Regulations are something that many of us might like to think about less. Depending on who you ask, their reputation varies from necessary, to necessary evil, to simply evil (the truth is probably somewhere in the middle). All other things being equal, most of us would probably prefer to be left alone rather than be subject to regulations or rules imposed from without. But in a modern society in a developed country, if your work is important enough to impact the lives of a large number of people, you are likely to be subject to at least one regulation.
On one hand, regulations might be considered a sign of a successful business – your business won’t be worth regulating unless you are impacting large numbers of people. That can be cold comfort for those businesses which are subject to regulations that are serious impediments to their ability to serve willing customers, or when regulations have outsized costs and small societal benefits. But done right, regulations can keep people safe, support competition, consumer choice and environmental quality, and do so in a way that benefits both businesses and society at large.
There are some critical qualities for highly effective regulations to have. They must have a clear, measurable and unique goal, they must be balanced and fair, they must be transparent in both their design and application, and they must have predictable outcomes. Finally, they must also be consistent in their effect over time.
Clear, unique goals
Highly effective regulations should set out to achieve and maintain a specific, measurable solution to an unambiguous problem that must be addressed, and is not being addressed by other means. For example, in the 1980s, chlorofluorocarbons (CFCs) were causing widespread atmospheric ozone depletion over Antarctica. In a remarkable show of collective action to a global problem, nations came together with the goal of reducing or eliminating the emission of CFCs and other ozone-depleting gases. Regulations targeting these gases were put into place, spurring development of less harmful substitutes and within a decade, atmospheric ozone levels were showing signs of significant improvement.
The CFC regulations solved a clear problem (CFC pollution was causing harm), put targeted measures in place (reduce or eliminate emissions of gases that cause this kind of harm, while allowing and encouraging the use of less harmful substitutes), and did so with the fewest number of rules possible. It’s possible to optimize for one rule – and nearly impossible to optimize for many rules that all intend to achieve the same goal.
Balanced and fair
Achieving fairness is very difficult in practice. It requires trust, which in turn requires time. The best way to do that is through a fair process, with a lot of engagement. Done well, a fair process is a positive outcome in its own right, as it reinforces trust and legitimacy in rule makers. Trust in the process allows more and better information to be shared, which leads to better, more effective rules.
Transparent in design and application
A willingness to show how proposed regulations will achieve the stated goal goes a long way in building trust in the process and confidence in the outcome. The mechanism of action – how the new rules will shift behaviour towards the achievement of the goal – should ideally be easy to follow. Those responsible for making changes to the way they do things should be able to see how they can contribute to meeting that goal. In addition to including the regulatee as part of the solution, they can often offer better ways to achieve the goal, at a lower cost.
Certainty is worth striving for, but achieving it is another matter. Anyone who has ever made a plan knows that few of them survive contact with reality intact. That said, the act of planning is invaluable, and clear rules and expectations are essential to planning. This is especially true where in sectors with long investment horizons, such as infrastructure. Often, actions that were on the schedule for next year were first planned years or even decades ago. People and businesses are remarkably adaptable – solutions to almost any problem will be found, eventually. But efforts to provide regulatees with predictability during the regulatory design process have an outsized payoff in building trust and acceptance, and in reducing costs and delays.
The best argument for predictability is that it enhances buy-in from those impacted by the regulation. With few exceptions, regulations are intended to make small changes to behaviour, and so to be effective, those changes must be sustained over long periods of time in order to achieve the goal. Regulations that are overturned after the next election are worse than no regulation at all – these are simply wasted effort as the regulator and regulatee must start from scratch, with the risk that any new effort might also fail. Securing buy-in, or at least the acceptance of the regulatees, goes a long way in securing long-term support for regulations.
Clear, unique goals
Yes, the last quality in this list is the same as the first. That is because it is the most important factor in whether those who are impacted see the regulation as providing a beneficial public good, or a costly solution in search of a problem. Throughout a regulatory process, all parties need to always be asking this question: “under the current design of this regulation, are we still working toward meeting a clearly defined goal that cannot be met by other means?”.
If the other qualities are being addressed, then this is relatively easy to determine. For example, if the process is being carried out in a transparent way, then it is easier for all involved to see if the goals are still being met.
If we have safely exited a burning building through a well-lit fire exit, or doubled our workload because there are two regulations when one would do, we have regulations to thank for both. Done well, in design and implementation, regulations can be extremely effective for organizing people to achieve a complex goal. Done poorly – well, you get the picture. Highly effective regulations are achievable and essential for tackling the most complex and pressing issues today. The qualities mentioned in this article all help to move regulatory processes towards that end goal.
What part do you play in ensuring regulations are highly effective?
Jay Wilson is the Manager for Risk Mitigation Programs and Assurance at the Canadian Electricity Association, www.electricity.ca.