Rules, Principles and Regulators
By Tom Shoop | Friday, April 25, 2008 | 02:15 PM
By Tom Shoop | Friday, April 25, 2008 | 02:15 PM
James Surowiecki has an interesting piece in the New Yorker this week on the difference between "rules-based" and "principles-based" approaches to regulation. (It includes a terrific analogy: American football is rules-based, while soccer is principles-based.)
Along the way, Surowiecki makes a sobering argument about the federal government's recent performance in the regulatory arena:
In recent years, regulatory failures have occurred less because of bad rules than because of bad regulators. This is partly because Congress, following the Bush Administration’s lead, has underfunded regulatory agencies. The Consumer Products Safety Commission, for instance, has the authority to regulate toys from China but is hard pressed to do so, having only half as many employees as it had in 1980. To make things worse, many regulators have been captured by the industries they’re regulating, or are hostile to the regulations they’re responsible for enforcing. The recently publicized maintenance problems at Southwest Airlines were discovered years ago, but supervisors discouraged inspectors from cracking down. Federal bank regulators had the power to discover and curb the fraud and deception that helped fuel the subprime boom, but they were apparently oblivious. In all these cases, the rules were fine—it was the regulators that were the problem.
(On a side note, the vaunted New Yorker fact-checking operation isn't what it once was, apparently. The correct name of the agency referenced above is the Consumer Product Safety Commission.)
Comments
The major issue is politics, especially in a principle based approach. The companies being regulated complain to Congress. The regulators are often in a no-win situation. Congress is concerned about getting donations and lobbyist money. The regulators will get calls from Congress after complaints from companies being regulated.
It is well past time to stop Congress from supporting businesses over the American people.
Jason | Wednesday, April 30, 2008 | 12:23 PMI wouldn't consider the soccer "principles based" approach to be what it's cracked up to be. Reality is, while soccer has a set of Laws of the Game, there are no rules -- only the unchallengable opinion of the ref of the day. Get a good one and you have a good match. Get a bad one and things go down hill in a hurry. Calls differ from one to the next. In a rules based game, everyone plays to the same set of rules, not changed on the whim of the ref (or political appointee of the day).
bmj | Monday, April 28, 2008 | 11:49 PMAs a former regulator, I have long believed that politicians pander to constituents with regulations and to their corporate supporters by underfunding regulatory operations. That way they please everyone.
Ted Bean | Monday, April 28, 2008 | 09:16 AMThe principles-based approach is indeed intriguing and worth exploring. But Surowiecki is stretching to attribute much of the recent regulatory failure to underfunding. While CPSC may have been the victim of slow starvation tactics, that is decidedly not the case with other regulators. In particular, the financial oversight agencies -- the FIRREA's and their cousins -- are flush with resources, largely from assessments and fees collected from the industries they oversee. And the FAA is a top-heavy, highly paid bunch (complaints about the core comp system notwithstanding).
Surowiecki is closer to the mark in his point about industry capture. There's always the risk of "going native" in these kinds of interactions, but when the entities you're supposed to be regulating are paying the bills that risk is multiplied exponentially. Financial regulators, the FDA, and numerous other oversight agencies across government are now in this precarious position. It's all well and good to entertain big new ideas like principles-based regulation. But reformers would do well to remember the old adage, "He who pays the bills, calls the shots" -- and to take a hard look at how we've abdicated public responsibility for funding these regulatory agencies.
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Government Executive Editor Tom Shoop takes a look at news and events affecting the federal bureaucracy, from the perspective of a longtime observer of government.
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