Opening-up regulation

Over the past ten years a strong trend toward more open and participative rule-making has emerged in many OECD countries. Governments are using a variety of methods of public consultation to allow earlier, more effective and wider access to decision-making processes. Regulatory institutions and processes developed over decades, some stretching back to the turn of the century, are being reformed or discarded.

Traditional practices of consultation, many built in the years after the Second World War, are not meeting the requirements of changing societies and economies. They are often restricted to only a few groups, such as selected business and labour organisations. Most of the time they represent the views of organised pressure-groups, who reap the benefits of rent-seeking behaviour in the political market, and not the interests of consumers or other unorganised groups, over whom the costs are dispersed. They are frequently rigid and cumbersome, whereas an ever-changing regulatory environment demands faster responses and wider access. They tend to focus on consensus and political acceptability rather than on establishing facts and ensuring regulatory quality.

Policy officials responsible for the management of national regulatory systems -- often placed in prime ministers' offices or ministries of finance, justice, or economics -- are generally agreed that, properly done, public consultation can improve regulation: finding more effective alternatives, lowering costs to businesses and administration, increasing compliance, and quickening change in response to new conditions, perhaps stemming from technological advances. In Canada, for example, consultation with the railroad industry led to the development of a new regulatory system in which the industry itself drafts new regulations for approval by the regulator.

In some cases, consultation is used to balance opposing interests - as in the United Kingdom, where consumer groups are given formal advisory roles within utility regulators to ensure that producer interests are not over-emphasised. In others, as in the United States where analyses of the impact of regulations are published for public scrutiny, consultation is a means of discovering facts about conditions in the 'real' world beyond government. Similarly, Japan's high-level advisory councils for deregulation bring in new expertise and perspectives not available in the ministries.

Intergovernmental regulatory processes, too, are increasingly criticised on grounds that they are often closed to citizens and follow traditions of negotiations behind closed doors. These are now giving way to new forms of openness and access. The EU, for example, is examining recommendations for 'wide and effective consultation [...] for making people aware, at the earliest possible stage, its intention to propose legislation'.

What Problems?

Consultation is difficult, and there is much room for improvement. Three countries -- Canada, Sweden and the United Kingdom -- evaluated the effectiveness of consultation in reaching affected groups and thereby made some important discoveries: substantial failures in the scope and consistency of implementation, resistance to change and lack of understanding within the administration, imbalanced participation, difficulties in reaching certain groups, and a sometimes disappointing lack of response by the private sector. That is probably because the incentives to react are weak, and are perhaps aggravated by a degree of cynicism about government motives.

To widen access to more groups and speed up response time, some European countries are moving away from long-established, corporatist structures that depend on formal representation of the 'social partners' -- business and labour organisations -- in policy development and implementation. Since the late 1980s two countries with a corporate tradition - the Netherlands and Sweden -- have substantially reduced or abolished tripartite systems of co-operation and consultation that had been built up over forty years.

Bringing in a wider range of interests is particularly important. Existing consultation processes often exclude groups with something to say, such as small businesses, consumers, and developing sectors of the economy. It is obvious that regulators will hear what they want to hear if they choose the bodies to consult. As the Canadian government reminded its civil servants in 1990, consultation is not merely 'talking to your friends'.

Unbalanced consultation with affected interests increases the risks that regulations will be ineffective, or have adverse and undesirable effects on the distribution of benefits and costs across society. At worst, imbalances take the form of 'capture', in which an interest-group establishes a dominant influence over a regulator, in return for supporting the regulator in the political system. This problem has been a longstanding concern in the OECD area. Even worse, 'unfair' influence may undermine the credibility of the regulatory system itself, further reducing compliance and government effectiveness.

Even where the consultation procedures are, in principle, open to the wider public, they can be dominated by groups who are familiar with the regulatory structure in question, who are well organised and specialised, and who are experienced in making themselves heard. Realistically, it appears that regulators must accept that stronger groups will participate more often in consultation. The challenge is to manage the process to compensate for this natural imbalance. Full transparency of the consultation process, for example, can reduce the risk of capture. Expert groups, though they may be the best way to bring specialised knowledge into the decision process, may have to be supplemented with more broadly based methods, such as publication of drafts, to bring in affected groups. Regulators can improve communication by packaging information in user-friendly formats, using plain language, and clarifying the issues at stake.

