Montrose Journal Summer 04
RISK, REGULATION AND AFFLUENCE -
CHRISTOPHER HASKINS, FORMER HEAD OF BETTER REGULATION TASK FORCE
Affluent societies are much
more heavily regulated than poorer ones, which suggests that a
regulated society is also a successful one. Regulations have been
needed to make markets fair and competitive, to promote public health
and safety, and to protect citizens from abuse and exploitation.
Regulation has also been the most effective way of protecting the
environment.
So far, so good. But regulations can also be
criticised for being too bureaucratic, inflexible, disproportionate and
inconsistent in their application. Although regulation has contributed
to making our lives much safer than before, people don't appear to feel
any safer. Indeed they have become more risk averse and ask for more
protection: both of which are unrealistic because of cost,
effectiveness and appropriateness. The expense of fool-proof rail
systems may push fares up so high as to drive people back to the roads,
an effect that would be much more dangerous and environmentally
damaging. Regulation will not be effective in dealing with the diet
crisis. And it is wrong to seek to guarantee patients protection from
risks taken on their behalf by doctors.
The obsession with
risk-aversion has encouraged ministers, mistakenly, to introduce
ineffective and inappropriate regulation. A Dangerous Dogs Act, hastily
passed in the light of a small number of unpleasant incidents, had to
be repealed because it was inoperable. An attempt to outlaw the sale of
beef on the bone was abandoned because the public ridiculed it. (The
poll tax was abandoned for the same reason). A drowning tragedy
affecting children in Torbay, which culminated in the person in charge
being convicted, nevertheless led to restrictive regulation which
substantially reduced the scale of character forming "Outward Bound"
adventure activities for young people. And in response to some serious
corporate misbehaviour, accountants established a range of
bureaucratic, disproportionate risk assessment procedures, named after
their creator, Nigel Turnbull. The great corporate villains would have
little difficulty in satisfying the demands of Turnbull, but the
culture of risk-aversion is particularly dangerous in business where
risk taking is fundamental to success and progress.
The Daily
Mail, one of Britain's most successful if notorious newspapers, has
exploited middle class paranoia and risk-aversion to great effect. Its
readers appear to have an inferiority complex about foreigners and
Europeans in particular, so the Daily Mail feeds them far fetched
suggestions of threats from Brussels and the migrants needed to
maintain economic growth. Paradoxically, Mail readers are said to be
threatened by too much regulation from the EU, whilst at the same time
demanding much greater protection from the grossly exaggerated menace
of migration.
Failures in policy, health and social services are
followed by hysterical demands from the tabloids for scapegoats and
tighter regulation, when in fact evidence most likely suggests that
such failures are rarer and fewer than they were before. As a
consequence doctors and social workers, who must take risks if they are
to perform effectively, are afraid to do so for fear of retribution.
Life saving, but risky operations are less likely to be carried out,
and children in disturbed homes may be taken into care by local
authorities, in case of an incident, when it may be much less risky to
leave the children with their families.
American and now British
lawyers have been quick to exploit consumer anxiety and desire for
retribution, by encouraging them to seek compensation through the
courts for real or imagined failures in public service delivery.
According
to the National Audit Office as of the end of March 2003, for example,
the total amount in compensation that the NHS was expecting to pay out
over a number of years to settle currently known or anticipated claims
for clinical negligence stood at £5.89 billion, amounting to more than
12% of total health expenditure for that year. The radio programme,
Classic FM, whose audience is predominantly the well-to-do middle
class, runs advertisements from lawyers offering the listeners "no win,
no fee" services if they feel they have a complaint against anyone. The
middle classes do their children no favours by driving them to school
rather than allowing them to walk or cycle, for fear of traffic and
paedophiles. The melee of school run traffic is much more dangerous and
children must be exposed to risk if they are to cope with life.
Single
interest pressure groups also play an active and not necessarily
constructive part in influencing people about risk. Serious failures in
the past - such as BSE - have rightly raised public concerns about the
safety of their food. And yet, despite the scandals, our food has never
been safer. Many pressure groups, with justified concern about the
environmental implication of GM crops, were quite happy to exploit the
Daily Mail's completely baseless charge about "frankenstein foods",
suggesting that the real threat was food safety, rather than the
environmental charge. Unfortunately Mail readers seem disinterested in
the substantial risks arising from greenhouse emissions and climate
change, because it is their own lifestyle which is the source of the
problem. It is much easier to blame someone else if there is a risk in
food, even though the main source of food illness is self inflicted by
people being careless in the way they prepare, store and cook in their
own homes.
One crucial aspect to our attitude towards risk is
that when we feel in control of events we accept much higher levels of
risk than when we are not. We seem to be much more sanguine about the
substantial risk involved when driving our cars than when we are
sitting in a far more secure railway carriage. We assess what might be
a health factor related to mobile phones but continue to employ them
because they are so useful. By contrast, we avoid GM foods because the
insignificant risk involved does not offer us any apparent benefit. And
we tolerate massive self-inflicted damage to ourselves from smoking and
eating too much, but expect risk-free successful treatment from the NHS.
