Governance and Regulations

  • Md Nurul MomenEmail author
Living reference work entry
DOI: https://doi.org/10.1007/978-3-319-31816-5_1783-1

Synonyms

Definition

Governance may be described as the rules and processes of decision-making that affect the way in which powers are exercised.

Regulation is the diverse set of instruments through laws, formal and informal orders, and subordinate rules by which all levels of governments use to intervene in the economy and life of their citizens.

Introduction

Regulation is placed at the important debates and discussion in public administration. It refers to a process under the rule of the government, usually in the centralized nature and in more or less independent regulatory agency. This agency makes decisions in certain conditions where there are conflicting of interests in economy and society. The idea behind the regulation is that decision-making is so complex and dynamic in today’s world; as a consequence, a specialized regulatory agency will be well equipped to perform, compared to the regular bureaucrats (Kleinsteuber 2004). The domain of regulation is continuously expanding that could be the regulation of financial systems, regarding food intake, or criticism of red tape; debates about the appropriate level of regulation are never far away (Lodge 2016). Hence, it is pointed out that it is increasingly a necessary mode of political intervention which is being applied to many areas ranging from agriculture to health and environment and even touching on the new areas of technologies.

However, the late twentieth century witnessed the rise of the regulatory state, in the case of introducing regulatory institutions, rules, and processes of governance in many of the developed countries. On the other hand, it is also witnessed the delegation of power in the nature of state intervention has been pointed out by challenges to traditional ideas about the role of the centralized nature of the government in regard to its dominance in some areas such as collection of revenue and maintenance of law and order and promotion of the rule of law and democratic process, as transnational and non-state power have received growing importance in society (Scott 2001). However, the paper shortly discusses regulation and its relationship with governance and the factors for emergence and importance of regulatory policy and finally examines the necessity for good regulatory governance for the sake of economy and society.

Relationship Between Regulation and Governance

Regulation is not easy to define due to its highly contested topic. It is found different interpretation to different people. Hence, the notion needs extensive clarification and determines its boundary. From the critical perspective, regulation refers to the hands of authoritarian governments and their formulated rules that limit human or national liberties (Levi-Faur 2010). The first point regarding regulation and governance, it is more or less as synonyms. In this sense, regulation and governance both refer to systems and process that aim at influencing public goals. It could be explained in a way that regulation is a subset of activities that is encompassed with the overarching term governance. However, regulation indirectly affects the distribution of scarce resources in society by introducing monitoring and enforcing norms and standards. On the other hand, governance refers to both direct and indirect attempts to achieve public goals by way of “providing, distributing, and regulating” (Mascini and van Erp 2014).

Importance of Regulatory Policy

No doubt, regulatory policy as a discipline is a comparatively new area of social science. In regard to the question, why should governments have a regulatory policy? These questions need to be debated and explored against the earlier complex economic and societal sectors. Over the last three decades, the introduction of regulatory policies to promote effective regulation is now an important agenda as policy objective in the governance process in the OECD countries. The continuous financial crisis and recent debates on climate change focused on the importance of effective regulatory policy, as the countries faced serious regulatory failures. Furthermore, business sector and citizens continue to complain that excessive red tape inside of bureaucracy stops the better performance in economy and makes ordinary people suffer for excessive time filling out government paperwork. Therefore, it needs to focus on the current regulatory institutions, tools, and processes on why they have been failed to deliver consistently better performance (OECD 2011).

As already stated, regulation is important to the proper functioning for financial institutions and in societies. Added to that, effective public governance creates a boundary of relationship among citizens, business, government, and civil society, which protect the civil and political rights and maintain safety and security of citizens and develop the delivery of various public goods and services. A good regulatory policy helps to achieve economic objectives, the fulfillment of wide range of societal goals including social services and environmental protection and preservation, as well as maintains the rule of law. For doing so, regulations and its legal frameworks need to maintain high-quality policy objectives. It supports the policy-makers to reach a rational decision-making about what to regulate, whom to regulate, and how to regulate (OECD 2011).

The use of regulatory policy to develop decision-making process has various tools and processes. It is pointed out that different kinds of tools and processes should be deployed in a systematic so that quality improvement is easily maintained. However, different tools include analysis of regulation, the design of regulatory alternatives, simplification of administrative procedures, maintaining transparency in regulatory process, and ex post evaluation of the current regulation.

Rationality of Regulatory Governance

Sound regulatory governance maximizes the benefits which deliver regulations in such a way that supports transparency in activities and active participation of citizens in the application of regulatory powers, through the uses of public opinion and open communication. It is important to note that complexity of regulatory governance such as the absence of transparency in introducing new regulations and inefficient and improper execution of regulations provides a scope for corruption; hence, in some developed countries, they adopt regulatory policy in such a way which may lessen the scope of opportunities for corrupt behavior and reduce its negative impacts on economy and overall society (OECD 2012).

