Why Trust Matters: Some January Thoughts on Regulatory Legitimacy

10/02/2025

During the January break, whilst others were sensibly occupied with finding the sun and avoiding the rain, I found myself pondering legitimacy and trust in regulatory systems. This wasn’t merely academic wool-gathering: ACT’s proposals for regulatory reform have made these issues pressingly relevant.

Reading Giandomenico Majone’s classic work on regulatory legitimacy from 1999, I was struck by how it speaks directly to our current debate. ACT’s proposals for wholesale regulatory reform, particularly their push to displace the courts and confuse ministerial accountability for regulations and rules, fundamentally misunderstand how regulatory legitimacy actually works.

Here’s why this matters.

Regulatory legitimacy rests on three pillars: trust, accountability, and institutional stability. Majone, studying Europe’s regulatory evolution, showed that these aren’t nice-to-haves, they’re essential for regulatory systems to function. When regulations lack legitimacy, they fail not just politically but practically.

The problem with ACT’s proposals isn’t just that they would create uncertainty and increase cost to our economy (though they would). The deeper issue is that they would undermine the very mechanisms that make regulation effective. By requiring constant re-litigation of regulatory frameworks, they would make it impossible for regulators to build the credibility and expertise needed for effective oversight.

Consider this: when we set up independent regulators, what we’re really after isn’t just technical competence, it’s trustworthiness. We need regulators who can make credible long-term commitments and resist short-term political pressures. ACT’s provisions would make this impossible, forcing regulators to constantly justify their existence rather than focus on doing their jobs well.

But here’s the really crucial bit that ACT seems to have missed: regulatory legitimacy isn’t achieved through political machinations or central agency edicts: it’s built through consistent, accountable performance over time. Majone’s work shows how European regulators who focused solely on formal powers while ignoring the need to build public trust found themselves effectively powerless.

The lesson for Aotearoa New Zealand? We need to strengthen our regulatory institutions, not undermine them. This means:

• Building stronger accountability frameworks
• Improving transparency and public engagement, especially as it relates to the cost of each regulatory system
• Maintaining institutional stability
• Ensuring regulatory independence is balanced with democratic oversight

ACT’s proposals would achieve precisely the opposite, creating a regulatory system that’s less stable, less trusted, and ultimately less legitimate.

Looking at our current regulatory landscape: from the Commerce Commission to the Financial Markets Authority to the Reserve Bank and to Worksafe and the Ministry of Education, we face real challenges in maintaining public trust and legitimacy. But the solution isn’t to throw sand in the regulatory gears. Instead, we need to focus on building stronger, more accountable institutions that can earn and maintain public confidence.

Perhaps not your typical holiday reading, but as Aotearoa New Zealand debates these issues in 2025, Majone’s insights seem more relevant than ever.