Deregulation: the road to recovery for business and government

If deregulation is to aid Australia's economic recovery then businesses must work with the government to effect real change in society, according to UNSW Business School's Pamela Hanrahan

There is now a strong emphasis on business leading the post-coronavirus recovery. Recently, speaking on the government's plans to reset economic growth, Prime Minister Scott Morrison said: "We must enable our businesses to earn our way out of this crisis". The Australian economy should be taken "out of ICU" by "focusing on the things that can make our businesses go faster", he added. 

Since the start of the coronavirus crisis, the government has been planning to ensure an adequate economic recovery coming out at the other end, according to Pamela Hanrahan, Professor of Commercial Law and Regulation at UNSW Business School. 

What is the role of deregulation in the path to economic recovery?

In April, the government identified five priorities areas for attention to after the crisis. "A few of those we know include industrial relations reform, tax reform, infrastructure, skills and education to make sure the workforce is ready for the future. But the fifth one of those was identified as deregulation," said Professor Hanrahan.

"A few of those we know include industrial relations, reform, tax reform, infrastructure, skills and education to make sure the workforce is ready for the future. But the fifth one of those was identified as deregulation," said Professor Hanrahan. 

So deregulation will play a vital role in paving Australia's road to recovery. But this begs the question: isn't the government always announcing some new war on red tape?  

"Every Australian government since the Fraser government has had some initiative which said: business regulation is out of control, it's damaging innovation, it's impacting productivity, it's making the Australian economy less efficient and less competitive," said Professor Hanrahan. 

But deregulation, in the context of the post-coronavirus recovery, means the government and businesses must learn together to ensure success (this time around) and take this opportunity to effect real positive change in society. 

"I'm hopeful... because there's urgency. We've already, in the last six weeks, had at least 80 pieces of federal regulation changed or relaxed in response to the crisis and so far the sky hasn't fallen in," said Professor Hanrahan. 

"That gives government confidence that it can be courageous about cutting some of this stuff back and it can do it with urgency; it doesn't need to take three years of consultation," she added.  

What is deregulation and why is it so tricky for governments? 

What makes undoing rules such a popular, and difficult, initiative for governments? "Deregulation is always, you know, an easy slogan, I'm tempted to say for government, but achieving it is really difficult," said Professor Hanrahan.

If the aim of well-designed regulation is for governments to ensure the most efficient way to protect a particular public interest, then deregulation aims to remove inefficient and unnecessary rules that are hindering its effectiveness. 

But the complexity involved in getting this right is also the reason why deregulation is so important and necessary, according to Professor Hanrahan, who cited the sheer complexity of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry as a perfect example of this.  

However, deregulation also often comes at a price. "Every regulatory regime involves a trade-off. So, every time you put in approval or a process or control, it costs money and time for business to meet that requirement," explained Professor Hanrahan.

"In a perfect world, we wouldn't have a single regulatory rule that wasn't there to protect some public interest," she added.  

So deregulation is, in essence, a balancing act for government, to make sure that they keep the regulation where it's needed for the public interest, working as efficiently as it possibly can – which can be challenging to achieve. 

"This is the real role of political leadership: politicians need to understand what interest they're protecting and why it is that they might want to on occasions resist... strong lobbying from a particular industry sector to remove those protections," added Professor Hanrahan. 

What role do businesses play in deregulation? 

To achieve deregulation successfully, the government must trust that businesses have good intentions and are wholly transparent when lobbying for change. Unfortunately, this doesn't always happen.  

"Sometimes a business or a business lobby will come to government and say: 'Oh, can you remove this rule, this is just a piece of red tape reduction… and politicians occasionally will be persuaded by that." 

So the government might make the change and then discover the business wasn't being transparent, for example, if a financial institution has thought more about what the impact may be on its shareholders and on its customers of getting rid of that sort of rule, explained Professor Hanrahan. 

So if business genuinely wants to achieve deregulation, which will be critical in the post-coronavirus recovery period, then they're going to have to engage with government differently and work together to achieve this. 

Aside from the extent to which politicians can trust business, Professor Hanrahan said the "hollowing out of expertise in the public service" has also had a substantial adverse impact and is an area that is desperately lacking. 

Another thing that makes it difficult (which Professor Hanrahan acknowledged is not the government's fault) is that there need to be agreements about what level of risk people are prepared to accept as a society.  

"The community needs to be sure about what it's prepared to accept in terms of risk, and then once we've got that discussion sorted out... we can bring the two parts together: that's the role of government to work out." 

So the role of government is to find that middle ground, but all sides of the debate – business, consumers and government – have to be engaged. 

Steps the government and business can take to ensure positive change

There are two key things that the government and its various consultative bodies, along with business, can do to ensure deregulation is a success. First, they must not underestimate the importance of technical knowledge around regulatory design, according to Professor Hanrahan. 

"That partly goes back to what I was saying before about not having that expertise, maybe to the same extent inside the public service," she said. Rectifying this will require more attention to the various "nuts and bolts of how to change regulation" and not just which laws need to change. 

The second step is for the government to better perform its intermediary role between business and consumers. The government's intermediary role must incorporate a better understanding of why a company sometimes might want or need more rules relaxed, while consumers might want those rules strengthened. 

“Say you have a compliance department in a big supermarket chain or a big bank; they don't necessarily want to lose on investments by making it easier for smaller startup companies to occupy their space. Therefore, deregulation might not help them in that scenario. So sometimes they say they want rules relaxed, but they don't,” explained Professor Hanrahan. 

“On the other side of that, sometimes we assume that consumers want more protection than they do,” she continued. So knowing whether society needs some rules more than others is tricky, but wholly essential in the move to the post-coronavirus recovery. 

"Hopefully, the awful experience that we've been through and that we're going through as a society and as an economy at the moment will encourage government, business and consumer groups to think about, you know, let's invest in this regulatory infrastructure and let's see what we can do to make it better," concluded Professor Hanrahan. 

For more information please contact UNSW Business Schools' Pamela Hanrahan, Professor of Commercial Law and Regulation.