Australain commercial and economic regulation
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commercial_and_economic_regulation.pptxCommercial and Economic Regulation
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Economic context
Key terms and concepts
Key Players in Australia
Principles of Regulation
Self regulation?
This lecture
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Australia is a developed country rich in natural resources :Mining and farming major exports
Major service industries: financial services, tourism, transport, communication and education
Major Trade partners: China, japan, Korea, US and UK
Increasingly shaped and influenced by golbal economy and reducing trade barriers
Economy
Australia has a mixed free enterprise economy and as Australia has joined the word economy it has significantly de-regulated a number of industries such as banking and aviation. Has moved faway from the idea of government as delivering primary services toa view that government is guide to policy similar to many Western democracies
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As economy has grown markets have increasingly gone from predominantly state and regional to national ones
Has led to need to harmonize Australian laws in key areas e,g Australian Consumer law
Since 1970s has moved away from protectionism sought to promote a more competitive environment by allowing foreign entrants into market e.g aviation and banking
National economy
World is increasingly inter-connected and Australia is impacted by developments around the world
“globalisation”: trend towards crossing of national boundaries facilitated by internet, multi-national corporations, NGOs and mass media
Economic globalisation driven by WTO which in turn drives domestic policies
Impacts on regulatory responses e.g. legislation to respond to challenges of the internet, harmonised IP laws, privacy laws
Global context
Australian Senate : has made it difficult to move ahead on major reforms e.g Medicare co-payment
Government debt
Growth in sectors other than mining poor
High cost economy (particularly energy costs)
Need for more foreign investment
Management of scare resources :particularly water
Climate Change
More support for innovation, particularly small business
Strengthen Relationships with Trade Partners
Appropriate Regulation
Some Economic Challenges
Corporate entities are primary economic vehicle in Australia
Corporation:
separate legal entity recognised under legislation
Owned by shareholders
Managed by board who delegates responsibility usually to CEO
Economic operators
Are others: sole traders(individuals trading on own) and partnerships
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Regulation may refer to:
legal rules imposed by government, the courts, regulators and industry
enacted law: legislation made by parliament and delegated legislation.
may also be more broadly defined as “Any rule endorsed by government where there is an expectation of compliance”.
The term “regulations” refers to specific legal rules or can refer specifically to provisions of delegated legislation or rules in respect of which the government expects compliance
What is regulation?
Various definitions
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Regulators” bodies tasked by government with supervising a particular activity or industry which may include legal and non-legal rule making powers.
What are regulators?
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Most common
Direct government regulation comprises primary and subordinate legislation
For example direct government regulation applies to the classification of publications, films and computer games under the Classification (Publications, Films and Computer Games) Act 1995 (Cth) (Classification Act).
Direct Government Regulation
Industry bodies and associations who create non legal rules and enforcement mechanisms by which the members agree to abide.
Self regulation?
Self-regulation is generally characterised by industry-formulated rules and codes of conduct, with industry solely responsible for enforcement. For example, the content of advertising is subject to a self-regulatory system created by the Australian Association of National Advertisers (AANA) in 1998. The AANA established a Code of Ethics and the Advertising Standards Bureau (ASB), which incorporates an independent Advertising Standards Board to hear complaints regarding advertising content.
Often preventionsist measure developed in response to a perceived threat by government to regulate an area.
can include technical ethical and economic standards
Typically driven by most influential firms in an industry
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Quasi-regulation describes those arrangements where government influences businesses to comply, but which do not form part of explicit government regulation
Quasi-Regulation
Under a typical co-regulatory scheme, the responsibility for regulation is shared between the government and the regulated industry.
Typically, the industry and government develop a code of practice, which is then monitored by the industry itself but has legal consequences for breach
The OECD notes,
This approach allows industry to take the lead in the regulation of its members by setting standards and encouraging greater responsibility for performance. It also exploits the expertise and knowledge held within the industry or professional association
Co-regulation
For governments, co-regulatory measures offer significant benefits.They are cost-effective, as the government does not bear the burden
of directly developing the regulation.
Governments are not directly responsible for the content of the regulation, minimising the potential political harm from misguided regulation. Furthermore, governments often prefer the use of co- regulatory measures because they can be introduced and amended without reference to Parliament.
