ROLE OF GOVT – DIRECT INTERVENTION,REGULATION

by Syed Mahmood Javed

A State is an association of individuals in a defined territory that is supreme over all other associations and individuals residing in the same territory. The essence of the state is its monopoly of coercive power i.e. sovereignty.

The Govt is the totality of structures and organizational arrangements of those exercising sovereign authority

The State , The Government

Important developments, external and internal, changing the nature of public administration .

Parallel between globalization, decentralization close. The management of decentralization calls for strong national action, just as globalization requires international interventions.

The globalization, decentralization carries a potential for large overall benefits as well as risks and losses for the more vulnerable areas and groups.

THE CONTEXT OF P.ADMINISTRATION

Good governance rests on : Accountability : Capacity to call public

officials to task Transparency : Low cost access to relevant

information Predictability : Results from regulations ,

clear and known in advance Participation : Needed to supply

information, provide reality check for govt action

FOUR PILLARS OF GOVERNANCE

Four pillars of governance, accountability at the centre

Effective accountability has two components :

Answerability Consequences : predictable and

meaningful

ACCOUNTABILITY - KEY

Keep peace , enforce laws and ensure a stable environment

Key justification for govt action remains the concept of Public Goods and Services

Market mechanism fails in regards to goods and services that are “nonrival” and “nonexcludible” i.e. clean air

There is no incentive to produce clean air

ROLE OF GOVERNMENT

Second key justification for govt intervention is existence of “ natural monopolies”

Govt direct action OR regulation needed to ensure competitive market, equity, social reasons or other public interest

Globalization has created new international public goods , a healthy global environment, international financial stability

Contd

Aggregate efficiency is an important criterian, but not the only one

good political system, to manage inherent conflict of interests peacefully through a process that society believes fair and effective

Remember distinction between majority (minority rights), unanimity(impossible), and consensus(no significant group opposed)

DECISION MAKING IN P.A.

If there is reason for govt intervention : Choose direct govt involvement or indirect

regulation Effective regulation to achieve a specified

public interest- essential govt function Good regulatory system supports

national economic activity, development, equity, defines property rights, avoids litigation

GOVT REGULATION

Fostering competition, correcting market failures, promoting efficient and equitable social and environmental policies

Excessive regulation, when non-transparent and arbitrarily enforced raises transaction costs for economy, generates risks including corruption

Contd

Regulations are promulgated by different govt entities

Delegation of regulatory powers to govt is accepted feature

Regulation is a major activity of provincial / local govt

Regulatory activity is of two kinds, in an autonomous capacity under original powers or through delegated programs

Contd

departments or delegated to other entities

Central govt regulations may be administered by govt ,

power can be delegated either to a separate bureau under regular ministries or

to a fully separate agency exercising power of licensing, rate fixing and safety regulation

Contd

Three : Economic regulations: pricing,

competetion, market entry, or exit Social regulations: public interests, health,

safety, environment and social cohesion Administrative regulations: govt collects

information and intervene in individual cases

CATEGORIES OF REGULATION

In addition to disclosure by public agencies under information laws external checks needed for accountability

In most countries judicial review is main forum for challenging administrative actions and seeking redress

JUDICIAL REVIEW OF REGULATORY ACTIONS

It covers a number of issues : Whether agency/ ministry violated

constitutional provisions or statutory obligations

Failed to adhere to procedural requirements Abused discretion or acted without

evidence May seek criminal prosecution, money

damages Relief by consumer courts ( India )

J.R.

Vertical Conflict: Between national regulations and actions of decentralized govt bodies

Minimum national standards needed in environmental protection, health, international organizations, etc

National standards may conflict with needs of devolution / autonomy

Inconsistent with ability of local govt to enforce them

RECOCILING REGULATORY CONFLICTS

Horizontal Conflict: Between national regulations and objectives of specific govt entities

Laws/ regulations may conflict with management discretion/ operational goals

It occurs in personnel rights of civil servants, privacy and integrity protection, affirmative action

RRC

Govt regulation operates in different ways in different countries

Organization of judiciary and administrative tribunals varies

Formal rules co-exit with customs Major problems in developing countries are

weak enforcement capacity Collusion between regulators and regulated Opaque and discretionary rule making

process Excessive regulations, archaic, unnecessary

Special Problems of Govt Regulation in Developing Countries

Safety, health, land use, environment etc Absence of Arms-length Relationship:

Between regulator and operator restricts competition and accountability, example telecom sector where original public sector operator retains power to license new operators and fix tariffs

Weak Enforcement Capacity

Beyond sheer volume of regulations is their haphazardness and inconsistency

Many regulations are open-ended, ambiguous exposing citizens to discretion of petty officials

Cost of red tape and corruption Strongest single anticorruption measure is

regulatory simplification and streamlining

Spl Prob-Govt Regulations

Regulatory Inflation: In France between 1960 and 1990, annual production of laws increased by 35 % , decrees by 25 %

Australia saw a doubling of subordinate legislation between 1982 and 1990

Volume , Cost , Quality of Regulation

Four components : Fiscal costs to govt of administering the

regulations Administrative and paperwork costs for

businesses and citizens Costs of compliance_ i.e., cost of buying new

equipment, reconfiguring production processes, relocation, and cost of escalation due to delays in receipt of permit

