ABSTRACT
An excellent definition of regulation, one which covers its role in all areas of life, was provided by that most eminent of scholars of it, George Stigler, in 1975. Regulation, he wrote, is ‘. . . the exercise of coercive government power’. It is, in other words, telling people what to do and punishing them in some way if they do not perform as instructed. Now, there is a problem with this definition. Stated baldly, it is somewhat too wide. It seems to imply that any legal rule is regulation, so that a libertarian who wants state enforcement of contracts would be said to be in favour of regulation. But it does help capture the difference which is at the heart of the argument of this chapter. Regulation tells people what to do, while governance involves setting up structures, inside or outside organizations, so as to make it desirable for the organizations in the best service of their own interests to do what is
thought also to be in the public interest. They may be told how to organize but after that they are left to themselves; state-imposed governance is a particular type of regulation, one which focuses on structures rather than on either processes or outcomes. Examples of regulation and of governance are helpful at this point. The setting of speed limits on roads, enforced by supervision and punished by one of a range of penalties, is an example of regulation. The repeal of the Bubble Act in 1825 is an example of governance from English financial history – it provided a framework to facilitate still further large-scale investment in risky projects and, thus, to facilitate a faster stage of industrialization. So much for definitions of regulation and governance. The three examples by use of which regulation and governance will be contrasted are as follows:
1 The regulation of capital ratios for banks under the Basel accord. 2 The regulation of investment trusts. 3 The regulation of accounting standards.