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Examples:
Australian Competition and Consumer Commission (ACCC) ensures compliance with Commonwealth competition and consumer protection laws
Australian Prudential Regulation Authority (APRA) ensures financial institutions can honour their commitments
Australian Securities and Investment Commission: one stop regulation of areas like business names, financial services, companies, credit and insurance
Australian Securities Exchange Limited (ASX) Australia's primary national exchange for equities, derivatives and fixed security interests
Australian federal police: investigating serious and complex crime against the Commonwealth
Reserve Bank of Australia (RBA) responsible for monetary policy and stability of financial system
Director of public Prosecutions: prosecutes crimes against the Commonwealth
Australian Financial Services Authority(AFSA) regulates bankruptcy
Australian Taxation Office (ATO); administers tax regulations and superannuation funds
Australian Business Regulators
Modern regulatory agencies are statutorily independent,.They are created
by legislation, but are operationally separate from parliament and
elected representatives. They frequently exercise executive, judicial
and legislative power over their jurisdiction. They are restricted by the
application of administrative law and judicial review, but hold significant
discretionary power. They are delegated authority, but remain at
‘arms-length’ from those who delegated the authority to them.
This independence is intended to insulate the regulators
from the political process, and therefore political pressure—both
from party political interests, and lobbying interests. The doctrine of
regulatory independence attempts to ensure that the regulator is impartial.
It is also possible that keeping regulatory agencies at arms-length,
politicians are able to distance themselves from the sometimes unpopular
actions of the regulator, as well as rely on the regulator to provide
credibility for their own policies.. Agencies provide a buffer between
politicians who are accountable to the voters, and the policies enacted
by the government..
Delegation of authority by elected reps can be reconciled with representative democracy by ensuring that elected representatives are accountable for the actions
of their delegated agents The democratic precept is the ultimate accountability of elected representatives to the
voters they represent
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Examples:
Australian Bankers Association responsible for the Code of Banking Practice
Insurance Council of Australia responsible for General insurance code of practice
Press Council of Australia : standards of practice for print and on-line media
Advertising Standards Bureau : various Code of Practice /ethics advertising industry
Australian Digital Advertising Alliance (ADAA)The Australian Best Practice Guideline for Online Behavioural Advertising
Association Data Driven Marketing and Advertising: Group Buying Code of Conduct.
Australian Self- Regulators
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An example of quasi-regulation is the agreement by Telstra, Optus and Primus to filter voluntarily a list of child abuse URLs compiled and maintained by the Australian Communications and Media Authority (the ACMA). This arrangement was entered into against the background of the Australian Government’s proposed system for mandatory internet service provider level filtering of URLs
Quasi-regulators
Regulation of radio and television content is co-regulatory.
Various industry groups have developed codes under the Broadcasting Services Act 1992 (Cth). Most aspects of program content are governed by these codes, which include the Commercial Television Industry Code of Practice and the Commercial Radio Australia Code of Practice and Guidelines. Once implemented, the ACMA monitors these codes and deals with unresolved complaints made under them
Co-regulators
Compliance :to comply with or fulfil regulatory requirements
Governance: system by which an organisation is controlled and operated and the mechanisms by which it and its people are called to account
Corporate Governance: above for corporate entities. Increasingly, the concept ‘corporate governance’ is used in the public sector as well as the private sector.
Compliance and Governance
No universal definition: this one from Australian Governance Institute. Others:
Organisation for Economic Co-operation and Development (OECD):
Corporate governance involves a set of relationships between a company’s management, its board, its shareholders and other stakeholders. Corporate governance also provides the structure through which the objectives of the company are set, and the means of attaining those objectives and monitoring performance are determined.
ASX Corporate Governance Council:
Corporate governance is ‘the framework of rules, relationships, systems and processes within and by which authority is exercised and controlled in corporations’. It encompasses the mechanisms by which companies, and those in control, are held to account.
Justice Owen, HIH Royal Commission, ‘The Failure of HIH Insurance, Volume 1: A Corporate Collapse and Its Lessons’, Commonwealth of Australia, April 2003 — pg xxxiii; Justice Owen, ‘Corporate Governance: Level upon Layer’, Speech to 13th Commonwealth Law Conference 2003, Melbourne, 13–17 April 2003 — pg 2
Some others: Governance as concept can apply not just to organisations but also our system of government and its branches
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While, governance is concerned with “how an organisation is managed”, it is important to understand that governing is not the same as managing.
