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Beyond red tape – regulating to improve growth

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Beyond red tape – regulating to improve growth

Regulation that improves growth is more valuable than simply cutting red tape. Effective regulation instils confidence in consumers and business and helps to guarantee that companies behave in a way that favours long-term prosperity over short-term growth.

Regulation is often accused of limiting productivity. Bureaucratic ‘red tape’ is identified as inefficient and a threat to business. However, a more nuanced understanding regulation’s role in Australia shows it to be a key driver of economic growth. Effective regulation instils confidence in consumers and business. It also helps to guarantee that companies behave in a way that favours long-term prosperity over short-term growth.

Regulation’s importance in driving prosperity and growth is closely linked to the ability of governments and regulators to ensure that regulation is responsive to change. At a recent regulators’ forum hosted by Nous Group in Perth, three agency heads spoke about the importance of responsive, market-focused regulation in promoting ongoing economic growth. The heads suggested that regulating for prosperity and growth requires the needs of the economy and community to be balanced.

So how do you ensure that a regulator is responsive enough to meet the public’s demands for safety and certainty while not over-regulating business? There are three critical factors to consider:

A focus on providing value to the community

All parties to the regulatory process are more likely to support the actions of a regulator if they see that it is building value for them. Regulators must therefore identify an outcome that the business and public value and seek to deliver it through regulation. The following examples were offered by the agency heads as strategies for using regulation to create value for stakeholders:

  • Promoting certainty in business – Regulators will be seen to provide value to the community when they promote certainty in business dealings – which both businesses and the public value. Regulation particularly helps to provide certainty regarding the sale of goods or provision of services that may otherwise vary in quality or safety.
  • Tackling society’s ‘key concerns’ – A regulator will also be seen to provide value if the community understands the regulator’s purpose and how its activities promote community interests. Therefore, it is critical for regulators to demonstrate to the community that they understand the potential harms it faces and that they are taking practical and visible steps to reduce their risk.
  • Acknowledging the limits of regulation – Regulators must actively promote their limits to manage expectations. Community respect for regulators is diminished where perceptions are not met by behaviour. Therefore, regulators should limit areas in which the community will expect them to act to avoid situations where popular opinion suggests they should act despite an intervention being beyond the scope of their powers.
  • Establishing a good balance between strategic and operational activities – Getting the balance right between strategic and operational activities is an ongoing challenge for regulators. They need to be able to strike a balance between working visibly and competently in the areas in which the public expects action, while reserving capacity to respond to new and emerging issues. In some cases this requires regulators to work with others to achieve compliance. In others it means that the balance between ‘unseen’ regulatory activities and more public programs of engagement and consultation are needed to show that regulators are being responsive.

A recognition of the importance of relationships

Building appropriate relationships with business, consumers and ‘opportunistic’ rule breakers is vital for a regulator to operate effectively. Establishing these relationships assists regulators to obtain insights into how they should adjust their approach and leverage existing resources to achieve their aims. The importance of each of the three groups is as follows:

  • Businesses (and the peak bodies that represent them) are often close to the challenges to free and effective commerce presented by regulation. They have a clear understanding of regulatory process and approach improvements that could reduce the administrative burdens businesses face. Working with businesses can provide regulators with these insights while allowing for the regulator to engage with the businesses to establish the economic value that regulation adds.
  • Consumers can offer regulators unique insights into the impact of their operations. They are both the end beneficiaries of regulation and the first to face the consequences of poor market conduct. Their opinions are also important for government in terms of determining the appropriate scope for particular areas of regulation.
  • Rule breakers. Regulators must act decisively against ‘opportunistic’ rule breakers to discourage similar conduct. Businesses and individuals are less likely to breach the law if they see that others who ‘chance’ breaches of the rules are dealt with swiftly and appropriately. Taking action against those who fail to comply and cause serious harm enhances regulators’ existing relationships with businesses and consumers.

A proactive approach to collaborating with other tiers of government

Regulators become more efficient and effective when they build strong relationships with organisations from all tiers of government. This provides them with access to the support of peers in other jurisdictions. It also prevents ‘double regulation’, where two regulators operate in the same domain. Strong relationships between different regulators and government tiers also enable insights into how to approach regulatory challenges that must be transferred from one organisation to another.

Meeting the expectations of business, government and the public is always going to be a difficult balance for regulators. However, the key take away from Nous’ Perth regulatory forum was that regulators will be most effective where they focus on providing value and recognise the importance to their work of strong relationships, both with the community and with their peers.

Tags: regulation