The Dilemma of Regulatory Grip

Introduction

As broadly defined by Mattli and Woods (2009, p.1), regulation embodies “the organization and control of economic, political and social activities by means of making, implementing, monitoring, and enforcing rules”. Hence, the purpose of regulation is to attain objectives that would not be attained otherwise. The aforementioned definition assigns an interdisciplinary characteristic to the study of regulation. This is represented by the intersectionality of different fields — a melting pot of institutions composed of individual and collective actions. Notably, the vertical structure of regulation involves an interaction between the political apparatus and regulatory bureaucracies, whose relationship can be defined as one of a principal and an agent. In an ideal scenario, politicians commit to restraining excessive self-interest in order to provide much-needed discretion to regulatory bureaucracies. This results in what Yeung (2010) outlines as the ‘regulatory state,’ which connotes a government’s enhanced reliance on the institutions operating at arm’s length, sequestered from political pressures, and consequently able to exert technical expertise. This approach marks a clear shift from the Hobbesian ‘Night Watchman State’ in which the government directs a greater focus on more active involvement.

Nonetheless, the politico-economic collapse of The Great Recession was partially attributed to the incompetence of the emancipated regulatory agencies (Field, 2021). Such a perceived failure, in turn, bred the populist critique of regulatory bodies and vocalized a call for an amplification of their accountability. This begs the question of “What are the primary concerns of politicians when delegating authority to regulatory bureaucracies?”.

Overall, this article argues that when delegating authority to regulatory bureaucracies, politicians are concerned with the adverse outcomes that may result from their choice of conduct towards regulatory bodies. Particularly, the potential behavioural modes of political action, referred to as ‘Light Grip’ and ‘Hard Grip’, are focused on the feud between the concepts of discretion (deriving from expertise) and accountability (incarnating the obligation of regulators to explain and justify their conduct to the political forum). Thus, delegation purports the harmonious interrelation between an actor (regulatory bodies) and a principal (politicians), where shifting too far to a particular side risks denudation — the erosion of a stable principal-agent relationship. Therefore, this article aims to initially analyze each behavioural approach and their interlinked issues before suggesting a rectifying toolkit specific to each of the discussed approaches.

Light Grip

The first behavioural mode, whose pernicious consequences represent one set of concerns for politicians, can be defined as the ‘Light Grip’. Under this conceptual umbrella, politicians delegate authority to regulatory bureaucracies, bestowing a high level of discretion by acknowledging the superior knowledge of the latter, thereby limiting the extent of regulatory accountability. Such an imbalance gravitates to the area of a moral hazard, as regulatory bodies, feeling the absence of a credible threat from the political forum, have an opportunity to deviate from the principal’s wishes, which might lead to regulatory failure.

In particular, the ‘Light Grip’ approach risks resulting in regulatory capture, a situation in which, according to Lodge and Wegrich (2012, p.27), a regulatory bureaucracy becomes “captured by those interests that were supposed to be regulated”. Particularly, Berstein’s (1955) ‘life-cycle’ theoretical claim applies to the current context. Initially, regulatory regimes thrive under the spotlight of public attention, leading to strict regulatory measures. Over time, however, political and public interests subside, diminishing the level of accountability and making a regulator susceptible to industry pressures. Successively, regulatory bodies become hollow shells with a high level of discretion, insulated from a judgement threat coming from the political forum. According to Downs (1967), this marks a shift from youth to maturity, where regulatory bureaucracies denounce their former commitment to following regulatory codex. These mature regulatory bureaucracies shorten the distance between themselves and the regulatees, and, subsequently, start working under their auspices, resulting in distortion of market forces. Friedman (1962, p.139–148) argues that “occupational licensing” is the epitome of the captured condition, which entails the construction of a significant barrier to market entry that, in turn, reduces the competition for the interest groups who captured regulatory bodies. One such example could be observed in Greece, where an aspiring pharmacist had to buy a license from the retiring pharmacist with a peak cost level of $400,000 (Daley, 2010). Therefore, regulatory capture, stemming from the ‘Light Grip’ approach, embodies a particular concern for politicians when delegating authority to regulatory bureaucracies, as it results in market oversaturation with idiosyncratic interests, thereby contaminating the already-vicious politico-economic conundrum.

Hard Grip

The second behavioural mode can be defined as the ‘Hard Grip’, where political action coincides with the Hobbesian ‘Night Watchman State’. Here, politicians delegate limited authority to regulatory bodies operating not at arm’s but rather at finger’s length, subjugating them to a high degree of accountability with minimal discretion. Despite circumventing the moral hazard problem, the ‘Hard Grip’ approach spawns issues of its own. The imbalance favouring the political side leaves little room for regulatory bodies’ judgement as independent agencies. Such a dismissal of discretion increases the likelihood of regulatory failure, which can be understood by analyzing the link between politicians’ imposed ideas and their unintended consequences.

