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2. The Regulation of Network Infrastructures

2.2. The Reform of Regulation

2.2.1. Regulation as a Form of Governance

The transformation of infrastructure regulation has widely been associated with the emergence of the ‘regulatory state’. As discussed in the introduction, this notion has produced rather ambiguous reactions as the literature has produced different interpretations of the term regulation and the process of regulatory reform. Nevertheless, following a prominent position regulation has become an important element of governance of capitalist economies (Loughlin and Scott 1997; Majone 1994b; Majone 1997; McGowan and Wallace 1996). However, the authors point to the fact that with the new regulatory approach also new problems emerged. Table 2.1 examines the correspondence between failures of the old system of public monopoly and problems associated with the new regulatory framework in which independent agencies play a prominent role.

That regulation can be regarded as an alternative form of governance for complex societies and economies was exemplified by Schneider (2002: 252-262). He emphasizes the role of institutional structures that govern and coordinate transactions and production

51 Today, as all governments are in the process of reforming their infrastructure sectors, new concepts emerge on the agenda of policy-makers. Thereby, the classic regulatory reform approach seems to be replaced by the concept of ‘regulatory quality management’. The latter differs from the reform concept in that the process of reform is regarded as dynamic in nature rather than episodic. Regulation and its reform are thus both perceived as an integral role of government that has to be pursued on a permanent basis in order to ensure effective and efficient governance (OECD 2002: 16).

activities: distinct governance structures ensure the functioning of these sectors, and thus their economic viability, through the control of their internal and external processes. For his analysis of the transformation of governance structures in the information and communications sector, Schneider uses a framework that differentiates between coordination based on markets or hierarchies and on control based on private or public ownership. As an example he uses the evolution of the telecommunications sector from public monopolies (Europe) and regulated private monopolies (United States) to a regulated liberalized market with private ownership.

Table 2.1 Regulatory Failure

Type of Failure Public Ownership New Regulatory Approach

Competition Public monopoly Anti-competitive regulation

Efficiency Overstaffing of public enterprises Overcapitalization of industry (Averch-Johnson effect)

politicians and trade unions Capture of NRAs by regulated firms Control and

An alternative to the interpretation above was given by Braithwaite (2000). For him the regulatory situation of the nineteenth century is characterized by the fact that ‘steering’

as well as ‘rowing’ were taken care of by the civil society (Table 2.2).52 This changed after

52 The concepts of ‘steering’ and ‘rowing’ are borrowed from Osborne and Gabler (1992). The former refers to such activities as leading, thinking, directing and guiding, while ‘rowing’ refers to enterprise and service provision.

World War II, when the state took over responsibility for both activities: the state became entrepreneur and regulator at the same time. A new division of responsibilities was introduced in the 1980s: while the state became responsible for steering, civil society took care of enterprise and service provision. However, steering in the regulatory state is not confined to pure economic goals. With the new regulatory approach of rule-making and standard-setting, the state may choose to pursue a variety of economic and social goals.

This opens the possibility that the government makes sector-specific choices and flexibly acts either as “market enforcer, social planner, night watchman or any combination of the three” (Jordana and Levi-Faur 2004a: 11).

Table 2.2 Transformation of Governance

The Night Watchman state

(19th century)

The postwar state (1945-1970s)

The regulatory state (1980s -?)

Steering Civil society State State

Rowing Civil society State Civil Society

Source: adapted from Braithwaite (2000: 223-227)

Nevertheless, the applicability of the term ‘regulatory state’ is subject to certain constraints. First and foremost, it is likely that there exist several different types or varieties of the regulatory state. This is mainly due to the impact of specific traditions and institutions which vary from country to country (Hall and Soskice 2001; Lodge 2002: 177).

Second, in some sectors regulatory reform has advanced quicker than in others (cf. Bartle 2002). While reform has progressed very rapidly in telecommunications, it has been much slower in, for example, water supply. In addition, the governance of capitalist economies does not imply just one form of control. Rather, in heavily regulated sectors several different forms of control often coexist (Pagoulatos 1999). A final concern in this context is the level-of-analysis problem. For some authors, the regulatory state is a global

phenomenon (Vogel 1996), while for others it is merely an aspect of regional integration (Majone 1994b; Majone 1996) or a matter at the national level (Müller 2002).

Based on the influence of neo-liberal ideas, at the outset regulatory reform was predicted to result in significant deregulation, state retreat and the triumph of markets over state intervention. We could question, however, that this development has indeed taken place. First, regulation has always existed in the past, albeit in different forms. What we have actually witnessed is the formulation of new rules and regulations supposed to ensure competition and efficiency in liberalized markets (Ayres and Braithwaite 1992: 7-12). This development is inherent in the term ‘reregulation’. Second, even if we assume the emergence of some kind of regulatory state, we are still left with the problem of cross-country diversity. The regulatory state hypothesis and several other contributions posit the similarity of national reform outcomes. Although we can assume a fundamental redefinition of state functions in all major economies of the Western hemisphere, this does not necessarily imply convergence or similarity. Instead, it seems to be more appropriate to speak of new forms of the regulatory state, made visible, for instance, through new regulatory regimes.