Economist Michael Mandel compares regulation to throwing pebbles in a stream. One pebble doesn't make much of a difference, but throwing enough pebbles in the stream will dam it up. His 2011 paper Reviving Jobs and Innovation: A Progressive Approach to Improving Regulation made a strong case for cleaning out the accumulation of old regulation. Mandel comes from the progressive side of United States politics. There, unlike Australia, concerns about excessive regulation - as with tendencies to regulate - cross political divides. Congressional Republicans have been as prone as Democrats to introduce unnecessary and intrusive regulation, often in the name of domestic security. Activists on both sides argue for reduction in regulation because, as Mandel argues, it stifles innovation and puts jobs at risk.
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A measure of success claimed by many supporters of the Gillard government was that it passed more than 500 bills into legislation. Her government set a land-speed record for the amount of new regulation per parliamentary sitting day. That confuses quality with quantity. Some were quality initiatives with strong community and bipartisan political support, like the national disability insurance scheme. Others were rushed and poorly thought out. There was the fiasco of a one-week parliamentary inquiry into the Public Governance, Performance and Accountability Bill 2013 - fundamental changes to public service financial management and performance reporting that deserved much closer scrutiny.
The Abbott government has promised less, not more, legislation. It has launched a ''cutting red tape'' website and a guide to regulation aimed at every Australian government policymaker.
The new guide is a breath of fresh air for policymakers used to wading through the multiple pages and convoluted links of Office of Best Practice Regulation guidance. It is based on 10 fundamental principles, including net benefit, genuine consultation, publication of information on which decisions are based, common sense, empathy and respect. The principles are phrased in admirably direct and simple words: no stuffy bureaucratic convolution and equivocation here.
The government has also announced there will be ''two parliamentary repeal days every year to cut unnecessary and costly legislation and regulation''. The first repeal day, on March 26, saw a bill to eliminate more than 10,000 pieces of legislation, with an estimated $700 million of savings in compliance costs. Some of the repeal may be blocked in the Senate; the vast majority, though, was defunct legislation that no longer operates and will almost certainly be repealed.
Repeal day has been criticised as mere spin, and the savings calculation as dubious. Ross Gittins, in this newspaper, noted ''repealing redundant laws and regulations dating back as far as 1900 is mere window dressing. By definition they don't waste anyone's time - if they did they'd have been repealed long ago.''
There were, though, two benefits from the exercise. First, it encouraged departments to examine all their legislation and ask what was necessary and what was superfluous. Second, by clearing away the dross, future policymakers can have a clear run at examining what's left.
Most of the repeal day work so far has addressed only the pebbles sitting unused on the opposite side of the bank. It is now important to examine the rocks sitting in the middle of the dam: current, operative regulations.
If repeal day is a one-off, then it will have failed. The first was always going to be easy and trivial. If, however, the government maintains its resolve, then future repeals could make a real difference. It will also need to resist the constant temptation to replace old regulation with new. That will be harder, but it must be an essential component of any strategy. There will be a long transition to change the mindsets of ministers and departments.
A highly encouraging feature of the government announcements was that they focused on better regulation, beyond simplistic deregulation rhetoric. Some regulation is essential for the functioning of a modern society. Too much is costly, whether for businesses in compliance costs, consumers when costs are passed on to them, community groups unable to operate freely, or individuals who lose opportunities.
Although cynics are predicting that the deregulation initiative will run out of steam, it is already a better start to the task than made by any of the Gillard, Rudd or Howard governments. All of those governments talked about the need to reduce regulation, but in practice introduced more.
The initiative still needs further work. The approach relies heavily on regulatory impact statements. These are a necessary, but insufficient, step to bring about better regulation. The statements ensure proposals are assessed to determine that benefits exceed costs, and involve consultation with those affected. They thus help filter out bad regulation. Where they fail is in assessment of the cumulative impact or aggregate effect of regulation. Consider hypothetically 10 different pieces of regulation, each of which has net benefits of $1 million. It will hardly ever be the case that introducing all 10 will deliver total benefits of $10 million. As businesses or individuals try to deal with the interaction of the new regulations, costs increase exponentially and the net benefits are reduced. Government needs more sophisticated analysis to understand these interactions.
Second, because regulation is considered in isolation, there is rarely proper consideration of whether a spending program might be better. Another hypothetical example: say that a new approach to policy might deliver $500 million in benefits to the community. It could be done either through a $50 million program of grants and education, or through regulation that imposes costs on providers estimated at $100 million. Note that in both cases the cost-benefit ratio is positive, but direct budget spending has a far better return. Despite this, in the current fiscal climate, it is virtually certain that policymakers would opt for the regulation rather than put forward a new policy proposal, because regulation does not hit the budget bottom line. This is poor policy. If the benefits do not justify $50 million of budget spending, then they certainly do not justify $100 million of costs in regulation. Yet that's the reality of having a budget constraint on spending but not on regulation.
It's not a completely hypothetical example. Arguably something similar has happened with childcare regulations, the costs of which been passed on, through childcare centres, to parents.
Third, more attention should be paid to changing regulatory incentives. It is undoubtedly true that ministers and politicians, not public servants, introduce legislation and regulation. They need to show self-discipline. But once regulation is in place, it creates bodies with an interest in its continuation. They might be businesses that use the regulation to exclude competitors; people employed to administer the rules; or interest groups that attract funding based on understanding the regulations in question. Their self-interest is a rational response to the incentives put in place by the regulation. Changing those incentives can be hard work.
Finally, governance of the regulatory function is crucial. Governance includes accountability of the regulators, performance measurement and transparency. Often this requires a whole new methodology. Standard performance measures of efficiency and effectiveness may need to be modified. Although a regulator would be more efficient (technically) if they did more regulation with the same resources, would the resultant increase in regulation be desirable? Similarly, measuring effectiveness is difficult, especially when the work of several regulators interacts: as with, for example, the national energy market. Transparency in decision-making (including publishing both reasons and process steps) can greatly increase accountability, but must be managed so as to be fair to all the parties affected. These are complicated problems but not insoluble. If governments are prepared to think the issues through, Australia can take a global lead in advancing good regulatory governance.
This matters vitally to the public service. Not only is the public service responsible for developing and administering regulation, it also bears internal regulatory burdens and itself faces regulatory impediments to better program delivery. Removing poor regulation and improving the remaining stock will benefit all of us.
Stephen Bartos is executive director, Canberra, of ACIL Allen Consulting and a former senior public servant. s.bartos@acilallen.com.au
