What is the Future of Regulatory Policy?

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The OECD’s latest Regulatory Policy Outlook is the most forward-looking yet.

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The Organization for Economic Cooperation and Development’s (OECD) core principles of regulatory reform date back to the mid-1990s, with a major consolidation of the policy principles achieved in 2012 with the OECD recommendation on regulatory policy and governance. At that time, the goal of the OECD was twofold: to define good regulatory principles and practices, and to set out a programmatic vision on regulatory reform.

Over the past decade, the OECD has substantially upgraded its organization and working methods. For example, it has replaced its old “working party” with a new regulatory policy committee, granting greater status and visibility to regulatory reform. In addition, the OECD’s regulatory policy division has diversified its instruments and monitors adherence to its 2012 recommendation by both member and non-member countries. The Division thus publishes reviews of member countries’ regulatory policy and governance in regularly updated reports. It also benchmarks performance through dedicated indicators, and it increasingly provides direct technical assistance to support reform design and implementation.

The latest Regulatory Policy Outlook is the most forward-looking of the series so far. Ten years after the adoption of the 2012 recommendation—and in the spirit of the promoted ex post evaluation practices—the OECD has looked back to draw lessons from the past and make proposals for the future.

The gulf is widening between the sophistication of contemporary challenges and the ability of regulators to organize and deploy methodologies to handle that sophistication. Current approaches to governance and public policy must focus on getting regulatory governance “right” in light of systemic problems and ambitious goals such as digital-ecological targets and the United Nations’ sustainable development goals.

In addition, the COVID-19 crisis and post-pandemic recovery, the fourth industrial revolution, and the goal to transition swiftly to a green, circular, and sustainable economy call on regulators to ensure that their decisions are effective and proportionate to achieve high levels of protection and inclusion.

In its most recent Regulatory Policy Outlook, the OECD invites governments and stakeholders to engage with a “regulatory reboot to address the challenges of the 21st century.”

Accordingly, the Outlook launches “regulatory policy 2.0” in its opening chapter. Regulatory discipline—as enshrined in the principles and instruments of the OECD’s 2012 recommendation—will be key to the post-pandemic recovery. If anything, the main challenges will not be with the substance of the 2012 recommendations but with getting countries to implement them fully. Yet at the same time, the OECD argues in the Outlook’s initial chapter that regulatory policy also needs reinvention across at least four different domains.

First, regulatory governance must adjust to keep up with the pace of technological change. Digital government is a key catalyst for this.

Second, regulators must make more use of behavioral insights and behavioral public choice.

Third, regulators must learn from the regulatory response to COVID-19. During acute phases of the COVID-19 pandemic, stakeholder consultation and in-depth impact assessments of proposed legislation were impossible. But risk-based analytical thinking, proportionality, adaptive responses, and retrospective reviews are still the most sensible ways to design regulatory measures. In short, solid, evidence-informed regulatory planning need not evaporate because of a crisis.

Finally, regulatory policy 2.0 emphasizes coherence. At the same time, regulators should identify, monitor, and eliminate unnecessary burdens to avoid “regulatory sludge.”

The Regulatory Policy Outlook is definitively an authoritative source both in terms of guidance and evidence. Its value for governments, regulators, and stakeholders is unmatched by other publications produced by international organizations.

At the same time, however, the Outlook sketches only the first contour of the vision for regulatory policy 2.0. Some of its themes, such as reducing burdens, seem to be just a more sophisticated version of items in the OECD’s previous agenda. The Outlook also does not fully explore the interface between regulation and risk.

Interestingly, the Outlook does not identify the need for new regulatory management tools. Instead, it puts forth the traditional ex ante impact assessment, consultation, and ex post evaluation. This focus, arguably, is because these traditional tools have performed well and are still central to the vision—a finding that we do not object to. Yet it would have been useful to read about adaptive regulation, for example, as well as the integration between the new regulatory reform agenda and the future of public management.

