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Sunday, 28 February 2010

The Politics of Global Regulation (A Review)

The debate around global regulation has reached something of crescendo in the last year or so. While the financial crisis again demonstrated the integrated nature of the global economic system and the nations’ dependency on global players to coordinate meaningful action, the outcome of the Copenhagen summit showed the difficulty of delivering global outcomes that are favourable to all. It is therefore timely and welcome that Mattli and Woods have undertaken to edit The Politics of Global Regulation.

The editors bring together a range of experts to discuss the political nature of global regulation, centred on a conceptual framework that analyses how changes in global regulation occur and what drives them. The basic thrust of the framework is that global regulation is an outworking of global supply and demand forces for regulation. How these forces interact to reach equilibrium determines on whether the regulatory shift from the status quo benefits vested interests or achieves a wider public purpose.

The supply side is largely determined by the institutional context within which global regulation takes place. Where the institutions are more open, accessible and accountable, the system is less prone to regulatory capture. In contrast, where rules are far less open, transparent, or accountable we are likely to see more capture. However, open institutions on their own won’t deliver profound change. There must be significant and sustained demand for change, principally led by outside interest groups. The challenge is to understand how demand for regulation is generated and what is likely to lead to sustained change. Three factors are identified as critical in incentivising and enabling pro-change players to effect change: availability of information on the deficiencies and biases of the status quo e.g. disasters with the potential to act as “demonstration effects” that pushes outside players to react and seek change; presence of a viable common interest players that are able to reduce coordination costs especially where such costs are likely to be prohibitive; and, the ability of groups to forge new ideas that would persuade other players to support regulatory change.

With these ideas established the rest of the book effectively uses a wide variety of case studies to demonstrate how the framework helps fits with real world experience. The case studies are particularly helpful in illustrating how the framework differs from well established approach to global regulation e.g. the “realist view” that approaches regulation as principally driven by the dominant power.

Although the book is generally well researched, it could have benefited from additional refinements. In terms of substance, there’s an underlying presumption that outside driven change is always positive, which has led to minimal discussion of the “desirability of change” or discussions of where regulatory change can lead to worse outcomes. For example, corporate social responsibility (CSR), which has grown into a strong movement, is treated as largely positive. This contrasts with the experience of many other nations where CSR is creating perverse incentives, with many multinational firms using it as informal bribe to locals to prevent them from demanding reasonable taxes. It’s therefore not obvious that regulation of any kind pushed by outside groups would necessarily lead to superior outcomes. In many cases it might be undesirable. What is crucial is to understand what leads to positive or desirable outcomes, rather than merely any change. In terms of presentation, whilst the varieties of case studies presented are helpful in bringing the ideas to life, the discussion is often repetitive with little extension beyond the foundational framework. This has meant that where areas can be developed these are not fully discussed.

However, taken together the book represents a great contribution to understanding global regulation. Indeed, although written primarily from a global perspective the reflections will also benefit those interested in national regulation issues.

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