Indirect costs to the economy in the form of reduced competition, innovation, lower investment

Cost of Regulation

Inversely related to volume of regulation Enforcement becomes difficult the greater

the number of rules to be enforced Govt regulation, a case, “ less is more “ Effectiveness of enforcement is a function

of quality and appropriateness of the rules Broad principle: If cost to private operator

of respecting regulation is greater than penalty, regulation has little chance to be respected

Quality of Regulation

Rush to regulate should not be succeeded by rush to deregulate

Streamline and reduce regulatory framework

However pell-mell regulation that does not carefully consider original purpose of each rule and anticipate consequences of removing it is a risky and unnecessary approach

DEREGULATION

Deregulation has reduced govt regulation below what it would have been in their absence

Many countries have established specialized offices at ministerial level for streamlining regulatory mechanisms across the govt.

These include for example, the office of Regulatory Affairs in Canada.

DEREGULATION

Classic three E’s of public administration : Economy ; acquisition of goods and

services of a given quality at lowest cost, on a timely basis

Efficiency: production at lowest unit cost Effectiveness: Objectives of activity

achieved Example: Vaccination program, quality

vaccine at lowest cost, maximum no of vaccinations given, reduction of disease

THREE TO FOUR E’S

A fourth E must be added to the mix: Equity : Unless a govt takes into consideration

the circumstances and needs of the poorer and disadvantaged groups in society,

the most efficient system will not be sustainable,

owing to the cumulative internal tensions and to the withdrawal of voluntary cooperation, which is the cement of good governance

Three E’s

Decentralization continuum progresses from deconcentration through delegation to full devolution:

Deconcentration: First stage, shifts responsibility to central govt, province or district but does not transfer central govt authority

Delegation: Exemptions from certain rules and implement decisions without govt supervision

Decentralization: What, When, How

Devolution: Full transfer of certain functions from central govt to sub national govt units

The central govt normally retains some monitoring and financial role

Decentralization can: 1.Open up public participation in govt

decision making

Contd

2. Create opportunities for more accountable govt

3. Provide more transparent govt 4. Ease financial strain on the central

govt Decentralization can result in more

flexible and effective govt administration Govt can tailor its services to the different

needs of society, foster political stability, and national unity

Contd

Decentralization carries potential costs and risks if it is an ad hoc reaction to an urgent problem instead of carefully designed structural reform

Cause duplication, waste, underemployment of staff, equipment, coordination problems, regional inequities and societal conflicts

Contd

Decentralization has positive/ negative impact on governance

Generic test: Whether legitimacy and quality of governance are higher at local level than at national level

If answer is no, decentralization into a comparatively worse governance climate will tend to worsen quality of governance

Contd

DGD of public services only one option for govt intervention

Public services may also be delivered by autonomous public entities, private businesses or nongovernmental voluntary organizations

Basic distinction is between service policy, service financing and service delivery

DIRECT GOVT DELIVERY

Depending on the nature of the service and on administrative capacity,

appropriate govt involvement is a continuum- from full and direct involvement in all aspects of service provision

to only setting a few basic rules

DGD

Destination between policy function and implementation function has led some developed countries to a complete separation between the govt organization charged with setting policy and an “executive agency” entrusted with service delivery- fully autonomous and responsible for results

DGD

When, as in developing countries, govt has a weak capacity to measure results and monitor behavior of autonomous entities, the executive agency model is especially hazardous

Historically public enterprises have played an important role

Clearly there is a need for efficient ways Corporate governance is a way out

DGD

Corporatization is the setting up of a separate legal entity for the enterprise

It is subject to ordinary commercial law It has resulted in major efficiency gains Has added advantage for developing

countries And transitional economies of classifying

legal title and sorting out property rights

CORPORATE GOVERNANCE

The problem of selecting an agent to represent the state has different solutions

Experience suggests that the best solution, on balance, is to create a central public agency to exercise the state ownership rights in the public enterprises

But without managing the enterprises themselves

Contd

The main options for an arms’ length relationship between govt and enterprise, which still protects public interest and enterprise assets, are a board of directors and a performance or management contract

One has to assure effective board control over enterprise management

Close monitoring by govt is a must Performance/ management contracts are

risky

Contd

Countries have set up regulatory bodies for a variety of reasons

The first was the enforcement of health and safety standards

Special agencies like the Food and Drug Administration of the US were established to protect the public from adulterated or poor quality food and drugs

STRUCTURE, ORGANIZATION OF REGULATORY BODIES

Regulation of banking activity, establishment of central banks to implement monetary policy, regulate banking activity

Maintaining exchange rate stability Control of foreign investments And remittances in accordance with

international practices

Contd

Through various means agencies regulate major aspects of transportation, communication, power production and distribution, banking securities issuance and trading, commodities and securities exchanges, safety of consumer products and labor management relations

Such agencies are also set up at provincial and local levels

Contd

Regulatory agencies for utilities and the environment tend to be independent bodies

Govts also regulate enterprises and citizen activity through govt bureaus that are autonomous but not free from control of govt

US Food and Drug Administration

ORGANIZATIONAL FORMS

Decisions of regulatory agencies have varied impact depending on the country

In some, decisions are binding on the govt In others, merely recommendatory If govt disagrees with the authority, it

must explain publically its reasons for doing so

DECISIONS

THANKS