5 key considerations: how to go about deregulation successfully

The path to successful deregulation is not an easy one, and there are a number of key considerations for both government and business in the process, explains UNSW Business School's Pamela Hanrahan

Deregulation involves a couple of different ideas. So the first one going back to the 1970s and 1980s, was where the government got out of the business of prescribing who could provide goods and services in the economy and the prices and terms of which they dealt with customers. They said “No, we'll leave that to the discipline of the market. So we'll open up different sectors to competition, we'll let the market set the price. And we'll let the market discipline the providers in that space.”

So instead of prescribing, for example, what interest rate your bank can charge you on your home loan, which they used to do in Australia, they now say, “Well, we'll make sure that the market for home loans is open, transparent and efficient. And so they regulate things like the information that you get when you take out a home loan.

The second type that when government talks about deregulation, they're often thinking about, “Do we have rules that are overinclusive or too stringent?” So they look at the scope of rules, and they look at the stringency of rules.

Sometimes, if they're well advised, they also look at the design of rules. So they think about whether we need to have something that tells a business how to go about a particular process, or whether it just says to business, “You can design the process yourself, we just need you to arrive at this outcome.”

And what the government's trying to achieve in that deregulation is to say, “We'll leave it to business to find the cheapest and most effective way to achieve the outcome that we need to protect the public interest.”

[Also] beloved by governments: red tape production. So we do know, particularly because Australia is a federation, anybody who runs a business or indeed anybody who applies to the government for social security support or tries to deal with the tax system. We know that governments often have rules that aren't administered very efficiently, or they'll have multiple rules.

So you have to give the same piece of information to different government departments, and all of that takes time and money away from conducting your business. So governments routinely have these exercises where they say “We're going to cut red tape” and they love it. So they pick a particular sector of the economy and they say, “Can we streamline the rules around that? Can we get rid of things that people don't need anymore?”

Often particular industries will lobby government. And they tend to say things like, “These regulations get in the way of job creation or economic wealth.” And that's the piece of deregulation that tends to be the most complex politically, because what industry is trying to do there is to get the government to wind back protections that presumably are there to benefit other considerations in the community like sustainability and fairness.

We saw in Australia after the Banking Royal Commission, for example, that the financial regulators were really criticised for not being diligent enough in checking what financial institutions were doing [and] weren't stringent enough in enforcing the law. So they've ramped up their efforts and they've become more interventionist in their monitoring of people in that sector.

And sometimes when people talk about deregulation, they say, well, “Maybe we need a more light touch engagement with regulators. You know, we don't want to waste a whole lot of time having to explain ourselves to regulators or having them come in and look over our shoulder every minute to make sure that we're complying with the law.”

So sometimes there's an element of that discussion in talking about deregulation as well.

Pamela Hanrahan is a Professor of Commercial Law and Regulation and Deputy Head of School (Research) in the School of Taxation and Business Law at UNSW Business School. For more information please read the article or listen to the full podcast on Deregulation: the road to recovery for business and government.


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