Why does the central government, in these days, decide to delegate some administrative decision-making power to other bodies? In replying to the question, there are varieties of debates and discussion about why political actors should voluntarily transfer important power to other. Having reviewed the arguments, three points could be highlighted. Firstly, it refers to the credibility of a regulatory decision, also called the credible commitment rationale (Westrup 2007). If, it is felt that regulatory decisions are withdrawn suddenly due to changing public opinion or policy of the government, the consequence will certainly be considered a less desirable policy outcome. Given the context, the credible commitment rationale is justified, for instance, the main function of the central banks are given independence to conduct regulatory decision regarding monetary policy, claiming that it helps to establish a lower rates of inflation than a monetary policy regime directly adopted by the government (Grilli et al. 1991). This argument provides a rationale for the current regime to hold the future governments not to change the existing policies.

The second justification is that it helps the government not to be criticized for unpopular decisions; rather, the blame could be shifted to the regulator (Egan 2004). However, regulators must provide decisions in important policy issues, so there will be political advantage of the governments to take the responsibilities for decisions they made that could bypass movement of civil society and interest groups (Westrup 2007). As the third rationale, it requires a high level of technical expertise in the regulatory decision-making. It is pointed out that regulation and regulatory bodies involve complex policy issues with high technical requirement that pose significant challenges to the existing departments of the government, as they suffer sufficient expertise (Majone 1997). Hence, the new establishment of an independent regulatory body provides the cultivation of technical expertise, both in terms of allowing for high levels of trained officials and in the ability to appoint outside of normal public service staff (Westrup 2007).

Need for Good Regulatory Governance

Features of a good regulatory regime refer to effective regulatory institutions, tools, and processes. It is argued for the establishment of legitimacy of the bodies (through law or government order) as indictors of regulatory effectiveness. Many studies found that a good performance of a sector depends on whether it maintains sound regulation. Apart from that, it is pointed out that shortage of resources for the regulatory body, absence of legal authority to get important data and information, and poor management or union constraints or intervention from the executive correspond to poor performance of a sector, although regulatory tools and processes are effective (Berg 2009). In the OECD countries, regulatory policy is grounded on the perspective that it is the role of the government who operates the “rules of the game.” In this regard, every government must be fully involved in improving the quality of regulation, and the approach must not always be reactively responded to the non-execution of regulation (OECD 2011).

Regulatory governance is based on the principles which encourage inclusion of different stakeholders, namely, the legislature, the judiciary, subnational and supranational levels of government. Effective regulatory governance reaps the benefits of regulatory policy which positively impacts on economic growth and development and societal advantages, which fulfill public policy goals (OECD 2011).

Financial system oversight agencies recognize the importance of sound regulatory governance. In order to counter economic recession, there has been a growing importance on tools and processes of financial system, which is developed by regulatory decision-making authority (Das et al. 2004). Das and Quintyn (2002), for the first time, introduced a systematic approach regarding the significance of regulatory governance in order to maintain financial stability. They pointed out three views which are necessary for effective regulatory governance: (i) an operational framework on regulatory governance; (ii) the process of financial governance for the standard – setting activities of the nonfinancial sector – and (iii) the existing operating practices in regard to the tools, processes, and institutions of regulatory governance.

Effective regulatory bodies have a dominant role in overseeing the execution activities in the financial institutions. However, it is expected that in order to achieve the policy objective in financial sector, regulatory bodies themselves need to maintain sound governance practices. It is pointed out that effective regulatory governance relates to good performance of financial institutions which runs through the credibility of regulatory agencies. If regulatory agencies fail to operate democratic principles, they must lose the hope of upholding the credibility, thus a resultant moral hazard to operate sound practices in the financial institutions under their oversight (Das et al. 2004). Sound regulatory governance is explained as (a) the capacity to manage scarce resources efficiently and to design and execute sound policies and regulations which are considered as the duty to attain the delegated responsibilities and (b) the fulfillment of objectives of the regulatory bodies which is decided under the policy of elected regime (Das et al. 2004).

Transparency and Accessibility

Transparency and accessibility to regulatory institutions are the important agenda for effective regulation. It holds the regulators into account for their activities which show confidence among the citizens toward the legal environment of local jurisdiction. This will make regulatory institutions more accessible and will not be influenced by special interest groups or group lobbying. However, transparency of regulatory bodies involves a range of activities covering clear process or steps for making any changes in regard to regulations, watchdog procedure, and provision of regular reporting that will be applied consistently by regulators, effective communication channels and wide dissemination of regulations and simple language drafting, controls on the excessive use of administrative discretion, and effective grievance reprisal and appeal procedure. It is also argued that public opinion and prior consultation of appropriate stakeholders for the formulation of new regulation help to engage citizens that develop the quality of regulations. Therefore, there has been a recent phenomenon to the introduction of e-government to improve the transparency of regulatory bodies.