Lodge and Wegrich (2012) claim that the heart of any regulatory regime represents a constant clash between advocates and opponents of core ideas, where a diversity of ideas supposedly leads to enhanced deliberation. However, given the ‘Hard Grip’s’ condition of regulatory bodies’ extreme proximity to politicians, the prevailing political ideas are transmitted to regulatory bureaucracies, almost like airborne diseases. This imposition discourages any form of reflection or elaboration of the debate, with such an ‘ideational climate’ further creating asymmetries in understanding between regulatory bodies and politicians. This leads to ‘satisficing’, or what Lodge and Wegrich (2012, p.33) outline as “decision-making by limited choices and rules of thumb,” rather than critical thinking. Consequently, prioritizing automation in place of a reflective system contaminates the overall organism with heuristics that affect the decision-making process (Thaler and Sunstein, 2008). These heuristics metastasize into the status quo bias, generating unintended consequences that further culminate in regulatory failure. The insufficiency of the ‘Hard Grip’ approach can be inspected through Braithwaite’s (2002) analysis of US care homes, where the low discretion, box-ticking approach of standardised procedures resulted in an overall lower level of care for the patients. The regulators could not apply their expert assessment in specific circumstances, failing to identify entrenched problems, and leading to their systematic dismissal and prolongation of the status quo, wherein the rigorous ‘box-ticking’ approach failed to improve social care standards for patients. Therefore, the chain of regulatory failure commencing with ideational imposition, coupled with the lack of a reflective process, is inherent to the ‘Hard Grip’ approach, creating another concern for politicians when delegating authority to regulatory bureaucracies.

Rectifying Toolkit

The prime tool for dealing with ‘Light Grip’s’ concerns, such as regulatory capture, is enhancing administrative procedures. Particularly, the instrument of ‘deck-stacking’, outlined by McCubbins et al. (1987), promises to recalibrate the imbalance of disproportional discrepancy by adding procedural ‘tick-box’ mechanisms to accountability. The control mechanism, which is reinforced through transparency procedures, such as incessant consultations, fire-alarm oversight reporting, and cost-benefit analysis, accompanied by subordination to command and control standards enforcement, will put a leash on regulatory agencies and strengthen politicians’ grip. This, in turn, neutralizes potential bureaucratic drift by limiting the discretion of the regulators (such that, revisiting the aforementioned example, regulatory bureaucracies in Greece become disincentivized to establish ties with the regulatees).

Conversely, the most appropriate counteraction tool for the ‘Hard Grip’s’ problematique is creating a reflective system. The conceptual definition outlined in the introduction presupposes that regulation is a communicative process. Therefore, regulatory failures originating from politicians’ ideational imposition can be mitigated by what Black (2002) titles ‘regulatory conversations’ between different actors. Such a reflective system encourages a comprehensive understanding of the objectives and a critical analysis of their interlinked issues, popping the epistemic bubbles of consolidated ideas. Instead of a box-ticking treatment, regulatory bodies enjoy independent decision-making with room for application of their differentiated expertise. For instance, Braithwaite (2002) highlights that, in contrast to the rule-based checklist approach of the US, Australian regulatory supervision is based on principles and outcome-based standards, with the enlarged scope of discrepancy resulting in a ‘homelike environment’ in care homes as compared to the redundant ‘box-ticking’ approach with excessive procedural stacks in the US.

Conclusion

Ultimately, politicians’ primary concern when delegating authority to regulatory bureaucracies encompasses choosing the appropriate conduct to balance accountability and discretion in order to avoid regulatory failure. Such a concern is subdivided into two behavioural modes, each embracing a set of related issues — ‘Hard’ and ‘Light’ grips respectively. Both of the approaches lead to harmful consequences that politicians desperately try to avoid.

In this vein, the rectifying toolkit applicable to each approach comprises a rebalancing action, either to the side of accountability or discretion. However, it is crucial to emphasize that both proposed tools have two ends, potentially leading to mirrored consequences, and thus triggering the never-ending adjustment of grips. Blind obedience to procedural code leads to the ‘Hard Grip’s’ outcomes (with an extreme case of state-controlled enterprises with dissipated demand in regulatory bureaucracies), whereas relaxation of the leash risks ‘Light Grip’s’ malignant regulatory capture. Ergo, the discovery of a solution to the dilemma of grip carves avenues for future research.

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