old
issue of governance and laws and cultures in countries. But if we
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 . 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 proved 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 of it is going on
you don’t really know. But one estimate put the cost of regulation in
the UK as equivalent to the total raised through income tax, which is
around about £130bn a year. Now that is a colossal cost to the
economy. The question one has got to ask oneself is do we get
£130bn or more benefit from this regulation? I am pretty sure in my
own mind – or I would be very surprised if it wasn’t the case – that
there would be some regulations that really are not cost-effective at
all.
SM
What I would like to explore is the impact on the business community
– my understanding at the moment is that most businesses really
don’t carry out any kind of thorough impact assessment in the
regulatory area.
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Professor David Parker
DP
Well one could extend the logic of 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 it’s £130bn, £70bn, it’s a lot. Indeed the
Chambers of Commerce each year bring out a figure and the last one
that I saw was that since 1998 new regulation has imposed a net cost
to business of just under £40bn. 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, a bit like a
lot of things in life – you would rather it wasn’t there and let’s shunt 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 health and safety at work. We are all
affected by regulations of the food industry, the environment –
environmental regulation is becoming an increasingly important topic.
So there is no way that business can sit back and say it’s nothing to
do with me. I have never come across a businessman who has said
that – his usual response is well, it’s not something we can do
anything about, 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 with 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. 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, it’s 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
realised twenty years ago, thirty years ago, you couldn’t have a
separate strategic planning office separate from everybody else doing
its own thing. So, regulation shouldn’t be shunted away and I think
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Professor David Parker
there should be a 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 organisation to be asking itself.
DP
Clearly there is a whole set of issues relating to existing regulations.
From time to time governments do review their regulation – indeed
there is a pressure on governments, and 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, 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, of what
way it’s 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 realise is that we are living in this regulatory state and it’s not going
away. And indeed, there is, Steve, a link into something which
companies are much more au fait with at the moment – certainly talk
about 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 corporate responsibility and regulation as addressing the same
sort of issues and it may well be that as part of the process of
consultation companies can convince government not to regulate
because they will self regulate. Self regulation, co regulation, are
very fashionable topics, but 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
companies should be dealing with regulations – both existing and
future regulations – and the way they are now. What are your
thoughts on how to close that gap?
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Professor David Parker
DP
Well, I think firstly businesses have to realise there is an issue, there
is a problem. Secondly, then as part of their strategic planning, get a
clear idea 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 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 organisation 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.
My view is no, simply because it is not an outsourceable activity. It’s
something that you need to have a competence of in your own
organisation, 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
organisations 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 a classic,
Volkswagen Audi, 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 organisation 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 the first thing is that we need to get all the government
departments up to the required level and a better regulation executive
in government, that is 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. I think there is
a kind of knee jerk response when anything happens, whether it’s
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Professor David Parker
BSE, whether it’s a rail crash, whatever it is, somebody should stop it.
I think that sensible government needs to get across to the public
generally, that it is not just a question of government stepping in, but
at what cost and can government rectify this problem anyway, or is it
a problem that is best rectified by business itself, or the 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 went by cars, mainly by cars and of
course the death toll on the roads is much higher than on the railway
– so whether it actually saved life by putting on this low speed
restriction on the tracks across the country and so on, is questionable.
And we have got lots of cases internationally of this, where
government step in to do something in response to public pressure,
whereas what I think what 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, I think,
behaviour within government of consulting before they do something.
Too often we do knee jerk regulations – and 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 might
sound odd, but it’s 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’s 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 kind of nodding through exercise – it
supports the minister’s 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
organisations can, and should, as you say plan before they act both in
government and in organisations generally. Now we mentioned at
one point about corporate social responsibility and the importance
that organisations themselves can take this up – would you like to say
some more about that?
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Professor David Parker
DP
Yes, I think it is interesting that the way that the boundary between
regulation and corporate responsibility is becoming increasingly
blurred because when you look back in history, at the way societies
have 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 what
we are going to find going forward now is increasing recognition that
there are other ways of solving the problem. One primary thrust will
be this issue of businesses taking it on themselves to rectify a
problem. It comes back to what I said about building this into your
strategic thinking, your strategic planning, because if you are seeing a
problem coming up, and there is a possibility that government will
regulate with all the costs and rigidities that that introduces, it’s for
you – along with other businesses in your industry – to come forward
with a formula for solving the problem voluntarily and saying we will
respond this way. And many industries are doing this at the moment
and will continue to do it. In my view if provided the problem is
solved, if we can solve it without all the costs of government
bureaucracy then that is a good thing and that is what we should be
aiming for.
SM
So we 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 organisations
and businesses can usefully take forward.
DP
Yes, that is absolutely right. I mean there is no 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’s 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
That’s a very valid point David, thank you very much.
DP
It’s been a pleasure – thank you very much indeed.
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