Commercial and Economic Regulation

Economic context Key terms and concepts Key Players in Australia Principles of Regulation Self regulation?

This lecture

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

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

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?

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?

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?

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

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

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

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

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

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

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

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

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

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

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

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

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

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

A key characteristic of Australian regulatory culture is said to be the fragmentation and “parochialism” which accompanies the Australian federal system.

Impact of Federalism

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

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

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

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

Ten principles for Australian Government policy makers1. Regulation should not be the default option for policy makers: the policy option

offering the greatest net benefit should always be the recommended option.2. Regulation should be imposed only when it can be shown to offer an overall net

benefit.3. The cost burden of new regulation must be fully offset by reductions in existing

regulatory burden.4. Every substantive regulatory policy change must be the subject of a Regulation

Impact Statement.5. Policy makers should consult in a genuine and timely way with affected businesses,

community organisations and individuals.6. Policy makers must consult with each other to avoid creating cumulative or

overlapping regulatory burdens.7. The information upon which policy makers base their decisions must be published

at the earliest opportunity.8. Regulators must implement regulation with common sense, empathy and respect.9. All regulation must be periodically reviewed to test its continuing relevance.10. Policy makers must work closely with their portfolio Deregulation Units throughout

the policy making process.

Australian Best Practice Guidelines

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

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

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

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