First Meeting of the APEC-OECD Co-operative Initiative

on Regulatory Reform

Singapore, 21-23 February 2001

 

From Seattle to Singapore

Civil Society and Regulatory Reform:

Conflict or Co-operation?

 

Roy Jones

Trade Union Advisory Committee to the OECD

Introduction

I would like to add my voice to the previous speakers in welcoming this first conference within the APEC-OECD Co-operative Initiative on Regulatory Reform. The joint initiative itself is timely. Now is a good moment to begin to take stock and to learn the lessons of recent regulatory successes and failures, both in OECD and APEC countries.

The main title of the event: �oundations for Sustainable Growth - Progress and Challenges in Regulatory Reform�� - must remain at the forefront of our thoughts over the course of this meeting, and beyond. A regulatory framework that balances social and environmental needs with economic efficiency is a pre-requisite for long-term sustainable growth. Many speakers over the next few days will talk about the progress made in this area. I will focus my comments on the challenges that confront us: re-thinking the type of regulations needed at the national (including sub-national), regional, and international levels to underpin a rules and values based globalising world. We need also to re-think compliance mechanisms. The lack of compliance with prevailing enforcement mechanisms has often been a cause of recent regulatory failures.

The �rocess�� of reform is also important. One lesson I have drawn from the New Zealand and United Kingdom (UK) experiences of the 1980s up to the late 1990s is just how costly their conflictual reform programmes were in social, political, and as increasingly understood in economic terms. However, for every New Zealand or UK there is a Netherlands or Republic of Ireland that has pursued a consensual approach to reform. Their reform processes may not make the international headlines (which says more about opinion formers and commentators). But that has not been the aim of the tripartism underpinning these successes. It can be seen therefore, that TUAC advocates a consensual approach to regulatory reform. We do not, however, underestimate the potential difficulties of this; it may take time; and it may also require new thinking by all actors - governments, labour unions, business and other interested non-governmental stakeholders. But, when set against the aggregate cost of failure, for example, Seattle or BSE, the price of success and consensus pales into insignificance.

A Trade Union Approach to Regulatory Reform

It is worth stating up-front the types of �hat�� and �ow�� approaches to regulatory reform that can attract trade union support. Many are in the APEC-OECD formal agreement that launched this initiative. We would certainly support �e-regulation�� and �nstitution building��.  Depending on what and how it was done, many trade unions could probably support de-regulation of certain economic activities. Similarly, we agree that regulatory reform today should be based on the idea of �egulatory quality��, and that the agenda includes �he objective of good governance��. Likewise, no trade unions would disagree that domestic regulations are needed to �arry out vital public policies such as safety and health, labour standards, environmental protection, and consumer protection��. Turning to the �ow��, again trade unions would have few quarrels with the idea that �egulatory quality requires a proactive role of good government in establishing effective regulatory regimes, institutions and efficient social regulations��. The institutional aspect of reform has and continues to be overlooked by many governments, whose trade unions are one institution most in need of political and regulatory support.

I would however make three �mall�� additions to the above. The first concerns the need to develop new international architecture to govern the multilateral trading system, and financial markets. The second is to call for a debate around compliance mechanisms. In today� world we need to move beyond the sterile debate that falsely characterises compliance as being about either �ommand and control�� regulation, or �elf-regulation��. Yes, both of these have their place in the toolbox, but now we need to think about �mart�� compliance mechanisms.

The third point is in praise of the public sector as a central part of modern economies and societies. Wise architects always look beyond the superstructure of any building to ensure that the foundations are strong. This analogy applies to regulatory reform, with the need for strong and well-resourced public services serving as the foundations. Only ideologues today believe that privatisation should be pursued as an end in itself, or that efficiency gains do not need to be weighted against effectiveness and equity considerations. Non-OECD government representatives here today, and some OECD ones should remember that vibrant public services have been a cornerstone of their economic, social and environmental development. That brings me to the need for further work around the different forms of ownership and control that appear now to be emerging, suggesting that the patterns of privatisation that emerged in the 1980s and 1990s require a fundamental re-think. Future PUMA work on regulatory reform and that of the joint initiative must focus more on these points

Learning From Experience: New Directions for Regulatory Reform

When it comes to global, regional or national governance, the world today has changed markedly from that of the mid-1990s. Then, the window of opportunity for unfettered liberalisation and deregulation had reached its widest point, due to the conjuncture of the demise of the Cold War; the rise of the Asian tigers, and the gradual opening of China; all underpinned by a growing US economy. The end of history, as Fukuyama called it.

Not surprisingly the end of history did not last long, giving way to a popular backlash against the lack of an effective public policy framework to govern globalisation. A key issue now is where does public policy go as regards globalisation, and within that what should be the future direction for regulatory reform? We may not have to search too hard for the answers: they appear to be emerging from the ashes of some current and recent regulatory failures.

