The Tao Te Ching is an ancient classic of Chinese Daoism whose authorship is conventionally attributed to a certain Lao Tzu. It contains advice on how to be a Sage, a person with sagacity. Significant sections are clearly directed at leaders in governance.
‘No battle plan survives contact with the enemy’ was a sentiment expressed by Field Marshall von Moltke (the Elder), who knew a thing or two
Prof. John Muellbauer has recently shown that the regulatory wedge in the UK between house prices and the construction cost of new homes is currently at the highest level of the period covered by his data, and the highest in the G7.
As set out in To ‘see’, or not to ‘see’: that is the question. Moving on from a half-brained system of economic governance – (rpiresearchgroup.org), the half-brained governance thesis (“H-BGT”) is suggestive of a wide range of relevancies to areas of public policy where development thinking seems to be struggling. One such is the question of whether regulatory and competition policy decisions by designated agencies should be subject to review on their merits, as administrative decisions, not just on their conformity with acceptable procedures.
To ‘see’, or not to ‘see’: that is the question. Moving on from a half-brained system of economic governance
Why do similar mistakes appear to be repeated over and over again in the conduct of economic policy? Why does there appear to be so little error-learning/learning-from-experience in this domain of human activity? Why does knowledge and the application of knowledge in these matters appear not to progress cumulatively in the manner of the physical sciences?
In this major Essay in Regulation, Harold Hutchinson and George Yarrow seek to outline some answers, building on insights from brain science. The first picture in the Essay, from the clinical work of Dr Iain McGilchrist, suffices to signal a ‘now for something completely different’ moment.
Net migration flows (about the regulation of which members of the RPI have been writing since 2017) are again a hot topic in political debate. In this latest blog, the Insights team briefly sketches out a potential, alternative way of looking at the issues: a different ‘gestalt’, based on a tradeable right to residency, which does not need to rely heavily on enforcement by coerced deportations (difficult in practice) or creating ‘hostile social environments’. Rather, it simultaneously seeks to make unlawful immigration more financially expensive and emigration of residents more financially rewarding, in each case relative to the status quo. Even in a bare bones form, it could give government three immediate ‘control variables’: the total number of rights available, the level of financial penalty for unlawful immigration, and the level of the bid-ask spread in the purchase or sale of the relevant right.
We have written before about the need for effortful and holistic thinking in the context of global decarbonisation, and about the perils of disconnecting local actions from global outcomes by retreat into a ‘net-zero in one country’ mindset. In this RPI Insights blog we highlight the dangers of partial thinking associated with indulgence of the false prophet of universal technology solution(s), blindness to potential ‘concentration risk’ and the resulting creation of systemic vulnerabilities, inadequate thinking around the physical resilience of energy infrastructure in the face of a changing climate, and reluctance to acknowledge either the regional realpolitik of the energy transition or the implicit policy tensions, uncertainties, and trade-offs around how it unfolds.
In a recent blog, the Insight Team highlighted the dangers of poorly constructed policies in terms of the increased distractions imposed on managers at the expense of a focus on business investment and innovation. In this follow-up, we consider recent financial market turbulence as another example of policy gone wrong. We argue that help in assessing and learning from it might lie in an appreciation of both history and the present – from the work of Adam Smith to recent developments in modern neuroscience, in particular the insights of Iain McGilchrist.
Policy debates about the burden of regulation have tended to focus on estimates of administrative costs imposed upon firms and have tended to rely on an assumption that simply eliminating some of the regulations (“cutting red tape”) will lead to significant reductions in the costs imposed. Here, the Insights Team take a different perspective, recalling both RPI empirical research on these issues for the UK Cabinet Office nearly 20 years ago and the earlier “Penrose Effect”, named after Professor Edith Penrose. They argue that much more substantive effects arise from poorly considered and conducted changes in regulations in consequence of their increased calls on limited senior management bandwidth available for addressing the challenges involved in investing, innovating and expanding a business.
The first Insights blog of the new year continues to emphasise a central theme of earlier pieces: the dangers of taking an overly narrow view of policy challenges, whether that be the result of failure to recognise wider, salient features of a broader context, or of taking unduly narrow view of target outcomes in policy responses to the challenges. The same theme is to be found in earlier RPI critiques of ‘pixelation’ in regulatory assessment, grounded in an analogy with perceptions of a digital picture which are drawn to a relatively small bloc of pixels and focus disproportionately on it, to the neglect of all else. The blog contains a striking quotation from Keynes, who was ever unpixelated.
