Exploring issues about regulation: politics and regulation

The following post was written by Keith Manch, the Chief Executive and Director of Maritime New Zealand. He has worked in the public sector since 1977 and brings extensive leadership experience in a number of policy and operational senior leadership positions in regulation, compliance and response.

Like the two previous articles in this series (Regulation – the staff of life and Regulatory capture and bias) this article addresses something that forms part of the context for regulatory activity.  That is the interaction between politics and regulation. There are multiple aspects to this. A search of the internet will throw up a mind boggling array of information about it. 

This topic comes to light most often when there are suggestions of political influence or interference in the independent work of regulators. This highlights to me that the way politics and regulation interact isn’t well understood, so I’m going to try to deal with it in very simple terms, from a practitioner’s perspective.

The design and implementation of regulation

Regulation[i] operates at two distinct but clearly integrated levels: design and implementation.

The design of regulation occurs in the political sphere with decisions about what should be regulated and how being taken by elected representatives in New Zealand’s Parliament and Council Chambers. There is some discussion about how this works in the article: What does good regulatory decision making look like?  in Policy Quarterly[ii].   

Implementation is generally in the hands of public servants of one kind or another working in ministries, departments, crown agencies and local government organisations.  The implementers are usually referred to as ‘regulators’, and often mistakenly believed to be the ones who actually decide on what regulation (law, regulations, rules and bylaws) exist.

The design of regulation is a political act

Essentially, the design of regulation is a political act done by the people we elect to govern us.  Of course, it relies on policy advice provided by public servants which should amongst other things draw on the experience of regulators.  But it is politicians who make the decisions about our laws, regulations, rules and bylaws. Breaking this down:

  • Parliament makes laws – the primary legislation
  • Governments (Ministers) make regulations and rules (or similar instruments).  Regulations and rules can only address matters that the primary law allows them to and they essentially provide the tools to implement the primary legislation.  They are regarded as secondary and tertiary levels of law. 
  • Regulators are sometimes empowered to make rules (or similar instruments) too, but they also can do this only in respect to what Parliament has allowed them to do. Regulators may be empowered to do this where the subject matter and detail is more suitably dealt with by experts in the regulatory organisations.
  • Local Government also designs regulation (usually in the form of bylaws).  Local Government’s ability to do this is established in primary legislation (the Local Government Act) by Parliament. In the Local Government world, elected Councillors make the bylaws supported by advice from Council staff, and Council staff implement them.

In making laws, regulations, rules and bylaws (or providing for others to do so) politicians make trade-offs between competing priorities.  In the safety environment, this might be represented as a trade-off between the cost of safety interventions relating to an activity, and the economic benefits of undertaking that activity.

The implementation of regulation is a non-political act[iii]

While a regulator’s scope of independence is determined by Parliament, specific actions and decisions it takes within the scope it has been given are independent of politicians.  For some background to this, the article Governing the regulators – applying experience[iv] discusses how the roles of regulators are specified in law.

The idea is that regulators should apply the law, regulations, rules and bylaws without fear or favour, to achieve the desired objectives. It’s self-evident that having politicians – who rely on support from constituents to be elected and re-elected – making or influencing decisions about specific regulatory cases isn’t a good idea.

So, regulators need to do two things.  The first is to avoid political influence (or other influence – see the article about Regulatory capture and bias) in the way specific regulatory decisions are made. And politicians need to take care not to get involved in such matters.

The second is to focus on the purpose and objectives of the law, regulation, rules or bylaws they are dealing with – and not import other objectives into their decisions. This can be challenging.  There are circumstances where the law requires regulators to balance things like safety and cost (for example, under the Health and Safety at Work Act). That is explicit and the way it is to be done is specified in the law.  Outside of such examples, there can be a temptation to trade-off regulatory objectives with other objectives: for example, where regulators are part of organisations that have specific regulatory objectives as part of their regulatory function, and broader economic objectives relating to the same industry as part of non-regulatory functions. The regulator must always be clear that it does not engage in such trade-offs, unless specifically empowered to do so in the law it is enforcing.    

