'Learning from Regulatory Disasters' by Julia Black in (2014) 10(3) Policy Quarterly 3-11 comments
Regulatory disasters are catastrophic events or series of events which have significantly harmful impacts on the life, health or financial wellbeing of individuals or the environment. They are caused, at least in part, by failures in, or unforeseen consequences of, the design and /or operation of the regulatory system put in place to prevent those harmful effects from occurring. Regulatory disasters are horrendous for those affected by them. Because of that we have an obligation to learn as much from them as we can, notwithstanding all the well-known challenges related to policy and organisational learning. The article focuses on five distinct and unrelated regulatory disasters which, although they occurred in apparently unrelated domains or countries, contain insights for all regulators as the regulatory regimes share a common set of elements which through their differential configuration and interaction create the unique dynamics of that regime. In the regulatory disasters analysed here, these manifest themselves as six contributory causes, operating alone or together: the incentives on individuals or groups; the organisational dynamics of regulators, regulated operators and the complexity of the regulatory system in which they are situated; weaknesses, ambiguities and contradictions in the regulatory strategies adopted; misunderstandings of the problem and the potential solutions; problems with communication about the conduct expected, or conflicting messages; and trust and accountability structures.
In 2010 an explosion in the Pike River mine in New Zealand killed twenty nine people and, on the other side of the world, a blowout at the Macondo oil well killed eleven people and caused major environmental damage as four million barrels of oil spilled into the Gulf of Mexico. In 2005 a cloud of petrol vapour from the Buncefield tank storage depot in the south of England exploded over two major motorways early on a Sunday morning, which if it had happened at any other time could have caused significant loss of life. In 2008 the Royal Bank of Scotland (RBS), one of the UK’s largest banks, was rescued from collapse by a government bail-out of £46bn, a contributor to and casualty of the global financial crisis. In the mid-late 1990s to early 2000s poor building practices led to significant losses for homeowners in New Zealand caused by leaky buildings. Estimates of the losses range to as high as NZ$11.3bn.
These disastrous events from opposite sides of the globe seem to be disparate. Some are systemic failures across an industry, others are single events; some are low probability, high impact events, others high probability and low impact if measured as the impact per individual affected at a single point in time, but high impact if assessed on an aggregate basis across a number of individuals and a period of time. What they have in common is that they are all regulatory disasters: a catastrophic event or series of events which have significantly harmful impacts on the life, health or financial wellbeing of individuals or the environment, caused, at least in part, by a failure in the design and /or operation of the regulatory regime put in place to prevent their occurrence.
Regulatory disasters can be a particular form of policy disaster. Policy disasters have been defined as the disastrous unintended consequences which occur as the direct consequence of poor intentional choices by top political decision-makers. Regulatory disasters may also be seen as a particularly acute form of a policy blunder. King and Crewe, for example, define a ‘policy blunder’ as: an episode in which a government adopts a particular course of action in order to achieve one or more objectives, and as a result largely or wholly of its own mistakes, either fails completely to achieve those objectives or does achieve them but at a totally disproportionate cost, or else does achieve them but contrives at the same time to cause a significant amount of ‘collateral damage’ in the form of unintended or undesired consequences.
However, the scale of their consequences means that ‘regulatory disasters’ are more than just ‘policy blunders’. They include disasters caused by ‘judgement calls’ as well as poor design and implementation and, as used here, ‘regulatory disasters’ deliberately excludes ‘political disasters’ – those which are disasters for the reputation or continued existence in power for the politicians or regulators involved. Many of the regulatory disasters highlighted here are also political disasters, but a policy which is purely or mainly a disaster in political terms is not included. Regulatory disasters are also distinct from policy disasters in that they occur in a particular sub-field of public policy, and indeed need not be confined to the state at all: they result from the unintended and unforeseen consequences of the design and / or operation of a regulatory system and its interactions with other systems. As such they can arises from poor decisions by politicians in the design of the regulatory regime and / or political influences on its operation, and / or poor decisions and practices by regulatory officials themselves within a system that may be either well or poorly designed. Regulation, or regulatory governance, is the organised attempt to manage risks or behaviour in order to achieve a publicly stated objective or set of objectives; a regulatory system consists of the (sometimes shifting) set of interrelated actors who are engaged in such attempts and their interactions with one another and the dynamic institutional and organisational environment in which they sit. Thus regulatory disasters also differ from public service delivery disasters, as they do not involve the delivery of services to the public directly organised by a government department, agency or authority; or that are provided on behalf of, financed and regulated by government, unless those disasters arise at least in part from failures in the design and / or operation of the regulatory system to which that public service, such as a hospital, is subject.
Regulatory disasters are horrendous for those affected by them. Because of that, we have an obligation to learn as much from them as we can, notwithstanding all the well-known challenges related to policy and organisational learning. For regulators, probing the reasons for the disaster, even if it occurred in another country, or in a different regulatory domain, can provide insights for the evaluation of their own systems. They can also provide useful leverage for persuading political overseers of the need for change. Regulatory systems can have a significant number of ‘latent’ failures which only become apparent on the occurrence of a particular major event, such as an explosion or financial collapse, or through the recognition of an accumulation of a number of smaller events, such as individual deaths, smaller scale pollution events or individual financial losses. These are the disasters ‘which are waiting to happen’. Other disasters were not foreseen, but neither may they have been reasonably foreseeable, or involve ‘black swan’ events – what had been seen as low probability albeit high impact events. Nonetheless, the inquiries that often follow a disaster, even if it is a ’black swan’ event, often reveal systemic problems within the regime which have hence far gone unnoticed by regulators, or unheeded by key policy actors.
Analysing the causes and nature of regulatory disasters also enables us to understand more about the nature of regulation itself. Although regulatory disasters often occur in apparently unrelated domains or countries, they can in fact contain lessons for all regulators, as regulatory regimes share a common set of elements which through their differential configuration and interaction create the unique dynamics of that regime. In the regulatory disasters analysed here, these manifest themselves as six contributory causes, operating alone or together:
• The incentives on individuals or groups;
• The organisational dynamics of regulators, regulated operators and the complexity of the regulatory system;
• Weaknesses, ambiguities and contradictions in the regulatory strategies adopted;
• Misunderstandings of the problem and the potential solutions;
• Problems with communication about the conduct expected or conflicting messages;
• Trust and accountability structures.
The article focuses on five distinct and unrelated regulatory disasters: the construction of ‘leaky buildings’ in New Zealand in the late 1990s-2000s, the explosion at the Buncefield chemical plant in the UK in 2005, the events leading up to the bail out of the Royal Bank of Scotland in the UK in 2008, the Macondo oil well blow out at the Deepwater Horizon oil rig in the Gulf of Mexico in 2010, and Pike River mining tragedy in New Zealand, also in 2010. These are chosen because they are uncontroversial examples of regulatory disasters – significantly adverse impacts on human health, financial position or the environment which arose from the design and operation of a regulatory regime intended to manage the very risks which materialised. They also have the advantage that each was subject to extensive investigation by an independent body established specifically to inquire into the causes of the disaster, thus providing a wealth of factual information. Whilst there are always inherent biases in any investigation, those which followed each of these disasters have not been significantly criticised as biased or ‘captured’ by any particular interest.