Law and regulation

The main reason for the existence of a public authority is to have a legitimate means of arriving at authoritative decisions. In most societies and jurisdictions people find it necessary to have procedures to ensure they come to binding agreements and decisions apply to whom they are intended to. These decisions might be reviewed and changed, but citizens expect some certainty of action from a public authority so they know some things are permitted and others are not. These are laws and other formal rules – often bundled together under the term regulation. These rules have authority and force because they are decided within or on behalf of the institutional structures of the state, which conventionally has a monopoly of legitimate force in a given territory. If the monopoly word is relaxed somewhat – as probably it should be even for states – then the capacity and legitimacy to make and enforce binding decisions is also the core feature or function of many regional, supranational and other public institutions. To a certain extent, the authority that derives from the power and legiti-

macy of states and other political organisations applies to all the tools of government, such as public finance and taxation, discussed in the next chapter. There is, for example, a qualitative difference between finance coming from a public authority, with its legitimacy and accountability and the money private bodies deploy, even if it is for public and charitable activities. But the authority character applies much more to the capacity of states and other authorities to produce binding rules and laws that apply to citizens and to bodies within a territory. Law implies command. It may require an action, forbid another, set a target or regulate a private contract. If one party does not comply with the law or questions the meaning of the statute, another party, such as the government, can go to a court and get the law enforced and have penalties imposed if necessary. Agencies then have considerable backup to enforce the law and to apply sanctions and fines when carrying out their business and implementing public policies. They have both the sanctions of the core institutions of the state as well as the legitimate use of force on their side. There are limitations to the extent to which law may be used. For example,

when there is a breach of human rights, constitutional courts or their

equivalents may rule on and apply the provisions of constitutional documents and agreements which may be applicable in a territory. For most acts of government, however, the law appears as the most powerful tool a public agency can have. It can be unequivocal in its command. There is no doubt – at least in principle – that it should be obeyed. Moreover, it does not take vast resources to pass and enact a law if there is consensus within the political system. The other attraction is that once the legislation has been accepted by the group or person regulated by it, then a self-enforcing system can emerge. The formal rules set up a framework to help someone to comply in the intended direction, and once others also see the advantage of doing so, the legal rule becomes the norm. The result is that individuals do not need to think greatly before complying and they end up following the law automatically. These sets of reinforcing factors help policy-makers get to desired outcomes. Generally, it is not the period immediately after enactment that shows how successful a law is. More important is the long term, which can reveal whether it beds down and gets accepted. The surprising claim of this chapter is – for all the potential of law and

other formal forms of regulation to guide behaviour and to shape policy outcomes – the evidence suggests it cannot be relied upon to implement policies effectively, or at least not in a simple way. There are some familiar challenges that apply to all the tools. Like other instruments, the use of law/ regulation needs to be based on a valid theory of cause and effect. If the theory a policy is based on does not hold logically or the core putative empirical relationships it is based on have a weak empirical backing, then it is very unlikely a law can have the intended effect even if people obey its provisions. In the classic account of parliamentary sovereignty, parliament can pass any law, but it does not have a chance of achieving the desired effect if no one fully obeys or enforces it. Like with other tools, there is the cost effectiveness of the law in question. It is possible for the state to throw all its resources at a problem but to find the marginal benefits are much less than the marginal costs. However, if the law is based on a valid theory, the costs are not too high compared to the benefits and it is operating within the jurisdiction in question, given its legitimacy it seems reasonable to expect – other things being equal – positive consequences for the implementation of government policies. But this view does not take into account the special character of the law/regulation tool. In spite of their potential power, laws often fail. There are five main rea-

sons. Firstly, they are often never fully implemented and enforced – agencies often choose the laws they wish to enforce. This is because there are two steps involved: one is the passing of the law; the second is enforcement. While some laws get automatically enforced, most require some effort on the part of bureaucracies and other public agencies. It seems almost as soon as a law gets on the statute book it loses its special character and turns into more of an organisational tool of government, where what matters is the chain of command within bureaucracies (see Chapter 4). There is no way round differential

implementation given the large number of laws and regulations and the limited capacity of the state and other public authorities to enforce them. As the number of laws and regulations expands, so this problem grows. In the end, the task of achieving effective regulation is a meta-problem. It is about prioritising which laws to implement, which is a political and societal choice. This chapter does not suggest regulation is doomed. There are various ways