Consultation reform is also linked to democratic values and expectations of transparent and accountable administration under the rule of law. Opening-up regulatory decisions of lower tiers of government to the public has taken on new significance in many countries where important decisions are increasingly delegated from elected parliaments to civil servants. Parliaments in Europe, for example, are using 'framework laws' more often to establish general policies, leaving the details to be developed by civil servants in regulations drafted at lower echelons. In Canada, as legal decisions are increasingly delegated, consultation by civil servants in the ministries is seen as a necessary supplement to parliamentary debate -- but the Ministry of Justice has warned that the wrong kinds of consultation could diminish Cabinet decision-making authority by restricting options too early.

Indeed, if government accountability is to be preserved, the right of citizens to be heard cane not become a right to take decisions themselves, especially if the system is open to capture. Consultation must be considered an adjunct to, rather than a replacement of, political and administrative decision-making. But several basic questions about the proper role of the administration in consultation processes remain. Should regulators merely reflect what they hear from the public? Should they 'referee' between opposing groups or defend the 'general interest' or under-represented groups -- and, if so, how far?

Quality of information is another concern. In some cases, comments have become little more than opinion surveys of what regulators 'should' do. One response to this shortcoming can be found in an innovative Canadian programme to collect information on computer diskette. Diskettes containing standardised questionnaires are mailed to participating firms. Responses and data are inserted at the correct locations, the diskettes are returned, and the information is easily downloaded for analysis by the regulators. The standardisation of format and ease of response should improve the quality of the information thus made available.

Overcoming Bureaucratic Reluctance

The reform of consultation is changing the style of how civil servants and citizens interact. Genuine consultation means that regulators must develop a habit of 'listening' to the public. Too often, there is no real dialogue between the parties. The 'notice and comment' process in the United States provides wide access but has been criticised because the public responds to a set of questions on draft regulations without the possibility of discussion or further give-and-take. Finland, among others, has noted the benefits of 'iterative' consultation, in which consultation becomes a conversation between parties searching for the best answers.

In effect, more active dialogue could vastly improve regulatory quality. Ideas could be presented and tested, adjustments and compromises reached to satisfy competing interests, bridges built between parties that could benefit implementation. At its best, discussion of a regulatory proposal could become a 'discovery procedure' of common interests and solutions. The human element is all-important here, as is mutual trust and credibility. Consultation can be a cost-effective method of gathering information, and, if interested groups are brought in from the very beginning, can help avoid problems that would occasion delay or require revisions later.

But regulators often dislike consultation: it can be costly and delay decisions. A Dutch parliamentary report, criticising a legislative process in which six or seven years were required to develop a new law, noted that consultation can be 'needlessly taxing' and can 'lead to considerable delay in the legislative process, which the gain in the amount of care taken scarcely serves to compensate'. Consultation can indeed increase the cost of developing regulations, in which case the choice to consult must hinge on consideration the short-term costs, the longer-term benefits of higher-quality regulation, and the advantages of more open government.

There can also be too much consultation: conducted even on minor issues, it can divert resources away from more important ones, and slow the responsiveness of the entire regulatory system.

Moreover, resistance to consultation from within administrations does not only depend on budgetary considerations, since, if they are well-designed, consultative processes ought to reduce rule-making costs, not increase them. But civil servants may not like the idea of sharing of decision-making powers with the public. And sharing information can be dangerous: a dialogue with the public can expose regulators to challenge and criticism, to new ideas and difficult choices, to citizens more worried about day-to-day problems than about grand designs. The habits of decades of control will be overcome only by a sustained and pervasive culture of consultation, in which both public and regulators work together to resolve the difficulties of the day.

Across the OECD area as outside it, governments are perceived to be losing their ability to solve problems. Consultation can help them become more open and responsive to citizens' requirements, and, ultimately, more effective in taking action. But much more attention will have to be paid to building a culture of consultation a habit of listening -- in the public sector. Genuine consultation does not result from a mechanism, a process, or some ministerial directive. Rather, it is the product of an appreciation within the civil service of the value and importance of consultation, of a policy environment in which consultation is encouraged and expected, and of a relationship of mutual gain and information sharing between regulators and consulted groups.

FOCUS

What Forms for Consultation?