November’s pre-conference Insights blog is concerned with the meaning of the word ‘market’. The term appears often in economic and political discourse, usually accompanied by some other word: there are references to ‘free markets’, or to ‘oligopolistic markets’, or to ‘market failure’. But what is the nature of this thing that is ‘free’, or ‘oligopolistic’, or has ‘failed’, in the latter case usually claimed in the context of some call for a deus ex machina, in the form of a regulatory intervention, to ‘fix’ the problems.
Routine and its limitations’ completes a short cycle of three blogs with a common, thematic root: dysfunctions in the division of labour within governmental systems. The focus in this case is on a temporal pattern that can be observed in the evolution of some regulatory agencies or systems. It adopts Daniel Kahneman’s metaphor of System 1 and System 2 thinking, but uses it to characterise institutional and organisational, rather than individual, thinking.
The latest Insights blog is concerned with narrowness of vision in economic policy/regulation and the distraction that is a contributory cause of it. It is motivated by the question: how might better institutional design counteract distraction? Features of Monasteries, Plato’s Academy and Roman Watchtowers are cited as examples of ancient institutional innovations from which insights might be gleaned.
The second in the new Insights into Regulation series of short blogs addresses the causes and effects of a highly dysfunctional ‘division of labour’ in government, with a focus on misdirection and distraction in the application of effort The title is taken from Hamlet’s soliloquy (“To be, or not to be …) and the notion of the insolence of officialdom was, at a later time, a repeated trope in the major works of Adam Smith.
In a new series of short blogs under the thematic title ‘Insights into Regulation’, members of the Regulatory Policy Institute Research Group will highlight a particular insight, idea or perspective that is salient to some or other aspect of
Given the observed limitations of quantitative emissions reduction agreements, we explore the role of complementary science and technology approaches based on sharing of knowledge and know-how in mitigating relevant externalities.
The Zeeman Lecture at the September 2021 Conference on ‘Rethinking Regulation’ was delivered by Ed Humpherson -Director General for Regulation, UK Statistics Authority. This is a transcript of that lecture.
A couple of years ago, back when it was possible to travel freely without worrying about masks, infections and tests, I was on a train journey south from Edinburgh.
As is the way with long train journeys in the UK, there was some horrendous disruption; and as is also the way, this disruption broke the invisible veil that holds British people back from talking to one another, and lots of conversations started – proceeding from the usual starting point of “bloody typical” to broader chats – where are you going, what do you do?
In this short paper, Gerard Fox and George Yarrow argue that, in the context of climate change policies, the nature and significance of any potentially problematic economic externalities are functions of strategic policy choices: that is, they vary according to the particular policy strategy chosen. The traditionally identified externality – that the benefits of carbon abatement efforts by any one country are mostly enjoyed by other countries – comes from strategies that are conceptualised in terms of determining quantities (of carbon emissions or abatement), an approach to economic policy that was adopted in Soviet-style central planning. By leading to external effects that then call for difficult-to-achieve correction, in effect the quantitative planning system establishes self-created obstacles to attaining that which is desired. Science and technology policy approaches based on sharing of knowledge and know- how are shown to have very different implications for the nature and significance of any associated externalities. The development of the Oxford/AstraZeneca Covid vaccine is given as an example of the possible, alternative, strategic approaches.
A Commentary on the Opening Chapters of ‘An Inquiry into the Nature and Causes of the Wealth of Nations’
Adam Smith’s Wealth of Nations (“WoN”) is a foundational book in the social sciences and one of the classic works of human civilization, but like many classics it is rarely read. Its influence has been profound, but that influence has come largely via the work of Smith’s
successors who, in their own writings, have frequently cherry picked the text in ways that have
served their own, particular purposes in a range of different, later contexts. In consequence many of Smith’s own points have been lost or distorted…
The UK Competition and Markets Authority in 2016 calculated a detriment of £1.4 billion–£2 billion in Great Britain’s retail energy market, attributed to weak customer response. The government in 2019 imposed a tariff cap until competition is effective. Stephen Littlechild argues that the cap was a mistake: there was no such detriment and there are valid reasons for customers not changing supplier. The market was not previously uncompetitive and inefficient as suggested. The cap has rendered the sector loss-making and led to supplier exit. The assessments of effective competition by the Office of Gas and Electricity Markets have been arbitrary and implausible. Some alternative ways ahead are noted, but latest government policy invokes behavioural economics to propose even greater intervention. A postscript discusses dramatic latest developments.
