Given the recognition by the book’s contributors that the United States has by far the richest experience with regulation, the book’s heavy reliance on British contributors proves even more unwise in practice than in theory. Familiar issues are treated with little regard for American experience. Another serious problem is the dominance of lawyers among the contributors. Neither is an irreparable defect; non-American lawyers can have knowledge of economics and the American experience. However, the book is dominated by failures of such expertise.
At a minimum, the dominance of British lawyers produces a disgraceful deficiency in literature review. In particular, the attention given to devastating criticisms of regulation from the Chicago school and many others is perfunctory. Almost no attention is given to the obvious question of what, if anything, needs to be regulated. Too many efforts are made at vacuous general principles for evaluating and improving regulation. All of the contributors ignore the fact that the drawbacks of regulation are inherent and immune to meaningful reform. The chapters, including several of those purportedly devoted to specific issues, are largely devoted to inane, failed efforts to develop overriding principles of regulation. The excessively limited space devoted to experience in specific realms is too narrow and in most cases ineptly executed.
The book also suffers from a timing problem. The contents apparently were set by early 2009. Thus, much attention is given the prospects that reaction to the 2008 financial crisis might revive government interventionism, but the disastrous actual responses occurred after the book went to the publisher.
Overview chapters | As is standard, the anthology begins and ends with chapters by co-editors Robert Baldwin, Martin Cave, and Martin Lodge, all of the London School of Economics and Political Science, where they teach law, economics, and political science, respectively. More unusually, the description of the chapters comes in the end chapter of the book; placing that information in the introduction, as is customary, would have helped the reader grasp the essence of the book.
The co-editors’ brief introduction is the first of four introductory chapters. It is followed by an uncharacteristically effective survey of the economics of regulation by London-based attorney Centro Veljanovski. That chapter is then followed by an embarrassing effort by Hull University law professor Mike Feintuck, who argues that non-market issues should be addressed as part of regulation. The bulk of Feintuck’s chapter is devoted to recognition that this argument has never been presented in a coherent, practically implementable fashion; unfortunately he fails to consider why this is so. Feintuck manages tacitly to kill his case by his choice of examples of relevant concerns: the precautionary principle and diversity in media. The objections are myriad. First, the only way to make either operational is by valuing options. Second, in neither theory nor practice does intervention on these grounds make sense. His unrealism is particularly clear with media diversity, where government-financed broadcasting is notoriously left-wing and Obama administration efforts to regulate media were blatantly designed to stifle dissent.
The introductory section ends with a lame effort by Karen Yeung, another British law professor, to make sense of the concept of the regulatory state. She tries to conflate the term for the regulatory part of intervention into a supposed new dominant form of action. She does not help her effort by proffering a definition of the welfare state so encompassing as to apply to only a few countries. Adding to the chapter’s broader flaws, Yeung tells us that the Roosevelt administration ended in 1948.
The attention given to devastating criticisms of regulation from the Chicago school and many others is perfunctory.
Strategy chapters | Part II starts with an unimpressive effort of Veljanovski to discuss what information is available to regulators and the regulated. The next three chapters are excessively overlapping discussions of approaches to regulation. The first, by Dublin University’s Colin Scott, distinguishes between regulations that set a desired outcome and those that mandate how the goal is to be achieved. Then Neil Gunningham, an Australian specialist in health and safety regulation, dashes through a discussion of whether to punish or persuade the regulated, two prior efforts to design systems of adaptive regulation, and then the possibility of setting goals and delegating compliance to a private body. Gary Coglianese, a professor of law and political science at the University of Pennsylvania, and Evan Mendelson, a Washington, D.C. lawyer, explore the distinction between regulation delegated by government and that voluntarily adopted. The problems of each are explored.
Oddly, none of the chapters mentions emissions taxation or tradable pollution rights. Equally curiously, the first two are unwisely devoted exclusively to the sub-area of the regulation of ordinary business practices such as product design and professional ethics. As Coglianese and Mendelson implicitly show by their stress on conventional environmental problems, the concentration on lesser issues was unnecessary. Nowhere in this rendition is there recognition of Daniel Spulber’s excellent 1989 book Regulation and Markets’ treatment of “internalities,” i.e., activities, such as these Handbook chapters cover, that only affect direct participants. Thus, his and other devastating criticisms of government involvement and skepticism over regulation by the industry are ignored and the discussion is fatally flawed. Readers are simply told the best ways to regulate, illustrated by problems that mostly should not be regulated.
The final effort in this section is New York Law School professor Tanina Rostain’s review of self-regulation by the U.S. legal profession. While she is clearly aware that the effort greatly increased barriers to entry into law, zero attention is given to the Chicago school’s critiques of licensure, from Milton Friedman’s general critique in Capitalism and Freedom, to the many studies of specific industries.
Issues chapters | Part III deals with another set of issues. Six chapters attempt to provide alternative, unrealistic views of the design and appraisal of regulation. The section starts with Syracuse University environmental law professor David Driesen’s inept discussion of the use of taxes and tradable emissions, curiously labeled as “alternatives to regulation.” City University of London economist Jon Stern covers evaluating regulatory performance. Co-editor Baldwin treats the search for better regulation. Claudio Radaelli, a political science professor at the University of Exeter, and Fabrizio de Francesco, a research fellow at Exeter, then treat regulatory impact statements as a special approach to evaluation. Julia Black, a law professor at the London School, reviews risk assessment. Black reaches the unsurprising conclusion that concentrating on risks is inferior to a full economic evaluation of the benefits as well as the drawbacks. Again, the basic analytic formulation is mushy and the literature review stresses the obscure over the germane. Co-editor Lodge and Lindsay Stirton, lecturer in law at the University of Sheffield, treat accountability. Antonio Estache, an economics professor at Université Libre de Bruxelles, and Liam Wren-Lewis, an economics doctoral student at Oxford, cover regulation of “network industries” in developing countries. Mathias Koenig-Archibugi, a political scientist at the London School, treats global issues.
