GOOD GOVERNANCE AND ADMINISTRATIVE DISCRETION
Constantine Stephanou
Jean Monnet Professor of European Institutions,
Department of International & European Studies
Panteion University, Athens
Outline
Overview: Policies for ensuring good governance
1. Ensuring effective governance
1.1.Ensuring effective policy making
1.2.Ensuring effective policy implementation
2. Ensuring fair governance and respect for the general principles of law
2.1. Principle of legality
2.2. Principle of adequate reasoning
2.3. Principle of equality
2.4. Principle of proportionality
2.5. Principles of legal certainty and protection of legitimate
expectations
3. Strengthening the means of redress of grievances
4. Entrusting administrative tasks to independent agencies
Concluding remarks
*****
Overview: Policies for ensuring good governance
The exercise of discretionary power by the administration when it performs
regulatory or implementation tasks may be necessary, and sometimes
politically expedient. It may, however, undermine business confidence and,
more generally, citizens’ allegiance to the political system. It is not therefore
surprising that many governments are implementing policies for reducing or
eliminating administrative discretion. These policies are briefly examined in
the present paper. They may be summarised as follows:

Ensuring effective governance;

Ensuring fair governance and respect for the general principles of law;

Strengthening the means of redress of grievances;

Entrusting regulatory tasks to independent agencies.
1. Ensuring effective governance
1.1. Ensuring effective policy making
The OECD Council has adopted in 1995 a Recommendation on Improving the
Quality of Government Regulation; see also, OECD (1997), Regulatory
Impact Analysis: Best Practices in OECD Countries and OECD (1997),
Regulatory Quality and Public Sector Reform.
In the aforementioned recommendation the OECD calls upon its member
states to conduct regulatory impact analyses in order to make sure that
proposed regulations are suitable for achieving the stated policy goals.
Among the questions included in the OECD checklist, the most central is
whether regulation is the best form of government action.
The compatibility of regulation with the operation of markets is a hotly debated
issue. It has been correctly pointed out that “regulation, at the very least, must
serve the ends, not only of limiting monopoly power, but also of creating and
policing the conditions for effective competition - to regulate markets into
existence, so to speak” (Lewis, 2001, p. 151).
In the UK, assessment of compliance costs to business of new regulatory
initiatives has been common practice in the administration, although it was
heralded as an important element of administrative reform in the 1990s’
(Dunsire & Hood 2000, pp. 80-81). Interestingly, the UK conservative
government invoked very large compliance costs for business in order to opt
out of EU social policy.
On the other hand, Dunsire & Hood (2000, p. 91) argue that it may be
desirable to use the potent market mechanism to further non-economic
policies. Thus, taxation of commodities and services not to raise revenue but
to alter costs (and so prices) differentially and affect consumption patterns
(high taxes on tobacco, low taxes on diesel fuel, carbon tax for environmental
ends - are examples of social engineering via the market place.
Alternative forms of government action, such as incentives, are increasingly
considered as appropriate means for achieving public policy goals. Thus for
example, eligible for government procurement contracts are firms which
comply not only with technical and financial criteria but also with standards of
environmental performance.
Furthermore, the doctrine of subsidiarity of the State provides the
philosophical underpinning for entrusting responsibilities to stakeholders. The
classical example relates to the regulation of the labour market by the social
partners, with or without State involvement. In the EU, the Commission may
initiate legislation following the failure of the social partners to reach an
agreement. Moreover, social partners may be involved in the implementation
stage.
In other areas of market regulation the current trend towards associative or
participatory democracy requires the administration to explore alternatives
such as self-regulation, co-regulation, bargained administration.
Self-regulation: Most examples stem from British practice. Nevertheless, in
the area of financial services self-regulation has been replaced by coregulation since the entry into force of the Financial Services Act.
Co-regulation: The regulator sets mandatory rules and stakeholders set
professional standards and rules by means of codes of conduct.
Bargained administration: Prices of pharmaceuticals are usually negotiated
between
the
national
health
or
social
insurance
bodies
and
the
pharmaceutical industry.
The
aforementioned
examples
of
stakeholder
involvement
tend
to
demonstrate that the traditional model of representative democracy is not any
more perceived as the unique mode of governance by the people and that
forms of associative democracy involving the participation of stakeholders are
being increasingly experimented with in European countries.
1.2. Ensuring effective policy implementation
Effective policy implementation is impossible without institutions and
mechanisms ensuring fairness and openness. Moreover, one of the main
causes of maladministration is the complexity of the regulatory environment
and the inconsistency of regulations. In order to avoid problems at the
implementation stage, regulators should clarify to what extent preexisting
legislation is repealed by new legislation and should include transitional
arrangements for pending administrative procedures. The EU and most
member States have undertaken efforts aimed at the simplification and
codification of substantive rules, as well as procedures for granting approvals,
permits etc.
