Regulatory failure (1): A review of the international academic literature

Early in 2021, I have committed to reviewing the international academic literature on regulatory failure as part of the Chair in Regulatory Practice’s research program. It turns out that this is the most challenging review that I have committed to so far—which explains why it has taken me so long to begin presenting its results.

The biggest challenge is that there is no clear definition of regulatory failure, and debates about regulatory failure are often a combination of analytical observation and rhetorical interpretation. I would like to make this sound easier and say that debates about regulatory failure combine objective data and subjective interpretation, but that is often not the case.

Typically, an objective benchmark is missing against which the case of regulatory failure can be measured. Often, the data used to “prove” that we are witnessing a situation of regulatory failure is incomplete. And sometimes, this data is of disputable quality or collected only to support the perception of regulatory failure. This means that the data introduced to support an observed instance of regulatory failure is often as subjective as its interpretation.

The lack of a clear understanding of what makes for a regulatory failure combined with the lack of solid support for experienced cases of regulatory failure make this an incredibly difficult topic of inquiry.

Regulatory failure often is as difficult to explain as is regulatory success

I would argue that defining and understanding regulatory failure is, with some exceptions, as tricky as is defining and understanding regulatory success. For illustrative purposes, let’s say that, thus far, the regulatory response to Covid-19 in Aotearoa has been successful. We could claim this success based on objective data: we have a very low number of Covid-19 cases and Covid-19 related deaths compared to other countries (at least, at the time or writing this blog post).

But is it an undisputable regulatory success? Some will answer it is (for numerous good reasons), but many others have already answered it is not. They say that the long-term costs of the lockdowns and the current traffic light system do not outweigh the benefits. Others say that the closure of Aotearoa’s border for almost two years now violates fundamental human rights. In short, every argument that supports the claim of this regulatory success comes with a counterargument to claim the opposite. And that holds for experienced cases of regulatory success more generally.

In a similar vein, it could be asked: was this indeed a regulatory success? Was it purely the regulatory intervention that explains the success, or were other factors equally or even more relevant? For example, being a remote island nation with a relatively small population (in a small number of relatively large cities) has undoubtedly helped Aotearoa—at least to gain time and witness the devastating effects of Covid-19 elsewhere.

The even more challenging question to answer is: in comparison with what is this a regulatory success? Compared to a situation of no regulation, less intrusive regulation, or (even) more intrusive regulation? But how to estimate the impact of a hypothetical regulatory alternative if it is already so difficult to understand the impact (and their causes) of the current regulatory situation we are in? To put it in more practical terms, because Aotearoa is so difficult from, say, the Netherlands, it is impossible say how the Dutch regulatory response to Covid-19 would have worked out in Aotearoa and vice versa.

These kinds of questions are typically raised by the media, policymakers, and the public at large when regulators (or others) claim regulatory success. Yet, strikingly, the media, policymakers, and the public at large often brush aside these questions when they claim to observe regulatory failure.

There are no simple stories about regulatory failure

The lack of nuance in debates on regulatory failure explains why I find this the most demanding review I have committed to thus far. One-sided arguments about regulators ‘dropping the ball’ make for good newspaper headlines and political rhetoric, but they offer little opportunity for learning and reflection. Nuance is required if we want to draw meaningful lessons from the review and advance regulatory theory and practice. And it has taken me quite some time to find that nuance in a series of articles on regulatory failure.

The blog posts on regulatory failure that I will write over the following weeks build on two sets of academic literature. The first set is a series of 20 articles, books, and book chapters by leading academics who share their insights on regulatory failure—what it is and what it is not and how we can study and understand it. The second set is a series of 40 articles that in a subtle manner map, explore, and interrogate one or more cases of regulatory failure.

I will discuss both sets of publications following four dominant perspectives on regulation: public interest theory, public choice theory, private interest theory, and institutional theories. What people consider to be a regulatory failure is often very much coloured by their ideas about why regulation is needed or not. I hope that after looking at regulatory failure from those four perspectives, we will have a better appreciation of why it is so difficult to understand and prevent regulatory failure.

To give a sneak-peak: the review finds that there are, typically, no simple stories about regulatory failure; the vast majority of the 40 case-study articles (over 90%) report on complex interactions of multiple causal conditions that, often gradually, resulted in regulatory failure. Please stay tuned – and please forgive me for being so slow with this specific review. It truly is a tough one.