Think about this in practical terms.  A Maritime Officer identifies a safety problem with a ship that means, in terms of the Maritime Transport Act, it should not be allowed to sail, to avoid potentially catastrophic risk to its passengers.  The Maritime Officer should not then weigh the economic consequences of stopping the ship from operating, against the safety of life because of concern about the Government’s overall economic objectives for transport. The Maritime Transport Act does not provide for this. This weighing up needs to be done by those who put the law in place, reflecting the will of the people that elect them and society’s tolerance for risk as that evolves over time.

Independence doesn’t mean no checks and balances

Independence does not mean freedom from checks and balances. Checks and balances on regulatory activity, to make sure it is achieving what is intended and undertaken legally are made by the Courts and/or independent bodies such as the Ombudsman. Some law also includes specific decision review mechanisms (e.g.: Tribunals). If an appeal body determines that a regulator’s act was inconsistent with the law, regulations, rules or bylaws then regulators need to change their approach to implementation. Or, if the regulator’s action was appropriate in terms of the original policy objectives, but the law, regulations rules or bylaws were not well written, those responsible for their design can act to change them (following proper processes of course).  

Why is a regulator’s independence constrained?

Frankly, you really don’t want regulators to be totally independent – neither constrained by parameters set in law, nor free of independent scrutiny – who knows what we would get up to?  It’s important that the people you elect to govern you determine the parameters that enable or constrain the exercise of the coercive power of the state. If you don’t like how elected representatives do that then elect someone else.

So, politicians have a legitimate interest in the performance of regulators

It’s a logical consequence of the above that politicians have a legitimate interest in the performance of regulators overall, although as noted this doesn’t extend to involvement in specific decisions.  Politicians legitimately want to know that the policy objectives that have been expressed through law, regulations, rules and bylaws are being addressed. They also want to know that regulators are acting according to appropriate standards of behaviour and good regulatory practice.   

This all means regulators need to be politically aware

Regulators should therefore be politically aware, notpolitically naïve, nor politically influenced. This is also discussed in the article What does good regulatory decision making look like? , in the context of delivering public value.

Delivering public value

While decision making in the regulatory implementation phase is usually, for good reason, independent of political involvement, overall it must deliver public value. As noted above, a crucial element of this is having an effective authorising environment (through maintaining the support of democratically elected representatives, the private sector, the voluntary sector and the broader community). There are two good reasons for this. The first is that, as every regulator knows, the ability to succeed in delivering desired regulatory outcomes is heavily affected by the overall attitude of the industry or sector being regulated and the confidence there is in the regulator. The second is that the continued existence of a regulatory agency depends on government and Parliament having confidence in it to deliver the outcomes desired by the regulatory systems in which it operates.

Taken superficially this could be read as suggesting that regulators are subject to political interference in the way they do their work and make their decisions. A better way to think about it is that regulators’ continued existence is subject to the views that democratically elected decision makers have about the body of the regulator’s work and decisions in terms of whether or not that is delivering public value.

The influence this has isn’t, in my experience, felt in day-to-day operational decision making. It does, however, encourage careful attention over time to the quality of decision making. This includes the careful use of discretion and focusing on the outcomes that are intended by the law for which the regulator has responsibility. In this context, it remains critical that regulators continually have regard to what their statutes say about their role and how they should perform it, as discussed by Searancke et al. (2014)[v].

Do we have cause for concern in New Zealand?

There will be occasions where something happens that draws the label of ‘political interference’.  In my experience in New Zealand politicians have a keen awareness of the different roles that are played in the regulatory area, as do regulators.  And politicians very rarely cross the line.  If that does happen it’s more likely to harden the resolve of the regulator to act independently, within the bounds of the law. By necessity the issues discussed in this bite sized article have been addressed at a very high level. Got any comments or questions?  Feel free to raise them by commenting on this article.

[i] The term regulation is used in this article to refer to the design of laws, regulations, rules and by-laws and activities to implement them and ensure compliance

[ii] Policy Quarterly – Volume 13, Issue 2 – May 2017 – Page 72

[iii] There can be exceptions – for example, the Minister of Internal Affairs makes decisions about applications for citizenship, which is essentially a regulatory decision – drawing on advice from officials.

[iv] Policy Quarterly – Volume 10, Issue 1 – February 2014 – Page 57

[v] See endnote iv.

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