Driesen manages to botch completely the simple subject of market-based environmental controls. Among his faults are continued gratuitous condescending comments about what he calls the “neoliberal” (i.e., libertarian) position. In discussing alternatives, he suggests that often the controls give flexibility. As an example, he cites the United States’ use of new-source performance standards that can be met in whatever way the regulated firm determines is best. This ignores the analytic point that stressing new sources already distorts choice toward preserving old plants and the factual point that the 1977 amendments to the U.S. Clean Air Act added both the requirement to use best-available control technology and (ultimately) ineffectual provisions to favor “local” coal (to keep western coal from displacing Illinois-basin coal). However, what puts him beyond the pale is his assertion that nothing in economic theory allows not regulating pollution. In writing this, he ignores Ronald Coase’s 1960 warning in “The Problem of Social Costs” that action is justified only if (1) the costs of regulation as well as compliance are less than the benefits, and (2) the imperfect implementation characteristic of government actually is better than private response.
The six chapters in this section, and another at the end of Part IV dealing with evaluating and improving regulation, manage to treat different aspects of the problem. The basic issue of the barriers to efficient regulation is treated by co-editor Lodge and Christopher Hood in Part IV. They set up and slay the straw men that regulatory review is new and that, in the United Kingdom, fresh initiation and privatization facilitate better implementation. They trace the criticism that the latter argument has received. The Stern chapter dispassionately discusses the formal structure of regulatory assessments, with stress on the World Bank guide of which he was a co-author. Black careens through an appraisal of what such reviews should accomplish. Radaelli and de Francesco rush through discussion of the goals of appraisal, the problems of attaining them, and a short review of surveys of implementation.
Baldwin’s effort is another embarrassment. The problems start with another unsatisfactory effort to suggest broadening the goals. He seems to believe that “better” is synonymous with “more complex,” so that simplification conflicts with improvement. A British effort to provide improvements is made central to the discussion, as if the U.S. literature did not exist. Lodge and Stirton provide more superficiality by treating the privatization-driven British case as archetypical.
Estache and Wren-Lewis roam too tersely over many issues. The title of their chapter, “On the Theory and Evidence on Regulation of Network Industries in Developing Countries,” is misleading because the points apply to all regulation and the literature review is nearly nonexistent. Basically, the chapter takes too seriously half-baked theoretic ideas about how to work around the inherent inefficiency of such countries. Koenig-Archibugi similarly roams aimlessly through the information interchange, world-trade competition, and coordination aspects of international relations.
Domains chapters | The rest of Part IV is similarly disappointing in the choice of topics and implementation. Niamh Moloney, a London School law professor, leads off with a superficial treatment of financial regulation that deals weakly only with conceptual issues. This is startling given the cries of inadequate practice prevailing at the time of publication. Janice Hauge and David Sappington, American economists, cover too briefly pricing in “network” industries (actually, just electricity and telecommunication). Curiously, no attention is given marginal-cost pricing, and the cell phone revolution is ignored. (To make matters worse, the endnote for a comment that telecommunications competition has increased cites as a cause the widely reviled Telecommunications Act of 1996.) The chapter also manages to speak approvingly of using policy to redistribute income, provide universal service, and electricity demand management.
Lawyer Peter Alexiadis and co-editor Cave then cover similar ground and make the same mistakes of exaggerating the extent of monopoly and approving tinkering with universal service and similar goals. Two researchers at the Max Plank Institute, Jürgen Feick and Raymund Werle, careen through the Internet. The ill-developed message conveyed is that private management has worked well and the calls for intervention come from governments that dislike openness. Adrian Towse, a British health regulator, and Patricia Danzon, a U.S. professor of health care, turn to regulation of pharmaceuticals. The treatment is fine as far as it goes; the standard criticism of the delays in U.S. regulatory approval is treated cursorily.
The next chapter, by geographers Catherine Mitchell and Bridget Woodman of Exeter University, is another drop in the endless stream of bad energy prognoses. Indeed, the authors may be worse than most because they reject price-based incentives. They start unwisely by embracing the goal of “sustainability,” defined as encompassing climate change and amorphous other goals such as poverty alleviation. They develop the argument that even a properly designed emission cap or tax will not efficiently secure sustainability. They drag in the concepts of Brian Arthur and Paul David that bad past decisions lock in inefficient technological choices. In the process, Mitchell and Woodman manage an error that is all too typical of this book. Recognition of the devastating criticism of lock-in by Stan Liebowitz and Stephen E. Margolis is limited to an endnote claiming Liebowitz and Margolis’ debunking of the claim that the QWERTY keyboard was not inferior to the Dvorak keyboard only showed a smaller inferiority of QWERTY. (See “Debunking Path Dependence,” Summer 2000.) The remainder of the chapter muddles through recognition of the deficiencies of regulation to the hope that good technological guidance would be provided.
Final notes | A bizarre, but apparently not unique, quirk of the book is that UK spelling practice is imposed so vigorously that often spelling is inexcusably changed in citations (e.g., the several journals with “Organization” in their name are rendered “Organisation”; try googling that and all you’ll get are referrals to other writings with similarly altered spellings.)
This combination of repetitious material, much unsatisfactory development, and the general neglect of the inherent drawbacks of regulation make this a book for readers to avoid.