Broadly, governance involves the systems and
processes in place that shape, enable and oversee management of an organisation.
Management is concerned with doing – with co-ordinating and managing the day-to-day operations of the business.
Governance and Management
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The three most common are:
accountability – both internal and external;
transparency/openness; and
recognition of stakeholder/shareholder rights.
Often to these are added:
efficiency, integrity,
stewardship,
leadership,
an emphasis on performance as well as compliance,
and stakeholder participation or inclusiveness.
Principles of Good Governance
Good Governance associated with improved organisation performance, better risk management, regulatory compliance, ethical conduct and social responsibility. Significant organisations failures like HIH have made this a significant focus on this topic by government, regulators and industry bodies
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Governance Risk Compliance Institute: Peak body for development and practice of compliance and for working compliance , risk, ethics and governance into the fabric of organisations
Other bodies: ASIC, Institute of Company Directors etc, Australian Public Service Commission
Industry Compliance Bodies
e.gThe ASX Corporate Governance Council’s principles and recommendations provide one benchmark for good corporate governance in Australia
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An important trend: emphasises the role of organisations in society
Example issues: use of sweat shop labour in Bangladesh, reducing carbon emissions
Has been applied to government
E.g. In 2008 senate passed motion that emphasised recognition responsibility of government is to "foster a corporate culture of human rights at home and aboard”
Corporate Social Responsibility
Federal policy agency .
At highest level is steward of the economy responsible for macroeconomic and microeconomic development and reform
Department of Treasury
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Independent Research and Advisory body
Important role conducting reviews e.g
Economic Structure and Performance of the Australian Retail Industry 2011
Various other advisory bodies such as Export Meat Industry Advisory Committee
Productivity Commission
The Productivity Commission is an advisory body. It does not administer government programs or exercise executive power. It contributes by providing quality, independent advice and information to governments, and on the communication of ideas and analysis.
The Commission is an agency of the Australian Government, located within the Treasury portfolio. However its activities cover all levels of government and encompass all sectors of the economy, as well as social and environmental issues.
The core function of the Commission is to conduct public inquiries at the request of the Australian Government on key policy or regulatory issues bearing on Australia's economic performance and community wellbeing.
In addition, the Commission undertakes a variety of research at the request of the Government and to support its annual reporting, performance monitoring and other responsibilities.
The Commission also acts as secretariat to the inter-governmental Review of Government Service Provision, under the auspices of the Council of Australian Governments. And it has a role in advising on the competitive neutrality of Commonwealth Government business activities
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Include;
Professional organisations and Chambers of Commerce ( associations of participants in a commerce and industry)
Employer Interests e.g Business Council of Australia
Small Business: Council of Small Business Operators Australia (COSBOA)
Employee Interests: Trade unions
Stakeholder Representatives
The ‘public interest’ model argues that regulation is constructed and applied to solve economic and social problems which affect the community as a whole.
Public choice: regulation arises from self interested pressure groups.
Models of regulation
These problems can be inefficiencies derived from market failures, or non-economic problems, such as welfare or equity. Carefully drafted
regulation, judiciously and objectively applied, can, at least in part,mitigate these problems. Regulation is therefore a complement to the
market, a mechanism governments use to improve market outcomes
for economic or social goals,. The public interest model of regulation assumes that regulators and legislators act in accordance to the best interest of the society
at large.
the ‘public choice’ model of regulation treats regulators and legislators as self interested and flawed actors like any other within an economic system. Regulation is the result of self-interested pressure groups competingto mold the legal framework for their own gain. The theory of regulatory capture—in which a regulator is ‘captured’ by the industry
it regulates, and is therefore manipulated for private, not public, gain— arises from this model.
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This ‘command and control’ view, where legislators/regulators define the range of prohibited and permissible behaviour, and use coercive sanctions to punish breaches, has been the most commonly used form of government regulation throughout history.
“responsive regulation” belief that governments should be responsive to the conduct of the subjects of regulation and vary their enforcement measures accordingly.
