What makes good regulation and how we can achieve it

Good regulation is good for business, good for the economy and, most importantly, good for society. Good regulation provides an operating framework in which good companies are incentivised to conduct themselves in an honest, ethical and profitable manner. Bad regulation disincentivises good firms, corrodes economic activity and ultimately harms the poor. Moreover, more regulation does not translate into better regulation.

Good regulation requires at least two elements: a clear and achievable objective and a legitimate and comprehensive trialogue between the regulator, the regulated community and the intended beneficiaries of the regulation. Good regulation is underpinned by universal principles of transparency, necessity, proportionality, effectiveness and flexibility.

While the concept of radical economic transformation still evades definitional and operational clarity, the concept and desirability of inclusive economic growth enjoys widespread support.

Inclusive growth means that the opportunities and benefits of an economy are distributed fairly across all sectors of society.

One does not need to be a disciple of Thomas Piketty to accept that the inequality of SA’s dual economy is neither just nor sustainable.

Thus, given SA’s income and inequality patterns, it is vital that new regulation meets specific criteria relevant to our circumstances and helps achieve inclusive growth.

By contrast, lifting a take-away pack of regulation off the shelf of international agencies, stencilling a “made in SA” on the label, packaging it for the legislature and serving this up to the public for consumption amounts to dilatory regulation making.

Whereas the stated purported benefits of regulation are enshrined in the memoranda of enabling legislation, their potential negative consequences or effects never are. In SA, given our socioeconomic pathologies, the costs and consequences of bad policy can be catastrophic. The intentions of regulation may be deemed to be progressive and benign, but good intentions are not enough.

Thus, the government has recognised the importance of regulatory impact assessments and, more recently, socioeconomic impact assessments prior to the development of policy, legislation and regulation.

Regulation making should be conducted in a sober, informed and objective manner. Yet too often, the process is characterised by short-term concerns that may enshrine long-term consequences. Moreover, once implemented, rushed regulation may take decades to unwind at great public cost, something that SA can ill-afford.

A few basic questions should give pause when developing new regulation. First, is the regulation needed? Is there a public (rather than specific or sectorial) need that is not being met by existing measures that necessitates new regulation?

Regulation making is a costly exercise and on these grounds alone every proposed regulation should be scrutinised against existing provisions and the question asked: “do we need it or can we implement and enforce existing regulation better?”.

This is not an insignificant point. The proliferation of regulation is not necessarily a public good — it can be a public cost. When bad, it constitutes a public ill. The proliferation of regulation may suggest that either the existing policy is not being implemented or is not being properly enforced. Until a full, comprehensive and properly measured impact assessment is completed, the generation of new regulation merely serves to mask or misdiagnose the underlying problem.

BAD REGULATION DISINCENTIVISES GOOD FIRMS, CORRODES ECONOMIC ACTIVITY AND ULTIMATELY HARMS THE POOR

Second, while the costs and benefits of new regulation may not be measurable with Newtonian accuracy prior to its development, the potential costs of new regulation need to be fully considered through scenario-building, modelling and some form of regression analysis.

New regulation has to be evaluated in terms of the relationship between variables where a change in one independent variable — increased taxation, say — may have an effect on the dependent variable, say investment or illicit trade.

Third, the most important element to regulation making is the requirement for wide consultation with all stakeholders.

This is a core principle not only of good regulation but of representative and participatory democracy of the sort that is enshrined in our Constitution in letter and spirit.