The Regulatory Thunderdome

Dr Eric Crampton
16 March, 2020

We might look abroad to see how a similar rule to that proposed by Simon Bridges to slash regulations has panned out, and not in completely mad places either – or at least not in the world’s more obvious madhouses.

In 2001, the Liberal Party of British Columbia, Canada, was elected into office on the promise of regulatory reform. The Premier appointed a Minister of State Responsible for Deregulation whose mandate was to cut provincial red tape by a third.

The minister began by counting the number of regulatory requirements across myriad pieces of legislation and regulation.

A single regulation can include many different regulatory requirements, of varying cost: the Workers Compensation Act alone included over 35,000 regulatory requirements. The total count across all ministries was a staggering 382,139.

On seeing the tally, the Liberal government required every new regulatory requirement to include the elimination of two existing ones. The move was clever. Simply requiring the abolition of an existing regulation for every new regulation could too easily result in new regulations with many regulatory requirements being matched with abolishing those with fewer.

After the government reduced the number of regulatory requirements by the promised third in 2004, it shifted to cap the number of regulatory requirements. Each new requirement led to the abolition of one old requirement rather than two. A new Regulatory Reform Office checked whether new proposals were compliant with this rule, along with a checklist of additional requirements similar to New Zealand’s too-often-ignored Regulatory Impact Statements.

The policy proved so successful that, in 2015, Canada’s central government adopted a similar framework. The Red Tape Reduction Act passed by a margin of 245 votes to 1.
So, the National Party has not pulled its Regulatory Thunderdome out of thin air or old movies. It has adopted a respectable working example not from the American wild west but from the part of Canada more typically described as the “Left Coast.”

Unfortunately, there isn’t much rigorous academic evaluation work on the framework’s effects in Canada aside from an excellent series of reports by the Canadian Federation of Independent Business’ Laura Jones, including a case study on British Columbia’s experience for the OECD, a 2015 report for George Mason University’s Mercatus Center and Federal testimony before a US House Subcommittee.

The reports show which British Columbian ministries saw the largest reductions in the number of regulatory requirements.

They note the province shifted from having some of the weakest economic performance in the country to a stronger economic growth than the rest of the country.

And they suggest these reforms have not come at obvious cost to social or environmental outcomes. The provincial government established a progress board to benchmark British Columbia against other provinces over the decade following the change in regulatory policy. The final report, in 2011, showed the province still in the top rankings in environmental quality and health outcomes. Unfortunately, the same report showed the province had slid a little relative to other provinces’ economic performance.

Simon Bridges’ Regulatory Thunderdome is not some crazy scheme based on Trumpian economics. It follows two decades of experience in Canada. And it is the consequence of a large and important failure in regulatory governance here at home.

If New Zealand’s regulatory processes worked well, there would be no need for the Thunderdome. Under the process as it is supposed to work, every regulation is accompanied by a Regulatory Impact Statement. The RIS lays out the logic of the regulatory intervention, defining the problem the regulation is meant to solve, showing it to be real and substantial and demonstrating the benefits of the regulation exceed the cost.

But in practice, Regulatory Impact Statements are weak. Under the diminished Treasury under former Secretary Gabriel Makhlouf, other ministries came to expect that Treasury simply did not have enough competent economists around to vet the RIS. Treasury had to run triage. When ministries stop fearing Treasury oversight and are egged on by ministers under political pressure, bad regulations can too easily make it though – like costly scaffolding rules with no serious cost-benefit assessment. And while provisions for post-implementation reviews of regulation exist, there are not taken them seriously.

One way to deal with the problem would be rolling reviews of regulations to ensure they continue to be fit for purpose and the benefits continue to exceed their costs. But good luck to the minister seeking to ensure the bureaus take that process seriously.

Canada’s alternative effectively builds rolling reviews into the process for new regulations. If a ministry wishes for a new regulatory requirement, it must find one to remove as well. The process of choosing which to abolish is a form of regulatory review that, if handled properly, winnows out the worst rules from the existing set.

New Zealand needs a process to identify and do away with outdated regulations – and which might never have been all that great to begin with. Simon Bridges’ Regulatory Thunderdome might just do the trick.

Stay in the loop: Subscribe to updates