Regulatory Approaches
responsive regulation is that governments should be responsive to the conduct of the regulated firm and vary their enforcement measures accordingly.84 Rather than producing a binary distinction between a compliant and a non-compliant
firm, the regulator assesses the extent to which the firm is compliant, and the level of enforcement necessary to ensure ideal compliance.
According to its proponents, responsive regulation seeks to resolvequestions of compliance through negotiation rather than coercion
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The formalist might say armed robbery is a very serious evil. Therefore it should always be dealt with by taking it to court, and if guilt is proven, the offender must go to jail. Responsive regulation requires us to challenge such a presumption; if the offender is responding to the detection of her wrongdoing by turning around her life, kicking a heroin habit, helping victims, and voluntarily working for a community group ‘to make up for the harm she has done to the community,’ then the responsive regulator of armed robbery will say no to the jail option.
Example
This approach to compliance and enforcement is widely used in Australian regulatory activity of business. Many regulatory agencies have explicitly adopted the responsive regulation approach. Many would describe their approach as ‘principles’ focused, arguing that ‘the regulatory emphasis has moved away from black letter enforcement to setting high industry tandards and leaving it to industry to comply with the legislative requirements’.
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Model 1: State Regulation: top down
Model 2; Private Regulation with State Oversight: Bottom Up Top Down
Model 2: Keeping the State Honest: as above but more public accountability
Model 3: Balancing Interests: bottom up
Regulatory systems
1. Direct regulation and consistent with command and control view of regulation
2. the job of regulation is a demanding and difficult one that the state cannot do alone. This requires the coordination of regulatory resources under the direction of the state. In particular it is argued that self-regulation should be encouraged and utilised by the state. The idea put forward is to create a hierarchy of regulatory capacities with the state at the top and private regulators and citizens at the bottom all working towards the same goals. In this hierarchy, regulation would be done by the
bottom but controlled from the top bottom-up performance and top-down control. Each level in this regulatory hierarchy would be
policed by regulators at the next level up; equates to co-regulatory approach.
3. This model is as a complement to, more than an alternative to, the second. Its proponents argued for greater regulatory accountability to keep the process honest. The principal issue debated is how to make the regulatory process more directly answerable to the public. An idea put forward is the use of public
interest groups to watch over the regulatory process on behalf of the public. This model accepts that the regulatory process must be more responsible. E.g productivity commission has in past done reviews or regulatory performance of government but only does this ad hoc.
4. Proponents of this view favour the presence of independent regulatory entities who would act to promote their conception of the public interest. Regulatory bodies are ostensibly independent of government but as can be seen by debate around HR Commission report into children in detention can still be subject to political pressure and outcomes influenced by appointment process of senior bureaucrats
our system has a number of these
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Regulation, as a governmental activity, has come to rival, and in
some respects eclipse, the traditional spending and taxing powers of government as a means by which government seeks to influence, direct and control economic and social behaviour.
The most striking feature of the overall level of regulation and of the regulatory burden in Australia is its growth over time.
the changing nature of Australia’s federal structure has significantly expanded the jurisdiction of the Commonwealth including regulatory activity
Growth of regulatory bodies:600 plus?
As the volume and complexity of regulation grows, the cost and expertise required to administer it grows similarly
Poorly made or conceived regulation can encourage more regulation to resolve the original flaws.
Growth of regulation
The Incomes Tax Assessment Act is often used as a barometer of legislative and regulatory growth, and has grown from 120 pages in 1936 to a bookshelf crushing [7,000 pages]. 2007
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A key characteristic of Australian regulatory culture is said to be the fragmentation and “parochialism” which accompanies the Australian federal system.
Impact of Federalism
e.g until recently Australia had nine separate regulatory regimes for occupational health and safety. This framework does not include all workers in the mining, petroleum and
maritime industries, which in some jurisdictions are subject to other regulatory regimes. Occupational health and safety standards, and enforcement practices, differed across state and territory jurisdictions. The consequences of this fragmentation are profound, especially for national industries. They caused inefficiencies to the mobility of labour
and capital which is essential to microeconomic reform and to the improvement of Australia's position in the international economy. The
duplication of regulatory effort inevitably occurring in nine separate jurisdictions was wasteful and inefficient, and is an unnecessary burden on
Australian taxpayers. Moreover, inconsistencies in standards and in their enforcement was detrimental to the health and safety of Australian
workers, with resulting social and economic costs.