to improve regulation, where legal and regulatory incentives may work in favour of successful implementation. An attention to the micro-level incentives and the means of encouraging positive feedback from the law to the desired behaviours can ensure the success of a legally regulated policy. When used too much, law may lose its effectiveness, especially if not fully applied. People can get used to not complying if there is no effective sanction. The loss of potency does not just affect observance of a new law, it can weaken obedience to the existing ones as well. The second reason for the failure of regulation comes from the nature of

politics itself. There will always be a temptation for the politicians to deviate from full implementation of a regulatory regime even if they know the benefits of it. The reasons are partly to do with corruption and lobbying by interest groups, but more likely it is because politicians prioritise short over long-term objectives. These limitations have been highlighted in the public choice account of regulation, which tends to assume an effective policy regime can become undermined by self-interest and the abuse of power (Stigler, 1971). For these reasons, policy-makers sometimes hand over responsibility for regulation to independent bodies to take the decisions on their behalf. This may be called an act of credible commitment, an attempt to try to steady their hand and to save politicians from following their short-run self-interests. In the end, the regulated groups may seek to take control of the decisions of the independent regulatory agency instead. Moreover, politicians cannot resist interfering with these schemes of delegation (Bertelli and John, 2010). So in spite of attempts to improve the transparency and independence of regulation, the exigencies of politics reduce its impact and effectiveness. Politicians can use the apparent impartiality of the law as a cover to follow their private interests. The third reason law often fails is because it can move the onus of respon-

sibility for action or inaction away from the individual to the state, which encourages passivity or resistance. When individuals learn to internalise norms from instruments that promote individual self-government, this can encourage them to observe a set of desired behaviours. In contrast, strong forms of regulation can encourage them to think compliance is something they have to rather than ought to do. The willingness to comply gets replaced with unwilling conformity to the law, where the individual obeys but inwardly does not agree with the measure. In this circumstance, there is less chance the policy gets implemented fully. Effective laws – even those with powerful sanctions – are usually introduced when there is public opinion behind them, when the direction of change is in their favour, so this is not a necessary

tension. When there is a desire for a change, a law can help society move to a tipping point, to get to where people want to go collectively, but where their day-to-day individual desires do not get them. But it may also be the case a government introduces laws without this form of popular consent and capacity to persuade. Then passive – or even active – resistance is the consequence of the use – or overuse – of this tool. In this case, it is likely the objectives of the law, especially if it requires behaviour change of the citizens, will not be realised. The fourth problem is similar to passivity, but works in another way.

Top-down regulation can make the complier clever and more active in seeking to avoid the aims of the regulator. Individuals or organisations, when faced by formal controls, may invent complex strategies to avoid being successfully regulated. They may have information to hand the principal needs to implement the law. The consequence of regulation is that people start to think more strategically. If the rules are made more precise, they think of the kinds of action that are not covered by the rules. The more the regulator tries to catch out the regulated person, the worse the problem is, so regulation can end in a downward spiral of non-compliance. The effort at compulsion, particularly if it is replacing forms of self-regulation, may reduce or crowd out the willingness to comply as it appears to reward the opportunist and punish the virtuous. As with the other limitations of regulation, it is not entirely clear when this happens and when it does not because there are examples of successful regulation as well as the well-known failures. This patchy experience will be taken up later in this chapter. The fifth reason is that implementation of the law may also require co-

operation in the wider society at large. There are two steps involved. One requires compliance, which may be a relatively passive act; the other requires cooperation, which may involve negotiation and a more active outlook on the part of regulated groups. In short, effective policy implementation may need an active citizen or organisation. An example is in crime prevention: if the population are just compliant it may be still hard for the police to deal with crime because they need the cooperation of citizens to provide information about the location of criminals and to come forward to ensure criminal prosecutions are successful. How to get a more active civic society takes government a long way beyond the use of the law/regulation tool of government and into the softer tools the book considers in Chapters 6 and 7. To assess both the positive aspect of law and regulation – as well as the

costs and limitations – this chapter starts by reviewing examples from the topdown, punishment-reward model of regulation, and then moves on to assess less direct and more complex forms of control to find out if there are ways around the top-down regulatory trap. The chapter does not consider more informal, market and social forms of control, which may also be called regulation (see Jordana and Levi-Faur, 2004: 2-5 for a discussion of the meanings of the term), though the more recent work, such as on responsive regulation (reviewed below), does incorporate many of these processes and

does not make a hard-and-fast distinction between legal and other forms of control.