Government can use many methods of consultation, and each has different uses.

The simplest is notification, a one-way communication in which an administration informs the public about its exercise of regulatory authority. In Canada and the United States, periodic publications describe proposed federal regulations planned for the coming year, and provide the names and telephone numbers of the regulators. These methods, while limited, allow affected groups to press for an opportunity to intervene at very early stages, before regulators take important decisions.

More formal consultation allows affected groups to use systematic procedures to criticise or comment on draft regulations before they are finalised. Consultation works through the circulation of draft documents to interest groups (Germany and Sweden), through publication of drafts for general access (United States and Canada), or through advisory groups that can be more or less inclusive (Finland, France, Japan, Netherlands, Portugal).

Considerable change can be seen here. Of ten countries studied by the OECD (selected because they represented a wide variety of administrative styles), only one, the United States, bad on explicit consultation policy in 1970; by 1994, eight of the ten countries bad such policies. In 1989, for example, the German government ordered its regulators to seek more information from potential 'users' of new regulations. And in 1990, Finland adopted its first general statutory requirement for consultation on regulations.

In general, older forms of consultation tend to be consensus-oriented. Consultation today is often linked in practice to analysis of the impacts of regulation and is closely associated with cost-benefit analysis. From 1981 to 1994, five of the ten countries studied initiated comprehensive programmes of impact analysis. Consultation with affected groups was built into each of these programmes as a strategy for collecting information and controlling quality.

Here, consultation is part of an international movement toward more empirically based regulation. And with these programmes, many groups have, for the first time, information on the hidden costs and likely benefits of government regulations. A case in point is the United Kingdom, where small businesses, asked to comment on 'Compliance Cost Assessments' that are prepared on draft regulations, have suggested many ways to reduce costs, even forcing the withdrawal of some drafts.

More extensive use of impact analysis could improve communication with the public, since the consequences of government decisions are explicitly presented. Yet the accompanying trend toward more complex, economic and scientific information may well make information less accessible and understandable. That may explain the growing appeal of 'expert groups' to provide advice on complex issues; but the danger, of course, is that decisions will become technocratic and remote from public understanding.

Consultation also occurs after a regulation has taken effect. The main purpose, usually, is to give guidance to the public affected by it to facilitate compliance but also provides useful information to regulators about problems with the design, application or effectiveness of existing rules.

In fact, since no country has a systematic programme of ex post regulatory evaluation, consultation with regulated groups is currently the most common way of identifying poor regulation. In 1993, business advisory groups in the United Kingdom sifted through 3,500 regulations and recommended hundreds of changes, of which some 350 have been adopted. For example, regulators with complementary responsibilities are working together to develop a simple and safe regime for rules on the control of food temperatures. In Japan, a system of administrative inspection and counselling allows citizens to complain about existing regulations. Complaints in areas ranging from traffic safety and environmental quality to taxes and agricultural policy have been recycled into the revision process.

Affected parties can also take an active part in drafting laws and regulations, involving interest-groups deeply in regulatory development. Increasingly, ministries in Finland are using informal working groups of experts and interest-group representatives to prepare proposals for law. The United States is empahsising regulatory negotiation, in which interested parties write new regulations as a group. The group's proposals are then published in draft form so that the wider public can comment on what has been negotiated.

These kinds of participative procedures are intended to produce more practical solutions, involve those directly affected in the balancing of opposing interests, and smooth the path for rapid implementation.

1. Asking the Public: Consultation in Regulatory Decisions and Governance in Transition: Public Management Reforms in OECD Countries. OECD Publications, Paris, forthcoming 1995.

OECD BIBLIOGRAPHY

* Asking the Public Consultation in Regulatory Decisions, forthcoming 1995

* Governance in Transition: Public Management Reforms in OECD Countries, forthcoming 1995

* Regulatory Co-operation for an Interdependent World, 1994

* Derry Ormond, 'Improving Government Performance', The OECD Observer, No. 184, October/November 1993

* Scott H. Jacobs, 'Controlling Government Regulation: A New Self-Discipline', The OECD Observer, No. 175, April/May 1992.

Scott Jacobs works on regulatory management and reform in the OECD Public Management Service, where Juhani Korhonen was recently a consultant.

Copyright Organisation for Economic Cooperation and Development Aug 1995
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