Consider large policy areas such as health and education largely state controlled.
2011 cth ws able to enact model legislation with State cooperation now being implemented in most jurisdictions but long tortured process.
Compare to Europe where EU has promoted considerable regulatory conformity.
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Business and economic regulation is a major
challenge facing Australia's competitiveness in the world economy.
To this end, both sides of politics have accepted that gratuitous intervention in the business of business is something to be avoided. At the same time, there must be some safeguards to ensure that the 'public interest' is not threatened.
Regulatory Policy :Challenge
There is recognition that regulation should be part of our competitive advantage: need to facilitate trade and commerce to fuel economic growth and investment .
Recent history is littered with examples of 'market failure', where tremendous harm has been done to the public interest e.g HIH collapse
Australia's goal is to achieve regulatory outcomes which are economically efficient. The ideal is an optimal level of regulation, one which imposes no gratuitous burdens on Australian enterprise, yet one which protects Australian society from the worst excesses of market failure.
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Generally, Australian regulators do not adopt a law enforcement ideology when it come to business regulation . They trust business as socially responsible and willing to be law abiding. They favour of a cooperative posture and adversarial confrontation is a last resort.
Less restrictive standards comparative to US and Europe but more so comparative to China/Asia
Less aggressive enforcement than US (Regulators
The use of undercover tactics and other elements of deception in the course of regulatory investigation is rare in Australia.
Australian Regulatory Culture
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Model introduced by Ronald Reagan in US in 1980
RIAs have proved popular with governments trying (or trying to be seen) to improve the quality of their regulation.
Australia and early adopter and from 1985 had adopted formal policies mandating the use of RIA in domestic policy-making
Regulatory Impact assessment
The idea of an RIA is to make regulation more efficient and effective byhaving its designers justify the reasons for implementing a new regulation,
consider the costs and benefits of different options at an early stage and take acommunity-wide perspective of their effects, to ensure that the benefits to society
(broadly conceived) of a regulation are greater than the costs (also broadlyconceived) and to encourage the design and adoption of the regulation with the
greatest net benefit.
International studies, however have, questioned whether an RIA process improvesregulatory outcomes. Common themes include non-compliance with the
regulatory process and poor-quality RIAs.
In Australia Twenty years after the RIA process was established, the 2006 Taskforce o nReducing Regulatory Burdens on Business pointed out that the 1990s and 2000s
saw a dramatic growth in the volume of regulation (Regulation Taskforce 2006:
5). And no-one has detected any improvement in the quality of new regulation.
Indeed, complaints about growing regulatory burdens led to the Taskforce
inquiry.
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Expressed Aim is to cut red-tape i.e. reduce the regulatory burden for individuals, businesses and community organisations.
Series of questions that need to be addressed. as part of development of regulatory proposal
Australian Best practice Guidelines
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Ten principles for Australian Government policy makers
Regulation should not be the default option for policy makers: the policy option offering the greatest net benefit should always be the recommended option.
Regulation should be imposed only when it can be shown to offer an overall net benefit.
The cost burden of new regulation must be fully offset by reductions in existing regulatory burden.
Every substantive regulatory policy change must be the subject of a Regulation Impact Statement.
Policy makers should consult in a genuine and timely way with affected businesses, community organisations and individuals.
Policy makers must consult with each other to avoid creating cumulative or overlapping regulatory burdens.
The information upon which policy makers base their decisions must be published at the earliest opportunity.
Regulators must implement regulation with common sense, empathy and respect.
All regulation must be periodically reviewed to test its continuing relevance.
Policy makers must work closely with their portfolio Deregulation Units throughout the policy making process.
Australian Best Practice Guidelines
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1. What is the problem you are trying to solve?
The RIS requires you to explain the problem—and your objective—simply and clearly. A crisply defined problem offers scope for innovative, non-regulatory thinking.
2 Why is government action needed?
Ask yourself: is it a genuine priority? Is it government’s job? Is the problem serious enough to justify government intervention? Will intervention work?
3What policy options are you considering?
