The advice of regulatory reformers to regulators can generally be summarised as amounting to a fairly uncritical endorsement of the adoption of process and/or performance-based regulation in a wide range of areas. For example, the main guideline document on regulation-making issued by the Council of Australian Governments states:
… unless prescriptive requirements are unavoidable in order to ensure public safety in high-risk situations, performance-based requirements that specify outcomes rather than inputs or other prescriptive requirements should be used (Council of Australian Governments 2004).
Similarly, the Victorian government's Guide to Regulation states that:
Where appropriate and where permitted by the enabling Act, the Victorian Government encourages the use of performance-based regulation (Victorian Government 2005).
Guidelines as to when performance-based regulation may be appropriate are issued pursuant to the Subordinate Legislation Act 1994 (Vic). However, apart from making the point that the enabling legislation must permit regulation to be of this type, they say little other than that a benefit/cost approach should be taken and that regulators should be familiar with the characteristics of the regulated industry when making this decision.
The New Zealand regulatory guidance document differs in providing a more balanced view, arguing that:
Principle and performance-based standards are more appropriate where the outcome can be measured (to ensure compliance) and where innovation is likely to be an important consideration … Prescriptive standards are useful where information costs are high and there is little scope for innovation (New Zealand Government 1999).
Interestingly, neither of the two Australian regulatory guidance documents mentioned above makes any reference at all to process-based regulation, notwithstanding that the quick survey of existing regulatory styles that I have just given suggests that process-based regulation may now be even more widely used than is performance-based regulation. The New Zealand guide refers to ‘principle based’ regulation, which it defines as regulations that ‘describe the objective sought in general terms and require interpretation according to the circumstance’ (ibid). Legislation, such as the occupational health and safety (OHS) Acts that specify a range of ‘general duties’, would fall within this definition.
The relatively uncritical endorsement of these forms of regulation revealed by these quotes reflects a widespread perception among regulatory reform officials that regulators are conservative in their approaches to the use of different policy instruments and largely reliant upon existing approaches. For example, the OECD has written in this context:
… a crucial challenge for regulatory policies is to encourage cultural changes within regulatory bodies that will ensure that a comparative approach is taken systematically to the question of how best to achieve policy objectives. Efficient and effective policy action is only possible if all available instruments are considered as means of achieving the identified objective. The instruments to be considered include a wide range of non-regulatory instruments, as well as a number of distinctly different forms of regulation (OECD 2002: 52).
If regulators are seen as having strong conservative biases in their choices of policy instrument, it is unsurprising that regulatory reformers would see their main task as being that of promoting relatively new and unfamiliar instruments with the potential for improved efficiency and effectiveness.
The view of regulators as fundamentally conservative and risk adverse in nature is probably fairly soundly based when considering the attitudes of regulators toward replacing regulatory approaches with other, non-regulatory policy instruments, although, even here, it is possible to argue that the propensity of regulators to entertain options such as carbon taxes and emissions trading as responses to global warming is probably greater than that of the politicians that they serve.
However, if there is a degree of risk aversion in relation to non-regulatory policy instruments, the quick tour of current approaches to social regulation I have given casts considerable doubt on the question of whether regulators can truly be said to be averse to adopting regulation that departs from the traditional prescriptive, or ‘command and control’, form.
If regulators are actually quite open to the use of innovative regulatory instruments, the emphasis of the advice that regulatory reformers are providing to regulators should, arguably, be shifting away from an uncritical promotion of the use of process and performance-based regulation and toward the provision of sophisticated and practical advice regarding both the potential drawbacks of these styles of regulation and the tools that can be used to minimise or avoid these potential problems.
Of course, this proposition rests upon a view that substantial negative impacts can be identified in respect of moves to adopt process and/or performance-based regulation. Consequently, I would now like to identify and analyse some of these potential negative impacts, before moving on to a discussion of how they can be minimised and/or avoided.