David Seymour speaking to media at Parliament. Photo / Mark Mitchell
David Seymour speaking to media at Parliament. Photo / Mark Mitchell
Opinion by Bill Rosenberg
Dr Bill Rosenberg is an economist, Visiting Scholar at Victoria University of Wellington Te Herenga Waka, and formerly a Commissioner of the Productivity Commission.
THREE KEY FACTS
The Regulatory Standards Bill is not yet before Parliament, but a discussion document from the Ministry of Regulation.
The bill is part of National and Act’s coalition agreement.
Act’s proposed regulation has proved highly controversial. Critics fear it will encourage damaging deregulation, its principles will lock in existing inequities and harmful environmental and commercial practices, and they criticise the lack of a clear definition of the problem it is intended tosolve.
Why then do its promoters say we need the bill? They switch between raising productivity, deregulation and improving regulation according to the audience.
The Minister for Regulation claims in introducing his ministry’s discussion paper on the bill: “Most of New Zealand’s problems can be traced to poor productivity, and poor productivity can be traced to poor regulation.”
Ministry for Regulation David Seymour. Photo / Dean Purcell
The New Zealand Initiative’s Bryce Wilkinson (who drafted a similar bill in 2001 and has been involved in its development since then) insists it is not about deregulation but the quality of regulation, despite arguing for deregulation in the past.
Yet Minister for Regulation David Seymour, advocating for the bill to the Wellington Chamber of Commerce, said, “It’s time for another period of deregulation”.
Is it really true that most poor productivity can be traced to poor regulation? Some industry-specific regulation and the degree of competition, for example, can impact productivity for bad or good. But the much wider claim is wrong on the evidence.
A 2003 OECD report on New Zealand’s neoliberal regime famously stated: “The mystery is why a country that seems close to best practice in most of the policies that are regarded as the key drivers of growth is nevertheless just an average performer.” Clearly, regulatory quality did not explain productivity performance. If we compare our recent productivity and regulatory rankings with successful small OECD nations, almost all of them have higher productivity and yet they mostly have lower or markedly lower regulatory rankings than us.
It is inescapable from this evidence that regulatory quality does not overwhelmingly determine productivity performance. Other aspects of a country’s policies, institutions, economic structure, trade performance, geography, history, culture, education, management skills, labour relations, demography, social cohesion and endowments (among other factors) are at least as important.
The bill’s promoters have provided no systematic evidence to show that the quality of our current regulation is markedly poor, let alone worse than other countries. International evidence suggests the contrary. It has not shown that this legislation is justified. Indeed, Act’s own Ministry for Regulation doesn’t think it is, nor does the Law Society or public policy expert Professor Jonathan Boston.
Improving the quality of regulation to ensure it is effective is undoubtedly a good thing. There is already an array of measures with this aim. In my observation they can make the regulatory process less adaptable and lead to government agencies using other, often less effective measures. Instead of adding yet more layers, we should be simplifying existing measures and ensuring they work.
As for David Seymour’s “deregulation”, New Zealanders’ memories of leaky buildings, finance company crashes and a high workplace death toll will not fade – costly examples of deregulation and weak enforcement.
The bill aims to actively deter governments from regulating by requiring compensation for the “taking” of property in the public interest. While this may be fair when a property has to be taken to build a road, as a general principle it has enormous and very expensive consequences. “Property” has been interpreted to extend to not only real estate and material assets but also, for example, contracts, licences, water rights, emission or pollution rights, or legitimate expectations of future income.
The theory of “regulatory takings” was developed by University of Chicago law professor Richard Epstein, who was an adviser to the Business Roundtable. “It will be said that my position invalidates much of the 20th century legislation, and so it does,” Epstein wrote in 1985.
The cost of compensation would mean that needed regulatory change would become unaffordable, or else, as the bill proposes, those being harmed would be made to compensate the polluter or monopolist for its loss in “property” values. It would lock in place or intensify existing inequalities of income and wealth, and rights to pollute, extract resources beyond sustainable limits, and exploit consumers, suppliers and workers.
New Zealand Initiative economist Dr Bryce Wilkinson.
Defenders may say this is all a matter of interpretation, but a “principle” that can have such wide, costly and dangerous interpretations is an unsound principle to embed in our lawmaking.
Wilkinson argues these concerns shouldn’t worry us since ministers can disregard the principles of the bill if they explain why. But if that is true, why legislate? The intention is to change the direction of governments.
The bill’s extreme approach is unjustified. It has been examined by Parliament three times before and voted down under three different governments. The bill should be withdrawn and replaced by an approach to regulatory quality that draws long-term, cross-party support based on refining and properly funding current measures.
