Comment

Regulating after the end of history

Andy Tarrant / Sep 2022

Image: Shutterstock

 

One dream of Europe has been a Europe where technocrats implement long-term policy in the general interest, avoiding abrupt shifts in rules as political majorities change, basing their legitimacy on expertise and operating under the rule of reason. While this was always a way of thinking about the European Commission, this conception was also a motivation behind the proliferating independent agencies and regulators at both European and national level and for which the Commission itself was often a vigorous advocate. As so often, this vision of Europe had American roots. European policy-makers looked at the quality of the reasoning and market-making capacity of bodies like the US Federal Communications Commission and hoped copying such institutions would create the vehicles for building the Single European Market. In recent years, the sway of independent regulators has evolved to encompass issues far beyond market-opening to include cutting edge social and environmental issues.

This vison may have reached its apogee prior in the decade to the financial crisis in 2008. Domestic politics in the member states, reflected in the centre-right/centre-left coalition in the European Parliament, appeared to have been largely stripped of ideological content. Fast-forward to today and that consensus is now embattled in the face of rising anti-technocracy populism everywhere in Europe. The recent history of the United States also suggests that insulating regulation from politics may be a hazardous affair. In the age of populism, politicians do not seem to find it politically costly to eviscerate regulators by appointing chief executives whose vocation is to render them helpless, slashing their budgets or stacking constitutional courts to reinterpret regulators’ powers.

It is possible that by depoliticising and successfully managing major policy issues over the long-term that regulators may have desensitised electorates and politicians to the significance of the regulated issues. The regulators’ very success thereby contributing to their own political weakness. As a macro example, one of the notable features of the Brexit debate in the UK on either the pro or anti-side was both the deep disquiet about the role of the EU Commission and the profound lack of familiarity  with issues around the cross-border regulation of trade – because British politicians and civil society institutions had not had to think about these issues with any seriousness for over 40 years. All the signs are that the relearning experience is going to be painful.

While dissatisfaction with the EU’s regulatory state is more likely to promote a state to leave than could ever be the case in the US, the EU is also probably less vulnerable to any Union-wide backlash against regulators. This is because where regulators are empowered to act independently of national governments by the EU, it tends not to be because the national governments are not in control of the national regulators. Instead, it is because all the governments are collectively in control. Being collectively in control means they must make decisions in a general interest, typically defined as the preference of a qualified majority of member states. To override the system requires the unlikely aggregation of a common political will across a large number of member states; a more difficult endeavour even than capturing the federal institutions of the US government. We can think of European agencies like the medicines agency as an example of how this works. Clearance of innovative drugs requires a college of national regulators to vote in favour; no single member state or change in its institutions could disrupt the process.

A further safety-valve may also operate in the EU. In many instances, particularly in areas of sector-specific economic regulation, where there could be concentrated economic losses in specific countries if single market rules were to be vigorously enforced, key decisions are not subject to the  collective decision-making of national regulators but instead each national regulator is empowered by EU legislation to make its own decision, applying (very) general principles set at EU-level. Unsurprisingly, there is a great deal of variation in the type of regulatory decisions implemented in each country in these circumstances. This of course involves a trade-off; powerful concentrated national interests capable of generating national political discontent may be protected, but at the expense of the greater economic well-being of the general population and those economic interests in other member states that might have provided better service.

It was once imagined by leading academics that the rise of the regulatory state had an inevitable and favourable trajectory, just like the other liberal-democratic institutions which had triumphed at Fukuyama’s predicted “end of history”. From the vantage point of the 2020s, one can only imagine that the politics of regulation, navigating the successful balance between consumer and producer interests, facilitating growth but recognising and reconciling the losers from trade, protecting populations from excessive risk while not compromising innovation, will continue to be volatile. Re-acquiring popular legitimacy is likely to require far more than individual regulators being effective at their discrete tasks. Instead, voters must feel that the ensemble effect of the regulatory state is not only that their lives are better but that the system as a whole is responsive to how they want to live their lives. 

 

Andy Tarrant

Andy Tarrant

September 2022

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