Thursday, 1 May 2014

How to get regulated

Last night I was the speaker at the latest Law and Economics Association seminar in Auckland with a presentation entitled, somewhat tongue in cheek, "How to get yourself regulated", or, implicitly, the Seven Things you should not do if you a major incumbent in an industry and want to avoid the whole nine yards of heavyhanded sectoral regulation. They are:

  1. Over-encourage the government to take an active role in the strategic direction of your sector (everyday government-to-business interactions are OK)
  2. Have a headstrong chair or chief executive with a "my way or the highway" approach to the industry
  3. Take a short-sighted view of the company's financial interests (where I quoted a speech I once heard Milton Friedman give, "The suicidal impulse of the business community"), ignore the potential for longer-term regulatory backlash, and in particular go over the grey line between high profitability and profiteering
  4. Take an overly legalistic, die-in-a ditch, see-you-in-the-Supreme-Court approach to disputes and issues, and buttress it with inflexible legal and economic advisers
  5. Destroy your credibility by taking inconsistent positions before different regulators in different jurisdictions
  6. Annoy influential politicians, in particular at Select Committees, and if you're still not regulated after all of that, then...
  7. Do something especially outrageous to tip the scale, where I gave the example of a recent and particularly gross case of mobile roaming charges, and the European Union's regulatory response to similar overcharging in the EU

Unfortunately we have had too many companies and industries that have fallen into at least one - usually several, and sometimes all - of these heffalump traps, with the result that we now have several regimes of very complex, very expensive, very intrusive regulation. It still amazes me that a country that has generally opted to take the lighter-handed regulatory route, and if pressed would prefer to go with some of the more modern forms of less clunky incentive regulation ("CPI minus X" and the like), has nonetheless ended up with old-style price controls of the "WACC on a regulated asset base" variety and other complex regulatory schemes like the telco "final pricing principle" cost models. For that, the regulated companies must themselves take a fair share of the responsibility: if they hadn't steadily worked their way through the Seven Easy Pieces above, they wouldn't be in the regulatory dogbox today.

Thanks to everyone who came along and contributed to a lively Q&A session, and thanks, too, to Gary Hughes of Wilson Harle who did the intro and wrapup, and especially to James Craig and the rest of the team at Simpson Grierson, who generously hosted the evening.


  1. is your full text going to be made available at some stage please? regards

  2. Hadn't planned to, the presentation was largely based on pictures (eg a Select Committee meeting, or a humorous illustration of a short-sighted dog wearing glasses), and I've only got skeletal aide-mémoire speaking notes at this stage, but at some point if there's interest I could write it up properly


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