Very few regulators are in a position to specify how a product should be changed or improved although they all seem to want to show their (limited) knowledge of a topic by being highly proscriptive.

A much better solution for both the public and the regulated would be to provide regulations specifying only the desired outcome - not how it should be implemented. This form of regulation opens up a far grater world of potential solutions, the best of which can be selected by the marketplace.

But this would be a significant cerebral burden on the regulators (or lawmakers) because they would have to understand the basic problem to be addressed.

For instance we currently have a problem with CO2 emissions from our petrol. Our legislators, in their infinite wisdom, have decreed ethanol a solution. Whereas the fundamental problem is a clean source of energy. Why can't the legislators simply demand a mobile energy source that meets a low CO2 emission standard. That way the car manufacturers can redesign or invent new power plants for our cars. Maybe pure ethanol engines or small nuclear powered cars might come to market in a few years

re:
"The report also argues that firms with a proven commitment to excellence should be subject to fewer impositions from regulation."

An interesting little throwaway line. I thought that idea was going to be argued systematically.

Instead, I find a litany of "Ain't it awful!" instances, and a mention of
"Our report to the Victorian Government, released yesterday ..."

Is this what Dr Nicholas Gruen, CEO of Lateral Economics, calls lateral thinking?

Perhaps Dr Nick could list a few criteria and standards which would help separate "firms with a proven commitment to excellence" from those Draculas wanting freer reign at bloodbanks.

Leaving aside the typically brazen self-congratulation, Dr Gruen has opened a debate that we should have as a permanent feature of our political discourse. Unfortunately it suffers from all the usual vested interest issues that infest every level of the public service industry.

Doing away with unnecessary and even positively harmful legislation will threaten the livelihood of the innumerable faceless folk whose daily crust is earned from perpetuating inefficiency.

Apart from that, the mechanisms simply don't exist to review such laws, absent a political agenda. Which will automatically taint the outcome, and probably result in increased, rather than reduced, red tape.

I recently took issue with an edict from a government department that cut across all logical and reasonable application of the concept of intellectual property. I was told that the decision had been taken "by a committee". When I suggested that the committee, when in possession of the full facts, would rescind the order with joy and alacrity, I was informed that the committee concerned had, having fulfilled their remit, been disbanded.

Scary.

Sir Vivor,

You might find the actual report of interest. I is the first item on this page.

http://www.lateraleconomics.com.au/outputs.html

Thank you, Nick. I am not an economist or financier, nor have I ever had any confidence that economic analysis has a theoretical basis much sounder than that of 19th century medicine. As a result, I try to stick to areas I understand more thoroughly, such as arguing a stated idea.

I saw no evidence, in your submission to the Victorian Government, that you had substantively addressed my concern about risks of increasing self-regulation among chosen entities.

Greater institutional stakeholder involvement and feedback sounds good, but, following from Pericles' remark, every stakeholder has vested interests. If regulatory feedback patterns do not address this reality with a system of checks and balances that adapts viably in a wider context of social and natural environments, then Dracula gets greater latitude in running the bloodbank.

Did you ever get around to reading Gregory Bateson's "Mind and Nature: A Necessary Unity"?

That book develops a very interesting discussion on the pattern of institutional evolution, as distinct from the pattern of organic evolution, which has feedback mechanisms of a fundamentally different nature.

In general regulators are not innovators, and feel threatened by innovations which dilute their role. A more entrepreneurial, innovative society requires less regulation, less government;neither governments nor bureaucrats favour such reductions, whatever their rhetoric.

Queensland is a pro-regulatory stance with a very poor record in determining what to regulate and in designing, administering and reviewing regulations. A suggestion of “regulatory innovation” was made in a 2003 paper for the Queensland Government by John Foster of UQ. Foster argued for an increased role for the state government in reducing uncertainty for “emerging” industries, and suggested that “protective and facilitating regulations may be required in emerging industries that would be highly inappropriate in mature industries.” I noted in response that Foster’s policy prescriptions were optimal neither in terms of the Schumpterian paradigm he espouses nor in the light of empirical evidence on these issues; and that the Queensland Public Service does not have, and is never likely to have, the capacity to devise and implement Foster-style policies in a manner which advances the public interest. In effect, “regulatory innovation” was a new cloak for the failed “picking winners” approach, andassumed that bureaucrats know better than private sector investors how to identify “emerging industries” which will succeed on world markets.

I further argued – to deaf ears in Queensland – that regulation should be a last resort used only when certain conditions are satisfied, namely

1. There is a clearly identified and serious issue of public interest to be addressed.
2. There is an expectation of a clear net public benefit from addressing the issue.
3. This benefit can not be obtained by enhancing the operation of market forces or other non-regulatory mechanisms.
4. The regulation proposed is demonstrably the minimum required to obtain the objective, is clearly defined, well-targeted, efficient and effective.
5. Any costs and secondary consequences of the regulation do not exceed the expected benefits.
6. There are clear and effective mechanisms to amend or repeal the regulations as circumstances change.