Nonetheless,
although there are serious economic and psychological consequences of
over regulation driven by risk-aversion, those who press for
deregulation are also at fault. They fail to recognise that without
regulation the environment would be in even greater difficulties than
it is, employees would be severely exploited by unscrupulous employers
and shoppers similarly disadvantaged by rapacious marketeers.
Drink-drive and safety belt regulations have saved many lives.
And
I am not convinced of the argument that over-regulation severely
undermines British competitiveness. The Organisation for Economic
Co-operation and Development (OECD) has pointed out that Britain is its
least regulated member, yet remains down the productivity and
competitive league. Surprisingly, the United States, which is
considered very competitive, is a much more enthusiastic regulator of
financial and consumer markets. When the Confederation of British
Industry (CBI) suggests that regulations undermine our competitiveness,
it should be reminded that the main reason for Britain's relatively
poor productivity is that its own members have failed to invest
sufficiently in science, technology and people over a long period.
The
Better Regulation Task Force applies the following five principles as a
basis for good regulation: transparency; proportionality;
accountability; consistency; and targeting. Transparency is in order to
provide people with information and evidence which may enable them to
manage problems without recourse to regulation, and to trust the people
to be able to resolve most risk issues for themselves: they are more
sensible than politicians and editors assume and if regulation is
necessary it will only be effective if those being regulated understand
and accept the need for action. Proportionality is necessary as a
regulation must always be proportionate. That may include, for example,
having to make tough economic assessments of the risks and benefits of
proposals to make our trains safer. Regulation should never be
introduced as a knee-jerk reaction to events.
Accountability
is essential in ensuring effective regulation. Most regulation failures
arise because accountability is complex, blurred and confusing.
Consistency is fundamental if regulation is to be implemented
effectively across Britain and the European Union. Targeting vulnerable
groups most at risk - the poor, the young and the old - is crucial to
protect those most in need rather than the majority of citizens well
able to look after themselves.
Despite some justified concerns
about shortcomings in self regulation related to doctors and
accountants, I believe that self regulation can be much more effective
than state regulation. The advantages of self regulation are that the
protection of professional integrity and competence is a great
motivator, the expertise is there, and self regulation can respond more
speedily and more flexibly to events than the state. I would like to
see farmers and communities apply self regulation in order to protect
their reputation and strengthen social solidarity. Branded companies
feel obliged to self regulate, because the economic consequences of
failing to do so can be catastrophic - the Nestle and Coca Cola fiascos
in the bottled water market are just one such example.
Small
businesses argue with some justification that they lose out to larger
competitors because of regulation. The latter create internal
regulatory bureaucracies which the smaller companies could not afford.
It is, therefore, essential that when regulation is being proposed the
opinion of smaller rather than larger companies should be sought. I
have seen many situations where large businesses call for regulation in
order to give them advantage over their smaller competitors.
But
unfortunately people are much more likely to be put at risk because of
regulatory failure in small rather than large businesses. Most food
safety problems arise in smaller businesses that often lack the
expertise, knowledge and investment to meet the necessary standards of
hygiene. Because of this regulators tend to focus their attention on
smaller businesses.
Regulation can also be applied more
intelligently. Most businesses and citizens want to comply with the
law, but often fail to do so because they do not understand their
obligations. Much more emphasis must be put on helping people to
understand their obligations and to comply with them rather than
punishing them for failing to comply after the event. The Food Standard
Agency which offers independent and frank advice on risks in the food
chain has been remarkably successful in reducing risk without
necessarily resorting to regulation, by giving people the evidence and
encouraging them to manage the situation for themselves.
 Source: GlobeSpan Incorporated
However,
although I believe that much can be done to regulate more sensibly and
more effectively, I remain convinced that the more affluent we become
the more regulation we demand. There is another long term reason for
this. Until the middle of the nineteenth century families had to manage
for themselves most of the risks of life, supported by the communities
in which they lived. Since then, as Martin Woolf, the Financial Times
columnist, has pointed out, the family has been progressively
"nationalised". Much of this process has been laudable and effective.
The state has provided families with safe water, health, education and
other public services on an increasing scale. Most people would accept
that the state, rather than the family, should be responsible for
eliminating poverty and unnecessary risk.
But maybe this process
has gone too far, as the state also has to intervene extensively
because of the alarming increase in family breakdowns. Given this
responsibility the state resorts to regulation as its most effective
instrument. Stable families, like responsible businesses can ignore
much state regulation because they are already achieving the outcomes
pursued by the regulations. But as family failures escalate, so it
seems must state regulation as an inadequate alternative to family self
regulation and risk management.
And finally different groups in
society and different countries have contradictory perceptions of
regulation and risk. The middle-classes who have never been healthier
or safer, want more and more regulation and assurance. The poor,
disillusioned, without expectation, and living much more dangerously,
have little time for regulation. The British are naturally averse to
regulation: the Germans rely on regulation to get them through the day.
In
whatever context, regulation is a fact of life. We should manage it and
recognise that perception and effectiveness vary. Above all we should
be wary of pursuing the elimination of risk when responsible
risk-taking is the basis of economic, scientific and social
achievement.
Lord Haskins of Skidby chaired
the Better Regulation Task Force, and is a former Chairman of Northern
Foods. He is now the British Government's Rural Recovery Co-ordinator.
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