For example, a debate is now taking place in the UK on the future ownership/control of the railway system, hot on the heels of the proven failure of privatisation. Several options are being considered, including re-nationalisation or the government using future grants and other public subsidies to take a minority stake in the industry (enough to give it influence). A further option has been tabled that would transform Railtrack (the company that owns the tracks, signals, etc.) into a non-profit stakeholder trust, a new form of public enterprise. Under this proposal, the regulatory authorities, passengers and trade unions would all be represented on a management board, with none having a majority voice. A debate is also taking place around the future of the London Underground, where the ownership structure is unlikely to pass into private hands in the traditional sense. Meanwhile, the ownership structure of the privatised water industry could be in for a shake up as proposals have been made - and ironically it is the private sector  promoting this �� to transform a regional company it into a not for profit trust. Labour market reforms too have been made including for the first time ever to give workers the right to form and join trade unions. And another first, a national minimum wage has been introduced.

New Zealand, the country that most embraced the liberalisation and deregulation agenda has a  recently elected government that is now unwinding the reforms. Again, part of the once privatised railway sector is to come back under some form of public control. The previously privatised compensation system governing workplace accidents has been re-nationalised. At the same time, and following discussions with the trade unions, a new �eople� Bank�� is to be created via the Post Office. Trade union rights have been strengthened considerably as well. Practical steps are being considered in Japan to solve the stagnation of the economy, including the re-nationalisation of the banking sector. Often overlooked now is the fact that following the Asian financial crisis that began in 1997, many governments effectively nationalised the banking sector when they bailed out bad loans, or re-capitalised it, but failed to address the built-in moral hazard problem.

While there may be some disagreement about the cause of the power cuts in California, there is little doubt that the solution will entail a degree of re-regulation, and some form of public control. At the global level, few would now disagree (including the IMF) with the idea of the sovereign right of governments to impose some form of control over capital inflows.

I have highlighted the above, not simply to be critical of past regulatory reform mistakes - if I had wanted to do that, the list would be endless. Rather, I wanted to indicate the new directions for public policy now emerging. I purposely used the plural of the word �irection��. In my view this is important, because while many policy-makers and policy advisers know that policy needs to head in a new direction, there is no consensus as yet as to what the direction should be. And, as already noted that lack of consensus applies to compliance issues too. What is clear, however, is that the public expectation for action is now high, and that societies are more willing than before to exact an electoral price for inaction.

Into the Future: Guiding Principles for Regulatory Reform

Unlike the past, future regulatory reform initiatives must be based on guiding principles, and not a blueprint. To aid policy-makers to take the right direction the following guiding principles will be of help. Common to all is the notion that a �artnership�� approach is required, bringing together representatives of governments, labour unions, business and where necessary other legitimate civil society groups.

The first guiding principle is that the public sector matters. It often delivers goods and services in the most efficient way, as well as effectively and equitably. Its role, however, goes beyond this: it can play an advocacy role for wider public policies, for example sustainable development. It also means that the private sector matters too.

The second guiding principle is that both public and private sectors need a rules and values based system to govern their operations - one, which balances economic, social and environmental concerns. On this governments must introduce a set of hard and soft regulatory rules at the international, regional and national levels to inject some governance back into the global economy. The following highlight some interesting recent developments:

- The OECD Convention on Combating Bribery in International Business Transactions: a hard - binding regulation;

- The OECD Guidelines for Multinational Enterprises: a soft law - regulatory framework, endorsed by 33 governments to ensure global corporate social responsibility by their multinational enterprises;

- The OECD Principles of Corporate Governance: a voluntary soft instrument that sets out best practices in this area;

- Turning to regional issues, the European Single Market and common currency, combined with a Social Action Programme, and Social Dialogue is a pathbreaking development.

Currently missing are development friendly reforms to the multilateral trading system that ensure among other things that trade and the respect of core labour standards are mutually compatible. More generally, the introduction of a rules based system, though necessary is insufficient if it lacks legitimacy in the eyes of the public, which requires that the rules reflect societal values, and that supportive democratic institutions be allowed to function effectively. In turn that necessitates the implementation and enforcement of the internationally agreed human rights set out in the various UN Conventions and Covenants, especially those of the ILO.

The third guiding principle concerns the need to seek a consensus approach to determining the types of reform required by different societies; the compliance systems needed to ensure implementation/enforcement; and within that the processes required to make all of this work. Trade unions stand willing to play their part in this, after all we have a long history of honouring commitments made though the bargaining process.

In conclusion I would urge APEC and OECD governments participating in the joint initiative to agree to the following:

The APEC group should change the name of its group working on regulatory issues from �he APEC Group on Competition Policy and De-regulation�� to �he APEC Group on Quality Regulation and Compliance��.

Within the OECD, trade unions and business enjoy an equal status as advisory bodies. Without suggesting that the OECD consultative model is the right one for APEC, I would urge that a trade union advisory body be constituted with an equal status to the ABAC. The joint initiative would be an ideal vehicle for all partner organisations to discuss the OECD experience on this.

As regards the joint initiative itself, the OECD works best when it offers policy advice that reflects the diverse experience of its members, and not an ideological blueprint.

The OECD Principles of Regulatory Reform have served as a good reference and promotional tool. However, the political centre of gravity has shifted since their inception, and the OECD should now begin an inclusive debate to identify the revisions required to bring them up to speed with current thinking and best practice.

The joint initiate should develop a series of workshops to explore the different ways in which the social partners can be involved in the design and implementation of regulatory reform programmes, including those around new forms of compliance systems.