Responsive Regulation

29/4/2024

Let me be frank about the new regulation ministry’s thinking—it falls well short of what we need. Their narrow focus on cost-benefit analysis and risk mitigation feels like regulatory management 101.

We should be way beyond this by now.

Their ambition to be a central agency mainly concerns me. Having spent years studying public sector governance, I can tell you this will likely create precisely what we don’t need: more bureaucratic bottlenecks in our policy advisory system.

But here’s what really bothers me: they’re missing the elephant in the room—the massive, unacknowledged administrative burden our regulatory systems impose on everyday New Zealanders. That’s why I was actually relieved to hear Parliament discuss reducing this burden last week. Finally, someone’s getting it.

Let me break down why this matters so much. We must understand a fundamental distinction that often gets blurred: regulation, public policy, and service delivery are fundamentally different beasts.

Policy advisors give advice. Line agencies deliver services. But regulators? They impose duties. Full stop.

Let me repeat that because it’s crucial – regulators aren’t in the business of giving advice or providing services. They’re in the business of imposing obligations. They’re essentially behaviour change management systems. When we get this wrong – individually or collectively – the consequences can be severe. We’re talking about systems that can distort markets and potentially destroy private and third-sector institutions.

Here’s what regulators should really be focused on: creating responsive and user-friendly compliance systems that deliver more benefits than costs while avoiding market distortion and unnecessary administrative burdens. Simple to say, challenging to deliver.

Think about the powers we give our regulators in Aotearoa New Zealand. They can suspend professional licenses, restrict businesses, and impose financial penalties. More dramatically, they can seize property, use force, and even separate families. These aren’t just theoretical powers – they have real-world impacts on real people.

Given these extraordinary powers, shouldn’t we focus more on the quality and cost of daily regulatory practice? The new ministry seems preoccupied with macro-level cost-benefit analyses when they should be examining whether regulators are actively reducing administrative burdens on the ground. Their cost-plus thinking might be theoretically sound, but our economy can’t keep writing cheques to satisfy the whims of He Poneketanga.

The nuts and bolts of regulatory practice matter enormously – which rules get enforced, when and how enforcement happens, how discretion is structured and delegated, and what methods are used to encourage compliance. These daily decisions shape the entire system’s effectiveness and fairness.

My hope is that the new ministry will catch up with Parliament’s thinking and shift its focus to developing responsive and accountable regulatory practices, reducing administrative burdens, and building trust and confidence among regulated parties. Right now, their thinking isn’t just ordinary—it’s inadequate for the complexity of our regulatory challenges.

As someone who’s spent decades studying public sector governance, I can tell you that getting this right isn’t just about technical efficiency – it’s about maintaining the social license our regulatory systems need to function effectively. Obsessing over gold-plated regulatory systems isn’t just misguided – it actively pushes people toward creative non-compliance, undermining the outcomes these elaborate systems aim to achieve.

Said differently, when we build overly complex, “perfect” regulatory systems, we don’t just waste resources – we encourage people to find ways around them, defeating the entire purpose of regulation in the first place.