It is to be noted that regulations contain much information in regard to the rules of the political game. If common citizenry and businesses access easily and clearly understand regulations and, furthermore, if the steps or processes for regulatory decisions are transparent and maintain standardized procedures, in that case, public officials may face difficulties to apply arbitrary rules. Furthermore, strong oversight mechanisms maintain quality controls, and provision of regular public reporting must ensure compliance with the tools and processes of regulatory institutions (OECD 2012).

Impact Analysis of Regulatory Agencies

Regulation adopted by the government is sometimes very complex and not easy to understand; therefore, it requires plain drafting in language. If otherwise, governments will be in trouble in executing regulatory decision-making, as regulatory tools and processes are unnecessary complexities or badly designed. As already mentioned, the resultant unnecessary complexities of regulation can potentially encourage corrupt behavior in offices that brings failure to the desired policy outcome. This provides privilege to the vested interests of specific groups at the expense of maximum social advantage. This poor quality of regulation may engage and support to the opportunistic behavior of public officials, which may promote them for their own private gain but at a cost to public office. Therefore, a systematic evaluation over the regulatory agencies on a regular basis is essentially required; otherwise, it may disproportionately benefit to a specific interest group (OECD 2012).

Avoidance of Complexity

If it is found that regulatory rules and processes are too complex; in that case, it may create excessive regulatory burdens to citizens and businesses and ample of opportunities for corrupt behavior in public office which encourage the growth of informality in economy. It is worth to mention that there is a negative relationship between regulatory quality and corruption. Considering the issues in mind, the OECD introduced a “Guiding Principles for Regulatory Quality and Performance” which ask to the governments to reduce the aggregate regulatory burden in an objective to lessen administrative costs to those affected, especially for citizens and businesses, as a part of policy to promote growth and economic efficiency (OECD 2012).

There is no doubt that the more complex the regulations are, the more opportunities for public officials and specific interest groups to find alternative paths on how to ignore the regulation through adopting unfair means. Furthermore, excessive complexities of the regulation make users unable to understand easily. This condition creates a possibility for public officials or regulators to “be creative” to those affected citizens and businesses who depend on it. Hence, it requires proper guidelines, appropriate tools, and clear processes of regulation, if, otherwise, it may create confusion and lead to arbitrary and unreasonable administrative discretion, thus potentially discriminatory exercises (OECD 2012).

The above conditions can be explored on business sector. For instance, if there is a complex system as regards business licenses and permits that required approval from several institutions to start a business, steps and requirements for obtaining those permission are not clearly mentioned, in this regard, the whole process may be delayed and have complications to get approval. No doubt, these conditions may create a perfect incentive to public officials for using bribes to speed up the handling of licensing or permitting procedure that is a typical example. Note also that in some other countries, the license or permit procedure is further complicated due to additional intermediaries (e.g., notaries) which are required to deal with the approval process (OECD 2012).

Effective Inspection

Regulatory bodies act in increasing public trust and integrity in economy and society. Regulatory bodies are those public agencies that are primarily focused on execution and inspection. In this regard, inspection is an important issue for a successful implementation of public policy by pointing out that their regulated areas function effectively and regulators are accountable for their actions, transparent in their activities and responsive to any claims, and also not prone to wastage of public money and unethical and corrupt behavior.

Inspection, as an important public policy instrument, allows regulatory agencies to monitor and regulate the activities whether they have legitimacy, are efficient in discharging responsibilities, properly respond to public interest, or are prone to wastage of money, criminal activities, and corrupt behavior. It is also important to note that inspection conducted and organized by regulatory bodies helps to comply with the regulatory guidelines and enhances enforcement levels. This condition obviously strengthens the rule of law but also lessens the informal economy and illegality which are the main promoter of corruption (OECD 2012).

However, a number of strategies and requirements should be deployed by on businesses and citizens (de Luiz 2016). If this is a motto to fight against corruption effectively, first thing, government should discard any scope for incentives and opportunities that cause corruption. In this process, a regular but professionally performed inspection can identify systemic risks and failures which provide possibilities for wastage of public money and bribe while on official duty. Note also that skilled and trained inspectors offer comprehensive and effective solutions in the designated reports to solve risks and failures. For taking action, regulatory authorities notify to the concerned institutions including public prosecutor’s office and/or anti-corruption agency in regard to corrupt practices and to bring those accused who have been involved in corruption before the judiciary (OECD 2012).

Cross-References

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© Springer Nature Switzerland AG 2019

Authors and Affiliations

  1. 1.Department of Public AdministrationUniversity of RajshahiRajshahiBangladesh