Reconnecting Regulators to the Regulated

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Scholar proposes a new U.S. regulatory system that would be more accountable to the public.

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Amateur investors outmaneuvered Wall Street professionals by inflating the price of GameStop stock during the COVID-19 pandemic, causing a boom in the underperforming stock and a shift in Wall Street power dynamics. Eventually, though, professional investors regained their influence over the financial system, and GameStop’s stock popularity dwindled.

This “meme stock” phenomenon—where amateur investors influenced by online communities cause stock prices to surge—highlights a divide between average Americans and the public institutions meant to serve them. And this divide stems in part from the disconnect between regulators and the regulated, according to one scholar.

In a forthcoming article, Cristie Ford of the University of British Columbia Peter A. Allard School of Law, proposes an alternative regulatory system that centers the needs of real people over industry players to address the existing disconnect between the regulatory system and the public.

The problem with the current regulatory system lies in its managerialist roots, Ford argues. Managerialism is an approach to government that prioritizes expert knowledge over all else, including public input. Crucially, by ignoring public input, managerialist regulation excludes ordinary people and how regulation affects them, Ford explains.

She points to the notice-and-comment rulemaking process as a prime example of how managerialist regulation favors the elite and expert knowledge.

Notice-and-comment rulemaking requires that agencies provide an opportunity for public comment before implementing a new rule. But Ford submits that the solicitation of public input in this process is not meaningful.

Ford explains that the inaccessible, technical language used in this process prevents most of the public from commenting. And even if the average person could comment, Ford claims that the system prefers industry actor input and prioritizes institutions and organizations—that have the resources to understand and offer comments—over the public.

The aftermath of the GameStop meme stock phenomenon further demonstrates the disjunction between the regulatory system and real people, Ford notes.

The U.S. Securities and Exchange Commission (SEC) responded to technical issues related to the gamification of trading by requiring increased disclosure obligations for broker-dealers, but only after amateur investors suffered losses.

And, according to Ford, the SEC failed to provide a complete response that addressed the losses incurred by amateur investors.

Ford submits that the SEC overlooked the meme stock phenomenon’s broader implications about the status quo, including rising economic inequality. In doing so, the SEC ignored the political sentiment motivating the amateur investors to invest in masses in GameStop stock, Ford claims.

Agencies such as the SEC should understand the meme stock phenomenon as a symptom that the regulatory system is unwell, Ford stresses.

Instead, however, regulators currently measure regulatory access by outcomes that are irrelevant to the ordinary person, according to Ford. The system, she claims, is not responsive to the average person’s needs.

In turn, Ford proposes a complete overhaul of the U.S. regulatory system.

Ford explains the basis of this shift: In this new system, regulators should craft regulations for  the “non-elite public.” Ford suggests that regulators focus on individuals and their daily lives to design a new system that is accountable to the public.

Specifically, Ford encourages regulators to center the “most vulnerable or marginalized” people in this new process because a system that is accessible to the most vulnerable is accessible to all, she contends. Ford suggests that a system that includes and collaborates with the public is equipped to address “complex social issues in ways that genuinely put actual humans and their needs at its core.”

Ford points to truth and reconciliation commissions as a model for what the regulatory system could achieve. Truth and reconciliation commissions address widespread harm following internal conflict, such as violence between the government of a state and its people.

South Africa’s Truth and Reconciliation Commission, for example, was created to aid society after many years of government-sponsored racial segregation. This commission investigated human rights abuses and gave members of the public the opportunity to voice their experiences.

Ford concedes that these commissions are not perfect, but may have a meaningful impact.

Ford proposes that these commissions comport with the idea of regulation as focusing on the needs of real people and the harm that afflicts them.  Such a commission would function to restore trust between the people and regulators, and allow regulators to hear marginalized voices that are otherwise ignored under the current managerialist regime.

Other scholars agree that the regulatory system needs to center the public rather than elite institutions and organizations, but they suggest different solutions.

Some scholars argue that reform should accept the current managerialist state and instead focus on making the current system more accessible to normal people, such as by introducing a public representative throughout the regulatory process.

But Ford argues that this reform does not disrupt the managerialist framework, which at its core perpetuates inequity within the regulatory system.

Ford insists that regulators must root out managerialism to make true progress.

Looking ahead, Ford supports a shift from the managerialist regulatory system to one that is built on collaboration with regular Americans in the hope that such a change would mend regulators’ relationship with the people.