In my experience these criteria are rarely met in practice. Most often, they are not even given attention

Sir Vivor, you saw no evidence that Nick had substantively addressed your concern about risks of increasing self-regulation among chosen entities.

A major question is whether the risks of heavy-handed regulation exceed those of light-handed/no regulation. The justification for the former is generally that there is some "market failure" that leads to sub-optimal outcomes for the community. In practice, this argument is generally put by those who find that the market outcome does not meet their own particular agenda. Even if MF is demonstrated, there can be no presumption that governments outperform markets: indeed, “government failure” is more common. The World Bank advised that “the countless cases of unsuccessful intervention suggest the need for caution. To justify intervention it is not enough to know that the market is failing; it is also necessary to be confident that the government can do better.” A Bureau of Industry Economics paper assessing the 15 major interventionist policies of the Commonwealth Government from 1970-85 found no positive outcomes: 13 had negative returns, while for two the net outcome was unclear.

Should the cost to the community of market failure be significant, government should first see whether it is possible to improve the workings of the market. If not, it must assess its capacity to produce a better outcome, and the costs and benefits of any intervention. Given that a number of studies have found administrative costs of around 15-50 per cent in government industry support programs, the prospect of a net benefit from intervention must be considered doubtful. Regulation is a form of intervention which rarely meets the criteria outlined in my previous post.

The Economist noted that "The skills of government in addressing market failure are often exaggerated. Government intervention must overcome three formidable difficulties: the tendency of regulated firms to “capture” their regulators, weak incentives for efficiency within the public sector, and missing information (where markets lack it, governments are likely to lack it as well). … The record of intervention is poor … history suggests that the burden of proof should lie with those who would extend the government’s role.”

Faustino,

You say that
"regulation should be a last resort used only when certain conditions are satisfied"
then 6 conditions, and point out that these conditions are rarely met or considered.

You note the bias of stakeholders who object to outcomes of ventures which damage their interests, real or otherwise; damage expressed as "sub-optimal outcomes for the community".

It seems to me that you have strayed from Nick Gruen's point that regulation ought to be more extensively and effectively shared among stakeholders.

You appear to make the assumption that governments govern poorly with respect to regulation of the marketplace, but I would argue that sizeable corporations are no less likely to implement poor regulatory regimes in an effort to control competition for their interests. In my opinion, regulatory regimes need not be defined by regulatory legislation.

The Australian Coal Association might be considered as a regulatory bureaucracy. Here's a brief quote from Wikipedia:

"By the 1990s, the Australian Coal Association was known as a major political donor to both major political parties in Australia, with donations to the Liberals estimated at around $50,000 per year. During the Kyoto Protocol in the late 1990s, the ACA and a number of other groups were responsible for giving Australia what is generally regarded outside the closed circles of Australian politics as an extremely lenient target, and in a 2006 program on Four Corners it was listed as one of the principle groups behind the "greenhouse mafia", essentially a large coalition of lobby groups representing the car, fossil fuel, and light metal industries of Australia."

How many of your 6 conditions does the ACA meet, in its "regulatory strategies"? What criteria would you apply to protect the bloodbank, in this case a sustainable energy future, from this particular Dracula? Or are you happy to put your faith in Market Forces?

Well then, Dr Nick and Faustino, a week has gone by with no reply.

Are you unable to think outside any box not of your own making?

Well then, Dr Nick and Faustino, the weekend has gone by and you plainly had nothing to write.

You may find the whole article, from which the below is excerpted, interesting.

It fits into my "big picture" of regulation as something which occurs in natural and built systems, which may involve negative or positive feedback, linear or nonlinear, in response to changes to flows of materials, energy or information, and which is (thus, plainly) not the exclusive domain of public servants and government committees. Checks and balances are a manifestation of regulation, in government and organisations.

http://business.guardian.co.uk/comment/story/0,,2165023,00.html

" ... A free market in consumer products can coexist with free public health care, with public schools, with a large segment of the economy - such as a national oil company - held in state hands. It's equally possible to require corporations to pay decent wages, to respect the right of workers to form unions, and for governments to tax and redistribute wealth so that the sharp inequalities that mark the corporatist state are reduced. Markets need not be fundamentalist."

"John Maynard Keynes proposed just that kind of mixed, regulated economy after the Great Depression. It was that system of compromises, checks and balances that Friedman's counter-revolution was launched to dismantle in country after country. Seen in that light, Chicago School capitalism has something in common with other fundamentalist ideologies: the signature desire for unattainable purity."
Naomi Klein

I'm still wondering what's so damned great about keyless cars. Sliced bread, OK; canned beer, OK; but keyless cars?