2. Ensuring fair governance and respect for the general principles of law
2.1. Principle of legality
The principle of legality requires the administration to act on the basis of
parliamentary / statutory authority. The application of this principle differs
among European states. In Germany and other European countries, if there is
no statutory basis the administration may not take decisions which affect
human rights and freedoms or impose burdens. In France and the UK there
are exceptions to the principle: In France the administration holds an
autonomous regulatory power in some areas and in the UK a similar power
stems from the royal prerogative. Nevertheless, both countries now accept the
direct application and supremacy of the European Convention on Human
Rights and the additional protocols in their domestic legal order.
2.2. Principle of adequate reasoning
Adequate reasoning by the administration is a prerequisite for the legality of
administrative acts. In EU law the requirement is limited as regards acts of
regulatory nature and extensive as regards acts addressed to individuals
(Molinier, 2000, pp. 88-89).
2.3. Principle of equality
Seen in positive terms, the principle of equality requires that comparable
situations must me treated in the same manner, unless there are objective
grounds which justify a difference in treatment. In the field of economic law
comparability between firms exists when their competitive positions in the
relevant market are comparable.
The principle of equality is related to the principle of adequate reasoning.
Indeed, seen in negative terms, the principle of equality requires the
administration to justify differential treatment. Thus, in case C-167/88
(Association of wheat producers etc.) the Court established that the power
conferred on the Commission to adopt differential intervention measures for
market support, on the basis of prevailing market conditions in the various
Community regions, did not discriminate between producers. The Council had
used an objective criterion for allowing differential treatment.
Under continental legal systems the administration has to demonstrate a
substantive justification for differential treatment, whereas under English law
the decision must be one which a reasonable authority might take.
In the aforementioned case of the Wheat producers association, the Court
also found that in the exercise of its discretionary power, the Commission had
not committed a “manifest error of appreciation”. The test of “manifest error of
appreciation” stemming from French administrative law is applied in many
systems of administrative law, including the EU system.
2.4. Principle of proportionality
The principle of proportionality requires that action undertaken by the
administration must be proportionate to its objectives. Whether administrative
action is suitable and necessary is primarily a matter of policy rather than a
question of law. Thus, when Courts are confronted with regulations involving
economic policy choices, they defer to the expertise of the administration,
exercising only “marginal review” (Tridimas, 1999, p. 95).
Typical of this approach is the way in which the principle of proportionality is
applied by the European Court of Justice. In the Fedesa case (C-331/88) the
Court held that the lawfulness of the prohibition of an economic activity is
subject to the condition that the prohibitory measures are appropriate and
necessary in order to achieve the objectives legitimately pursued by the
legislation. Where there is a choice between several appropriate measures,
recourse must be had to the least onerous and the disadvantages caused
must not be disproportionate to the aim pursued.
In the same case, however, the Court established what is known as the
“manifestly inappropriate” test, stating inter alia that “in matters concerning the
common agricultural policy the Community legislature has a discretionary
power which corresponds to the political responsibilities given to it by Article
40 (now 34) and 43 (now 37) of the Treaty. Consequently, the legality of a
measure adopted in that sphere can be affected only if the measure is
manifestly inappropriate having regard to the objective which the competent
institution is seeking to pursue…” The test of “manifest inappropriateness”
was also applied in cases C-296/87 (Schrader) and C-8/89 (Zardi) regarding
the validity of measures imposing financial burdens on market operators.
Moreover, the Court of First Instance and the Court of Justice respectively
admitted that in the realm of common trade policy the Community regulator
was bestowed with discretionary power which corresponded to its political
responsibilities. The Courts confirmed that the relevant measures, i.e. antidumping duties (case T-162/94, NMB / Commission) and quotas on imported
goods (case C-150/94, UK / Council), could be repealed if it was proven that
they were manifestly inappropriate for achieving the respective goals.
Finally, it should be noted that the test of “manifest inappropriateness” stems
from the French administrative law doctrine of “misuse of power”
(détournement du pouvoir). Actually, article 230 of the EC Treaty includes the
misuse of powers among the grounds for judicial review.
2.5.
Principles
of
legal
certainty
and
protection
of
legitimate
expectations
As pointed out by Tridimas (2000, pp. 162-3), respect for legitimate
expectations as a principle of law is particularly developed in French and
German jurisprudence - and the jurisprudence of the European Court of
Justice,
whereas
English
courts
are
reluctant
to
accept
legitimate
expectations as an independent ground of review. The principle imposes strict
limitations on the retroactive application of public law, including an absolute
prohibition on retroactive taxation.