A RIS will reveal whether you’ve thought through all of the viable options, including the option of not regulating. Until you’ve analysed the problem from every angle, you may be overlooking a viable, low-impact alternative.
4. What is the likely net benefit of each option?
Policy interventions often come at a cost. The RIS obliges you to assess the benefit of your proposed intervention against the burden you impose. If that burden is greater than the benefit, you should look for alternatives or reconsider the need to intervene at all.
5 Who will you consult about these options and how will you consult them?
Transparency and accountability are not optional. The RIS encourages you to walk in the shoes of the people, business decision makers and community groups affected by your policy proposal.
6 What is the best option from those you have considered?
The RIS will help make clear whether your decision making processes are robust enough to cope with scrutiny. The public don’t just need to know what you’ve decided; they want to know why and on what information and arguments your decision was based.
7 How will you implement and evaluate your chosen option?
Too often this question is left until the last minute. The RIS process ensures you give adequate and timely consideration to the real-world problems of making your policy work—and makes sure you will test its effectiveness and ongoing relevance.
Regulatory Impact statements: Australian Government Guidelines
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Public service bureaucrats and politicians have their own interests and objectives and the political process does not automatically lead to policies in the public interest.
no effective sanctions and, thus, low incentives of compliance.
the RIS may be prepared too late in the policy development process to be of any real assistance to decision-makers.
Actual process in government guidelines may not be adhered to and may be insufficient public transparency early enough in process
Challenges to good regulation
The pressures and incentives that lead to bad regulation are still present — such as the influence of specialinterests and populist pressures to ‘do something’ about the problem of the day Politicians respond to these pressures. Further, bureaucrats may have their ownobjectives, such as empire building, which may encourage them to support
excessive and inefficient regulations.
Both the regulatory agencies and the central regulatory monitor can lack the incentive to carry out policies to improve the regulatory process.
Since 2007 some improvement : regulatory proposal with medium compliance costs, or significant impacts on business and individuals or the economy, should not proceed to Cabinet or other decision-maker unless it has complied with the regulatory impact-analysis requirements, and non-compliant regulations must have a post-implementation
review within two years. But not all regulations require cabinet approval.
More recently the Office of Best Practice regulation established and the processes in the best practice handbook improved. 2013/14 review showed improvement in compliance and post review processes.
In those circumstances, it effectively becomes little more than an ex-post justification for a policy decision already taken.
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Industry develops its own solution so may not account for interests of other stakeholders e.g consumers
No defined process as exists for regulatory and co-regulatory approaches so may lack rigour e.g. may not be sufficient consultation with affected groups,
No independent oversight
Variable quality in drafting
May raise barriers to entry in a market and affect competition
Lacks legal backstop for enforcement
Self Regulation?
Flexible and adaptable :particular advantage in fast moving industries such as internet based.
Lower compliance and administrative costs
Harnesses industry knowledge and experience
Quick and low costs complaints mechanisms
Self –Regulation?
Delays in government regulatory decisions can cause considerable uncertainty for businesses and result in significant costs or deferred opportunities e.g regulation of native title claims creates uncertainty for mining industry
overlap and inconsistency in regulation between jurisdictions. This imposes costs on businesses operating in more than one jurisdiction, creates additional costs when new ventures are initiated in another state or territory and limits businesses in their efforts to achieve economies of scale. An example of this is the lack of recognition of licences, gained in other jurisdictions e.g. mining management licenses
Costs can also be imposed on businesses where different jurisdictions agree to implement similar regulations, but in doing so they administer and enforce the regulation differently e.g use of agricultural fertilizers by farmers
Issues for Business
Where regulatory bottlenecks develop, the loss of competitive advantage, or other lost or forgone opportunities, can be significant.
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Government regulatory responses have been implemented to respond to citizens 'concerns without giving sufficient weight to scientific assessment. An example was the lack of approval by state governments to grow genetically modified crops that have already been approved for release in Australia.
Regulations which aim achieve community-wide objectives can impose a loss of property rights and/or reduce the value of the resources or assets held by individual businesses. For example, changes to the operation of regulations protecting native vegetation, have diminished the value of property rights held by some agricultural producers, and led to a corresponding decline in the value of their assets.
information about any policy or regulatory change ought to be communicated to those affected, this is not always done well.
Issues for Business
