Why regulatory reforms are incomplete

Posted on August 14, 2013  /  0 Comments

The last few days, I’ve been preoccupied with the basics of regulation and sector reforms. This was because I was preparing for a regulation course we’re teaching in Naypitaw, Myanmar, for government officials who will form the core staff of the to-be-created ICT infrastructure regulatory agency. The teaching I do these days mostly assumes the basics, but that cannot be done in Myanmar, a country that is a green field in terms of regulation and reforms.

In advocating for good regulation, one always searches for the stakeholders who will support your cause. Many moons ago, I used to believe that the licensees who were subject to the authority of the regulatory agency or the government would be the natural supporters of regulatory reform. But that belief weakened in the face of evidence. Pratap Bhanu Mehta describes the problem better than I could. He writes about India, but the problem is general.

One of the principle objectives of reform is to reduce the discretionary power of the state so that the ground rules regulating economic transactions are open, clear, predictable, competitive and fair. Licences and production controls were only one aspect of this discretionary power; tax exemptions and a plethora of other regulations are its other facets. But apart from production, the government has to regulate industry on labour issues, environmental concerns, land permission and so forth. It is wishful thinking to suppose that you can have capitalism that is not thus controlled. The question is whether the regulation is sensible and predictable. The government often has its own interests in an absurdly regulated or an over-regulated but under-governed system. But Indian capital, rather than collectively fighting for rational regulation, spends its energies extracting its own form of rent from this misregulation. Industry uses inordinate resources in keeping its exemptions intact or manipulating rules to its advantage. While rational from the point of view of particular entrepreneurs, cumulatively, the politics of exemption-seeking impedes reforms. It reinforces the view that the function of the state is not to set fair rules, but to dole out selective benefits. Indian industry still inhabits a world of deals rather than rules.

Read more: http://forbesindia.com/article/independence-special-2013/pratap-bhanu-mehta-when-business-bats-against-itself/35875/1#ixzz2bukRqor2

Comments are closed.