Saturday, March 01, 2008

Saturday Forum: Deregulation, the Spice Girls way

Lindsay Tanner may not realise it, but the Minister for Finance and Deregulation has just appointed a Spice Girls fan as his deregulation advisor.

And even more bizarrely that advisor uses a Spice Girl’s lyric – Tell Me What You Want, What You Really, Really Want – as a metaphor for how he sees the future of regulation and the Australian economy.

He uses it to open the draft of his as yet unpublished book, Reimagining Economic Reform.

In another life Dr Nicholas Gruen would be an academic. He is in fact a visiting fellow at both the Melbourne and Australian National Universities. But his interests have always been broader than that.

He engages in passionate debates on blogs about all manner of economic questions (as a sort of unpaid academic), runs a discount mortgage broking company and works for anyone interested in ideas.

Among his former employers are the 1980’s Labor Industry Minister John Button, the 1990’s Treasurer John Dawkins, the Business Council of Australia, where he was the Assistant Director in charge of its ideas unit and the Productivity Commission where he used to conduct inquiries.

Many of his ideas involve cars, a legacy of working for Senator Button with whom he developed the Button Car Plan.

One of his favourite regulatory war stories - one that the Spice Girl’s lyric helps illustrate – explores why Australia didn’t make the world’s first keyless car...

In the 1970s NRMA mounted a campaign against the ease with which thieves could steal cars. As Dr Gruen says, “just insert coat hanger and drive away”.

The Australian subsidiary of the German firm Bosch had became a world leader in the manufacture of cutting edge technologies such as engine immobilisers and keypads. They supplied them for Falcons in Australia and exported them to Europe for use in luxury cars such as Fiats, Volvos, Porsches and Ferraris.

By then, he says, car keys were pretty much dispensable.

Why didn’t Australia go the next step?

Dr Gruen says it didn’t help that selling a keyless car would have been illegal.

Design Rule 25 required car manufactures to install mechanical door, ignition and steering locks. It even specified the number of tumblers in each lock.

While Gruen was at the Productivity Commission in the 1990s it recommended that the design rule be repealed.

Nothing happed until six years later when the design rule was expanded to require engine immobilisers as well as locks.

Gruen’s point isn’t merely that the regulation was stupid.

It is that regulations will always be stupid for as long as regulators are doing the regulating.

He envisages a different world in which, when faced with such a plainly silly regulation, car manufacturers could say to the authorities, “tell us what you want, what you really, really want.”

The answer would have to be “cars that are difficult to steal”.

Gruen believes that, armed with that answer, the manufacturers should be able to ignore the letter of the regulation and instead fall in behind its intent.

He is proposing deregulation in the most literal sense.

If Lindsay Tanner runs with his ideas, as he is inclined to, it would make Lindsay Tanner Australia’s first Minister for Deregulation in the most literal sense.

As he put it in an interview with the Canberra Times, “The old idea that you just sit around allowing life to go on and then every now and then dip into it and say ‘oh my goodness there’s all this red tape you better do something about it’, and then change a few things here and there and then go back to sleep again, just isn’t good enough.

How would Tanner describe a Gruen world? As one in which the regulatory systems as essentially self-cleansing?

“Yes, essentially that’s right,” the Minister replied.

Australia has embraced the concept of deregulation repeatedly over the last 20 years. Bob Hawke as Prime Minister declared that Australia should have “minimum effective regulation” in the 1980’s and introduced a new regulation to make sure it did.

Proposed new regulations should be accompanied by a Regulatory Impact Statement (RIS) before they were passed into law. In subsequent decades a report presented to the Howard Government by Charlie Bell, then the head of McDonalds in Australia and a report presented by Garry Banks of the Productivity Commission recommended the same thing.

Gruen points out that while these reports were being considered, the Howard Government introduced the GST, whose poorly designed reporting requirements sparked the only red tape revolt in Australian history, and later WorkChoices whose rules infuriated even the businesses they was meant to help.

The WorkChoices RIS read “more like a corporate brochure than a piece of analysis”.

One Tuesday night while announcing Gruen’s appointment to a business audience Tanner promised to make sure that the RIS process really was real and mandatory.

And he promised a “one-in one-out” rule. No Minister in the Rudd government will be able to introduce a new regulation without specifying which old one they would remove.

But to Gruen himself these promises are beside the point.

He retells another of his favourite stories in the forward to a report he prepared for the Victorian government last year.

In 1994 while conducting an inquiry for the Productivity Commission he asked the Federal Office of Road Safety why they wouldn't change Australian Design Rule 61 to allow vehicle manufacturers to cut their costs and improve security by replacing aluminium compliance plates with self-voiding plastic stickers.

It’s response, captured in the transcript of the inquiry’s hearing:

“It’s not that easy. We would have to do a regulatory impact analysis and that takes time and resources we don’t have.”

In Gruen’s ideal world manufactures wouldn’t have to wait for changed regulations or for Regulatory Impact Statements. They could go ahead and do things properly.

He admits that it’s a big ask.

For one thing businesses themselves might not be keen.

As he warned the Victorian government last year: “Businesses’ business is business. Though businesses must comply with regulation, contributing to its improvement has so far proven a long, uncertain and generally unrewarding process. And if it is successful in improving regulation, a business will have done so for all
its competitors.”

He suggested that the Victorians start by exempting from general regulations those firms whose internal systems can demonstrate (and continue to demonstrate) their own commitment to excellence.

Would he eventually like to see all firms exempt form the black letter law of regulations, and required only to abide by their spirit as the Spice Girl’s lyric implicitly suggests?

“That’s one end of a spectrum,” he replies. “I think you’ve got to get somewhere between the two alternatives.”

The weak alternative is to merely let businesses suggest improvements to the wording of regulations. The strong one is to let them ignore the wording of regulations.

“In a sense we have already tried the weak alternative,” he adds. “I would say we have already tried the weaker version and what we now have to do is to try something stronger.”

He likens the idea to what Toyota and other car manufacturers did in Japan. They didn’t merely involve workers in decision making by putting a suggestion box in the corner, they continually asked workers for their ideas about how to do things better and gave them the power to do so, even if it meant stopping the production line and retooling of their own accord.

He describes it as “harmonising aims” rather than regulation. It would do away with the need for much regulation.

The Deregulation Minister Lindsay Tanner is making no commitments – yet – about how far to run with Gruen’s ideas. But he says Gruen is one of the few people in the country who has them.

It might run in the family. 35 years ago as a youthful advisor to Gough Whitlam his late father Fred Gruen ignited a revolution by convincing the new Prime Minister to cut Australian tariffs by 25 per cent across the board.

His son has set his sights about as high.

Lateral Economics, Beyond Taylorism: Regulating for innovation. Some ideas for discussion for the National Innovation Agenda, August 2007