The Business Ethics Blog

I’m currently attending a workshop on Regulatory Design, hosted by Duke University’s Kenan Institute for Ethics.

As a philosopher, I’m often at pains to remind people of the distinction between ethics and law. But there’s also no denying that there are important interrelationships between ethics, on one hand, hand law (and the regulations pursuant to various laws) on the other. When done well, regulations are shaped by good ethical reasoning, aimed at promoting the public good while at the same time respecting individual and collective rights. And it’s very likely that ethical standards are, in turn, influenced by existing legal/regulatory standards.

Regulation of course attracts a lot of attention — arguably a lot more than ethics does — both from industry and from critics, as well as from all points on the political spectrum. It’s a frustrating topic for just about everyone. Just about everyone can name regulations or regulatory agencies that they think are dumb or ineffectual or too powerful or not powerful enough.

The problem — and the reason that makes knee-jerk criticism of particular regulations or regulators perilous — is that regulation is in fact incredibly difficult. Here are just a handful of complicating factors that have arisen during our workshop discussions, so far this morning:

• People generally don’t like to be regulated. That means that people (and the organizations they populate) tend to push back when you try to regulate them.
• Regulated industries have the capacity to push back, not just by means of political contributions and advertising campaigns, but also by means of court challenges that can be costly and time-consuming for regulators. This means that the regulatory process must very often be a process of negotiation.
• Good regulations should be based on evidence, but that poses problems when what you’re trying to regulate is a danger that is very large in scope or severity but that is either unprecedented or that cannot be measured in advance.
• Regulatory agencies face challenges in attracting and retaining smart people. This is true for two reasons. First, it’s hard for public-sector organizations to compete with the private sector in terms of salaries. Secondly, in order to take seriously the idea of a career at a regulatory agency, young people need to have the sense that they are going to be able to make a difference, which is not always the case.
• Perceptions of new regulatory efforts, even when those efforts originate with experts within regulatory agencies, can be coloured by perceptions of the government of the day. Those who are critical of the government of the day are likely to be skeptical of regulatory efforts that come about during that government’s reign, regardless of whether it is actually driven by the government’s policy platform or not.
• Effective regulation requires detailed understanding of the thing being regulated. Very often that means that regulators must rely upon those being regulated as a key source of information. The conflict of interest there is clear.
• There are genuine and sincerely-held ideological differences about the desirability of regulation, both regulation in general and particular kinds of regulation. Crudely, effective regulation means finding the right balance between the beliefs of the tree hugger and the beliefs of the free-market ideologue.
• There is a fundamental strategic challenge involved in designing regulatory frameworks. In the abstract, one option is for the legislature to pass highly specific legislation that puts in place detailed regulations governing the minutiae of, for example, the operation of some industry. This can result in concrete results very quickly, but it can limit the ability of regulatory agencies to adapt to changing circumstances and to new technologies. The other option is to pass very broad legislation that merely sets rough objectives and empowers regulators to figure out how to achieve those objectives. This approach has the advantage of flexibility, but also puts a lot of power into the hands of unelected bureaucrats.
• Nothing is free. All regulation involves trade-offs. Tighter environmental regulations can cost jobs. Gathering the data needed for effective consumer protection regulations can have implications for consumer privacy. Win-wins are few, and certainly not automatic.
• Regulation is part of a political process. Regulators are part of the executive branch of government, and the executive branch relies upon the cooperation of the legislature (both to pass the relevant legislation and to provide regulators with funding). And even if we are optimistic about the dedication of our legislators to the public good, we have to remember that the key goal of politicians is to get and keep power. That inevitably has an impact on the way they facilitate, or frustrate, efforts at passing and enforcing regulations.

So, think about your favourite regulatory issue. Now re-read the list above. If you can think through each of those problems and solve them, well, after that getting the right regulation should be easy.

(Thanks to Duke’s Edward Balleisen for the invitation to attend this workshop.)