This research project is focused on how well suited are regulatory models in adapting to dynamic change, a more interventionist state or exogenous shocks like covid or the financial crisis. Can the regulatory environment accommodate strategic policy initiative like decarbonisation, promotion of technological innovation or activist industrial policy without its function being impaired? This leads to questions concerning the nature of the regulator’s institutional ecology and will demonstrate the potential for truly effective reform. It would also provide an understanding of their organisational capacity to achieve its key objectives.
Should we establish ex ante economic regulation of ‘digital platforms’, with or without ‘enhanced’ competition law – and what form should any regulatory structures take? This question is a pressing priority for policymakers and competition authorities in many jurisdictions, including the UK and across the EU. We can all see the extent to which services offered by digital platforms (large and small, generalised and highly specialised) now mediate most distanced interactions between people and/or organisations, whether it is economic, in civil society or in our private lives.
The aim of this work is to foster contributions to the policy debate concerning the economic regulation of digital platforms. The anticipated focus is on economic regulation specifically, meaning ex ante rules designed to rectify market failures or abuses rather than, for example, regulation of online content or political speech). However, it may be that some areas of research necessarily involve ‘cross-over’ questions between economic and non-economic regulatory issues.
The relationship between public and private healthcare has been a subject of regulatory scrutiny. Some aspects of private healthcare provision, including hospital providers and consultants, were the subject of a market investigation reference in the UK by the now Competition and Markets Authority (2012-2014). The outbreak of COVID-19 has raised further questions about sustainability and put these issues back on the regulatory reform agenda. It is important to take into account key aspects, including consumer choice, financial viability, quality, the role of insurance companies and interactions with the NHS. This paper outlines a proposed in-depth study which would review the current market and regulatory climate for the provision of healthcare in the UK, with a focus on the relationship between the public and private sectors. The aim is to sensitivity test potential future funding models that would tackle the range of issues, many of which have been given added imperative by the effect of the outbreak of COVID-19 on NHS waiting lists.
The changing role of independent economic regulators in decision-making for major infrastructure projects in the UK
How decisions are, or should be, taken for major infrastructure projects is a recurring area of policy debate. Longstanding differences exist between those who see a prominent role for government in directing, and potentially funding, large-scale infrastructure projects, and those who advocate that government involvement should be limited to ensuring that an appropriate policy and regulatory framework is in place to facilitate such investments by the market where necessary.
The purpose of this document is to seek support for, and encourage participation in, the future research programme of the Regulatory Policy Institute in the UK, in co-operation with its sister network, the Regulatory Policy Institute of Australia and New Zealand (RPI ANZ).
The Role of Regulation & Policy in facilitating the optimal lowest cost integration of Variable Renewable Energy
Variable Renewable Energy (VRE) from wind and solar is frequently cited as the solution to UK Electricity decarbonisation. Technology learning curves suggest that, depending on location, wind and solar, which accounted for ~8% of global electricity generation in 2019, are currently, or projected to become, the “cheapest” source of new generation in most countries by 2030.
The Energy Transition represents an unprecedented challenge for Policy Makers. The speed and magnitude of emissions abatement demanded by the 2008 Climate Change Act, whose 4th & 5th carbon budgets are currently off course, combined with the subsequent increased ambition signalled by the UK 2050 Net-zero commitment made in 2019, along with the recent course-correcting commitment to target a 68% fall in emissions by 2030 vs. the 1990 baseline, requires the rapid promotion and diffusion of clean energy innovation with action extending to the hard-to-abate sectors dominated by buildings, industry and transport.
Back in the 1990s and the early years of the 21st century the UK government developed a relatively sophisticated handbook to guide the evaluation of
The Paper challenges the common supposition that (scarcity) rents at Heathrow airport accrue from airlines charging efficient clearing prices and instead suggests that because of oligopolistic practices, much of the rent at Heathrow is quasi-monopoly rent. It also suggests remedies that could be implemented in the short term before more runway capacity is added and that if Heathrow airlines matched the average load-factors of those at London’s other major airport, Gatwick, average fares might be as much as 5 per cent lower.
Investing in utility networks with less reliance on markets and more uncertainty: How do we deliver security and efficiency
Delivered as part of ‘Investing in utility networks with less reliance on markets and more uncertainty: how do we deliver security and efficiency?’, Hertford Seminar in Regulation 2019