DUBLIN: 2 June 2013 - The global financial crisis (GFC) which struck in 2008, the reverberations of which are still being felt,  is attributed  to part technical and cognitive weaknesses amongst both regulators and market actors,  but also excessive deference to banks by both politicians and regulators. Identification of the regulatory causes of the GFC offer the irony that ‘the rise of the regulatory state’ was supposed to boost expert decision making in governmental oversight of market actors and to insulate decision making from political interests. Contemporary pressures to demonstrate and account for the performance of regulators, public and private, can be viewed as a contribution to enhancing the technical achievements of regulation. 

I argue here that emergent institutions and processes of performance evaluation also have potential to contribute to a new form of democratic governance, but that such developments are not without their challenges.

In light of the GFC and other regulatory failures it is, perhaps, unsurprising that new accountability initiatives place less emphasis on traditional procedural accountability and are seeking seek to engage more with  performance evaluation as this better addresses claims to technical expertise of regulators. It offers the potential to evaluate regulators on their own terms. Recent OECD analyses have found few proper indicators in play in regulatory governance generally, but that demands for performance evaluation are increasingly prominent not least from national governments concerned to know whether agencies are doing a good job or not, supranational government bodies, such as those of the EU,  addressing adverse effects of poor or protective regulation on trade and markets, and consumers wanting reassurance that when they spend more for environmentally friendly or fairly traded products, that they do comply with the values they espouse.

Addressing the problem how should regulators account for performance, government units charged with promoting better regulation, for example in the UK and Australia, are beginning to move beyond assessing the impact of new rules only, to set down performance indicators for working regulatory regimes and to develop new surveillance mechanisms such as regulatory audit. Quasi-contractual arrangements between governments and agencies tend also to include indicators, for example within service level agreements. The OECD’s analysis is very tentative on challenges of performance indicators and evaluation, such as how to select PIs,  how to address the risk of gaming, and how to tell whether outcomes were caused by regulatory activities or other factors?

Whilst the OECD and its advisers continue to puzzle over identifying and monitoring performance indicators for regulation, there are some exemplary private regulation practices to observe. ISEAL, the meta-regulatory body for private sustainability standards, for example, has become increasingly concerned with supporting the credibility of the private labeling regimes it oversees. ISEAL is pursuing this with the development of an Impacts Code which requires establishment of a monitoring and evaluation programme which defines  the intended change and requires establishment of appropriate indicators. This activity is geared to learning and improvement within regulatory regimes.

These trends in public and private regulation towards accounting for performance are not merely about the technical matter of doing a better job of regulation. Rather they can be tied into contemporary trends in democratic thought and practice. John Keane’s seminal book, The Life and Death of Democracy (2009) traces the history of democratic practices and assesses their significance in preventing rule by the few to ensure that ‘the matter of who gets what, when and how should be permanently an open question’. It is good to remind ourselves that nearly all regulatory decision making has political consequences in this sense – affecting interests.

 But representative democracy cannot adequately capture or legitimate contemporary governance trends, including shifts towards supranational and private regulation. Traditional accountability narratives, emphasising parliamentary accountability, judicial review and financial probity struggle to address the challenge. This problem of ‘post-representative democracy’ is  common to public, private and supranational regulation. If we do not accept the merely technical nature of regulation, but increasingly cannot link regulation and its effects on interests to institutions of representative democracy, we have a problem.

Evidence of performance is increasingly important but raises significant challenges

How can we achieve greater transparency in performance and tie that transparency to capacity to use the knowledge for a substantive form of accountability and perhaps also participation?

Keane refers to wide range of trends towards new structures for monitoring and controlling power as ‘monitory democracy’. The innovations date back a considerable period and include, in my argument, regulatory agencies themselves and also supranational bodies. Regulatory agencies create sources of knowledge and authority that are  partially independent of elected government and have capacity to challenge and hold elected governments to account in key areas of decision making sometimes through serial powers (in which either can veto) or sometimes parallel powers (in which either can act without the other). Other institutions of monitory democracy identified by Keane include integrity commissions, judicial activism, workplace tribunals, public interest litigation, think tanks, vigils, blogging, and other media scrutiny. Such mechanism are also found above and below state borders – forums, summits, human rights monitoring, peer review and surveillance (for example by the EU,  OECD, APEC). Others I would add include value for money audit, ombudsman schemes, and so on. Keane suggest these many mechanisms have in common that they make information accessible while enhancing the potential both for enforcement and participation by the publics within regimes.

The suggestion that diverse mechanisms for making available performance information, from and about both public and private regulators, might enhance a form of monitory democracy raises a number of challenges. Which outcomes-based performance indicators would be appropriate for the regulation of financial markets. Who has sufficient attention span and knowledge to be effective monitors and participants? If monitory democracy is a good thing, how much is enough?

In the financial sector we are unlikely to see individual citizens as major figures in performing the monitory role. But, we can better facilitate governments and intergovernmental bodies to better understand and appraise both regulators and market actors, and we might expect market actors such as competitors and investors to be able to use better information to exert a form of oversight over both regulators and market actors. In this way monitory forms of democracy can already be identified and might further supplement more traditional representative forms.