The call for more “agile and future-proof regulatory approaches” remains therefore more exhortative and conceptual than pragmatic and guidance-oriented. The New Zealand approach of regulatory stewardship and the “evaluate first” principle of the European Commission provide some insights into these approaches, although more guidance is needed on what these ideas practically entail.

To be sure, the latest Regulatory Policy Outlook is a formidable springboard for the OECD to develop new thinking about the future of regulatory policy. Turning to our personal experience, we have been privileged to be part of this thinking process.

In an internal unpublished OECD working paper, we reflected on the experiences and limitations of regulatory reform 1.0. The regulatory reform community remains somewhat narrow, perhaps self-referential, even if “better regulation” is no longer a novelty.

The classic policy instruments could do with a retooling exercise. For instance, regulators still know little about how certain tools, such as consultation, affect final outcomes, such as the control of corruption. Nor have regulators determined how to leverage private sector investment, for example, to promote innovation to transition to a more sustainable economy.

Another issue is what we call “formalization.” Political-administrative contexts matter. Some administrative procedures have been hard to implement in certain political and administrative settings, so they need structured and rationalized decision-making. But these same procedures may come across as too rigid in settings that are more supple, informal, and trust-driven. The OECD’s emphasis on formal administrative procedures—consultation, impact assessment, risk analysis, and evaluation—may not perform well in some contexts for different reasons.

Drawing on our internal paper, which we co-authored with Karl O’Connor, a research director at Ulster University, we then involved the OECD’s Regulatory Policy Committee to outline various beliefs about the future of better regulation.

Applying Q-methodology, we identified four clusters of beliefs about features of regulatory policy 2.0: (1) improving governance processes and fostering innovation; (2) delivering on accountability and enhancing the role of citizens in the regulatory enterprise in looking for missing stakeholders; (3) becoming more pragmatic and critical in calling for robust reality checks and prudence before embracing grandiose expectations; and (4) re-defining the mission of regulatory policy as an aid to internal government and regulatory processes—or as a tool for “those inside the decision-making tent,” so to speak.

These four clusters look different, and indeed they are. But there is also some connective tissue that binds them. First, nowhere did we find a belief that regulatory policy and its tools are obsolete. Second, all clusters place citizens as central actors in regulation. This outcome occurs because—as shown by the COVID-19 pandemic—trustworthy, accountable laws and regulations are fundamental for the success of public policy. Finally, a call for prudence also emerged about layering regulatory reforms with new additions. Foresight, algorithmic regulation, and technological fixes will not deliver unless accompanied by vision, focus, and “regulatory humility.” And regulators must re-tool regulatory policy explicitly toward the United Nations’ Sustainable Development Goals.

In conclusion, the OECD’s latest Regulatory Policy Outlook is part of a wider ongoing conversation. Pluralism of beliefs is vital and necessary, given the challenges and opportunities at stake and the diversity of political-administrative contexts. Differences in the application of Better Regulation vocabulary can hide behind the same categories of concepts, visions, and implementing approaches, as revealed by the variability across OECD indicators.

OECD’s acknowledgement of diverse pathways to regulatory policy 2.0 is—we believe—a positive step. The OECD is the best forum to display the diversity of agendas and approaches in a constructive and forward-looking environment. Its Regulatory Policy Division can continue to compose and amalgamate various options in ways that serve a globally valid and operable vision of improved regulation and regulatory policy.

Lorenzo Allio

Lorenzo Allio is a director at Allio-Rodrigo consulting.

Claudio M. Radaelli

Claudio M. Radaelli is the chair of comparative public policy at the School of Transnational Governance of the European University Institute.

This essay is a part of a nine-part series entitled, A Global Regulatory Policy Outlook.

This contribution builds on the publication OECD (2021), OECD Regulatory Policy Outlook 2021, OECD Publishing, Paris, https://doi.org/10.1787/38b0fdb1-en. The additional opinions and arguments employed herein are those of the authors and do not necessarily reflect the official views of the OECD or of its Member countries.