Self-regulation and convergence

The Australian Communications and Media Authority has published a thoughtful piece on Optimal conditions for effective self- and co-regulatory arrangements.

I must admit to being somewhat pleased that my own working paper on self-regulation was referred to in a footnote. The ACMA paper has considered a range of sources to propose ten optimal conditions for the operation of self- or co-regulatory frameworks. It is a great pity, however, that the work has largely lumped these two together as if they constitute the alternative to direct regulation. The detailed commentary of the ten factors does provide some indication of the relevance of the factors for the appropriateness of self-regulation over co-regulation, but this is only a minor consideration.

The paper is also marginally delusional - repeating as it does the kinds of exhortations found in the Office of Best Regulation Handbook. As a consequence the paper asserts "The ACMA, along with all Australian government agencies, must clearly analyse the costs and benefits of undertaking regulatory action and needs to consider alternatives to formal regulatory action before deciding that regulation is necessary." This reference to cost and benefits is usually met by toting up some list of unquantified impacts, whereas the technical definition stems from the microeconomics of policy evaluation and is meant to consider real costs and benefits as measured by producer and consumer surplus.

The principle is modelled on the economic analysis of "regulation" such as barriers to entry or price control, the effects of which can be assessed through static partial equilibrium models or more broadly using a general equlibrium model.

But for the vast bulk of real government regulation nothing like that ver occurs, nor is it practical to do so. The cost-benefit analysis degenerates into little more tha the "vibe" of the thing - and I have even heard a senior bureaucrat argue that the benefits of a policy existed because the Minister had identified benefits. A wider discussion of cost-benefit analysis is for another day.

In then describing self- and c-regulatory models the paper notes that;

In practice, pure self-regulation without any form of government or statutory involvement is rare. Commentators have noted that self-regulation has become embedded in the regulatory state, reflected in the range of 'joint productys' between the regulator and the regulated, and is best reflected in the understanding of the term 'co-regulation'

As it is at this point that the reference to my working paper occurs I tink it important to state that this is not my conclusion. My conclusion is that regulators habitually fail to utilise or promote self-regulation and instead rely upon the construct of co-regulation.

The paper itself identifies that the Telecommunications Act specifically states the policy intent that the sector be regulated to promote "the greatest practicable use of industry self-regulation". It doesn't go as far as my own paper i noting that that legislative prescription was a direction to regulators, not industry. The conclusion is that the ongoing failure to promote self-regulation is a failure of the regulator.

The issue will have particular significance as the "convegence review" of 2011 unfolds. A question for this review is whether the regulatory objects and policy across the four principle acts administered by the ACMA need to be reviewed and/or harmonised. The brodcasting and radiocommunications acts merely include the invocation that regulation not impose undue burdens on industry (which also is a failure of economic analysis because the policy concern with regulation is that the burdens are borne by society as a whole).

The paper includes as a concession to the primacy of self-regulation that;

To that extent, the relevant legislative schema requires the ACMA to give industry an opportunity to develop self-regulatory solutions before other forms of intervention are considered.

A strict reading of that claim would be that the ACMA should have declined to register industry codes until there was evidence that industry behaviour would not change through voluntary compliance. There is no documented case where the ACMA or its predecessor the ACA has ever given primacy to a self-regulatory rather tha co-regulatory outcome. The one instance where we might have got close was in unfair contracts, where industry had imposed a guideline. When the ACA undertook its assessment of performance against that guideline it was clear that there was one firm only that had made almost no progress, but rather than take action to get that firm to comply the ACA rushed to the principle of an "enforcable" code.

The simplest explanation for the ACA and the ACMA being unable to promote self-regulation is the hammer and nail analogy - when all you've got is a hammer, everything looks like a nail. This comes through in the paper's discussion of non-regulatory tools. Under "rewarding good behaviour - positive incentives" the paper states "Traditional approaches to regulation do not acknowledge or reward compliance with regulations." But this is still considering non-regulatory levers through the prism of regulation. It focusses on the idea of rewarding "compliance" as opposed to rewarding "good behaviour".

Ultimately this reflects the void between morality and legality, or between the idea that regulation can be a choice between "lowest common denominator" and an "aspirational" achievement. The boundary lines that denote behaviour that should be punished and behaviour that should be rewarded are not co-incident.

Finally, the ten optimal factors that the paper identifies as conditions for using other than explicit regulation are reasonable, but should be expanded on to identify how they affect self- and co-regulation separately.

At this point I just want to note the particular issue with the first two - these are "number of market players and coverage of the industry" and "whether its a competitive market with few barriers to entry". The conclusions reached on these points are contradictory - they suggest that a concentrated industry is easier to achieve self-regulatory co-ordination but at the same time that a competitive market with easy entry will facilitate self-regulation or co-regulation. These are contradictoy positions.

In fact, an issue with the telco market is the overall market structure being too concentrated in a few large firms but also having low barriers to entry. The former is an issue because no overall market improvement can occur without the will of the big incumbents, but equally ant attempt to achieve standards is disrupted by entrants.

The ACMA has made a god start, but it may be beneficial for the ACMA and or DBCDE to follow the occassional paper up with a consultative process - probably in the context of the conergence review.