3. Strengthening the means of redress of grievances
European countries have established administrative courts for hearing actions
for annulment of administrative acts. Moreover, some European countries
have established Constitutional Courts for hearing actions for annulment of
parliamentary statutes.
In the area of European Community Law, article 230 4th indent of the EC
Treaty provides that “any natural or legal person may, under the same
conditions, institute proceedings against a decision addressed to that person
or against a decision which, although in the form of a regulation or a decision
addressed to another person, is of direct and individual concern to the
former”. In 1988 the Court of First Instance was entrusted with individual
appeals against Community institutions. The Court has been a very active
defender of the rule of law. It has sometimes, however, been accused of
substituting itself to the Community administration by blurring the distinction
between legality and expediency of administrative acts (for a review of case
law and doctrine see Molinier, 2000, pp. 94-98).
Of increasing importance to the citizen are the non-judicial means of redress
of grievances. In most European countries citizens can appeal to the Minister
in charge of the relevant Department or the Board of the State entity
concerned. Many countries appoint inspectors or commissioners for
combating maladministration. In the UK a Parliamentary Commissioner for
Administration is appointed from outside the civil service.
In recent times, however, most European countries have established
independent Ombudsmen who intervene to redress maladministration on
behalf of affected citizens. The institution is increasingly popular and often
fragmented. Thus, at the latest count there were 25 ombudsmen in the UK.
Moreover, a European Ombudsman has been established in accordance with
article 195 EC Treaty, with the task of dealing with “instances of
maladministration in the activity of Community institutions or bodies, with the
exception of the Court of Justice and the Court of First Instance acting in their
judicial role”.
Finally, many countries have adopted citizen’s charters setting out standards
of conduct for the administration and means of redress for the citizens. The
UK Citizen’s Charter adopted by the conservative government in 1991, has
served as a model for similar charters adopted in other countries. Typical
provisions of citizen’s charters are:
- Commitments to prompt action, expressed in target response dates for
correspondence, target maximum waiting time or delivery time;
- Information as to what channels of complaint and redress of grievances
were available;
- Information as to what forms of compensation would be payable when
published targets were not met.
Dunsire & Hood (2000, p. 84) have pointed out that the use of the word citizen
is a misnomer: the charters are for the customer, not the citizen. The view
seems correct in the case of firms entrusted with the provision of services of
general economic interest (utilities).
4. Entrusting administrative tasks to independent agencies
The current trend towards the delegation of regulatory tasks to independent
agencies is mainly related to the lack of technical expertise in the
administrations. The prominent cases are those of competition authorities and
agencies involved in consumer safety - in areas such as food and drugs
(pharmaceuticals). Apart from technical expertise, independence from political
authorities has been a determining factor in setting up various national
authorities entrusted with the licensing and supervision of service providers.
Thus, the independence of the regulator is deemed to be a condition for
ensuring competition and pluralism in the provision of audiovisual services.
Similarly, the independence of the European System of Central Banks is
critical for achieving the goal of price stability.
As pointed out by Majone & Everson (2000, p. 133), “the point of isolating
regulators from the political process is to enhance the credibility of the
regulatory commitments. The head of an independent agency will, normally,
attach more importance to the agency’s statutory objectives than the
government, parliament or average voter”.
In designing an agency, the following institutional choices have to be made
(See Horn, 1995):
1. The extent to which decisions are delegated to the agency rather than
taken by the principals themselves. Thus, for example, EU policy-makers
were confronted with this dilemma when they established the European
Agency for the Evaluation of Medicinal Products. They decided that the
European Commission would approve the products in the framework of the
regulatory committee involving representatives of member states, subject to
an expert opinion from the aforementioned agency.
2. The degree of independence of agency directors from their principals. Thus
for example, the members of the Executive Committee of the European
Central Bank are appointed for eight years and their mandate is not
renewable. In some European countries agency directors are appointed by
parliamentary committees deciding by unanimity or qualified majority.
3. The degree of participation of stakeholders. To what extent should, for
example, universities and business interests be represented in a science
foundation or a research council ?
4. The extent of parliamentary or judicial oversight. In the case, for example,
of the European Central Bank, oversight by the European Parliament is
extremely limited.
Concluding remarks
Good governance is not antithetical by definition to administrative discretion.
There are various means for achieving public policy goals, while also ensuring
fair governance. There are situations, however, where requirements of
technical expertise and political credibility justify the establishment of
independent regulatory agencies.
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