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Regulatory Capitalism Regulatory Capitalism Regulatory Capitalism How it Works, Ideas for Making it Work Better John Braithwaite Australian National University With a Foreword by David Levi-Faur Edward Elgar Cheltenham, UK • Northampton, MA, USA © John Braithwaite, 2008 All rights reserved. No part of this publication may be reproduced, stored in a retrieval system or transmitted in any form or by any means, electronic, mechanical or photocopying, recording, or otherwise without the prior permission of the publisher. Published by Edward Elgar Publishing Limited Glensanda House Montpellier Parade Cheltenham Glos GL50 1UA UK Edward Elgar Publishing, Inc. William Pratt House 9 Dewey Court Northampton Massachusetts 01060 USA A catalogue record for this book is available from the British Library ISBN 978 1 84720 002 0 (cased) Printed and bound in Great Britain by MPG Books Ltd, Bodmin, Cornwall Contents Foreword by David Levi-Faur vii Preface xi 1 Neoliberalism or regulatory capitalism? 1 2 The cyclical nature of the challenges of regulatory capitalism 32 3 Privatized enforcement and the promise of regulatory capitalism 64 4 The nodal governance critique of responsive regulation 87 5Regulatory capitalism, business models and the knowledge economy 109 Janet Hope, Dianne Nicol and John Braithwaite 6 Can regulatory ritualism be transcended? 140 7 Metagovernance of justice 157 8 Is regulatory capitalism a good thing? 197 References 208 Index 233 v Foreword The way capitalism is organized and governed is changing. A regulatory explosion – the proliferation of different mechanisms of control at both the national and global level – is balancing the effects of neoliberal reforms and is creating a new global order that is characterized in import- ant ways by regulation, regulocrats, regulatory agencies and regulatory networks. The widespread expansion of regulation is rather striking and puzzling. In an era of liberalization, privatization and deregulation, the number, forms and sources of regulation were expected to be on the decline. Convergence on liberalization as a system sans-regulation was portrayed as the desired outcome by some and a horror scenario by others. The possibility that change will result with more regulation and that étatist forms of regulation will be mainly accompanied with inter- national and voluntary forms of regulation was not on the agenda. By the early 1990s scholars had started to point out that deregulation was really a misnomer for the emerging reforms. Instead they had suggested that the notions of ‘better regulation’, ‘reregulation’ and ‘international regulation’ best captured the change. What we are learning to better appreciate nowadays is that the notion of ‘regulatory explosion’ captures and conveys better the nature and the impli- cations of the changing political, social and economic environment in the age of governance. The evidence is only slowly accumulating through various indicators. My own attention and awareness of the phenomenon grew from a study of the restructuring of the modern bureaucracy and the rise of regulocracy as an alternative form of governing. In a study with Jacint Jordana of regulatory agencies across 16 different sectors in 49 coun- tries from the 1920s through to 2002, we found that the number of regula- tory agencies rose sharply in the 1990s (see Figures F.1 and F.2).Indeed, the rate of establishment increased dramatically: from fewer than five new autonomous agencies per year from the 1960s to the 1980s, to more than 20 per year from the 1990s to 2002 (peaking at almost 40 agencies per year between 1994 and 1996). By the end of 2002, we could identify an autonomous regulatory agency in about 60 per cent of the possible sector niches in the 49 countries. Probably more than anything else, it was the establishment of these agencies that made the regulatory state an attractive term for social scientists. vii viii Foreword 40 30 20 Number of RA created 10 0 1970 1980 1990 2000 Year Figure F.1 Expansion of the number of regulatory agencies across 16 sectors of 49 nations, 1960–2002 Taken exclusively on its own, the widespread creation of regulatory agen- cies may indicate a restructuring of the state or even the rise of ‘a regulatory state’. Yet, the explosion in the number of regulatory agencies is only part of a wider phenomena and the simultaneous expansion of the regulatory society and global regulations. As a matter of fact the co-expansion of vol- untary as well as coercive regulation, national and global, civil and statist all testify to the shortcoming of a focus on the transformation of the state. The notion of ‘regulatory capitalism’ captures much better the changes around us than the notion of a ‘regulatory state’ which denotes a state-centred per- spective. Regulatory capitalism is a political, economic and social order where regulation, rather than the direct provision of public and private ser- vices, is the expanding part of government. In this new order legal forms of domination are increasingly conditioned by functional rather than territor- ial considerations, and power is allocated and regulated along functional demarcation lines. The distribution of power, and the corresponding form of interest intermediation in each arena, are therefore shaped by the particular interaction of civil and state forms of regulation and may result with varying degrees of social, economic and political effectiveness and legitimacy. Foreword ix 1.0 0.8 0.6 0.4 created in the sample 0.2 Proportion of cumulative RA 0.0 1970 1980 1990 2000 Year Figure F.2 Increase in the proportion of regulatory agency niches filled for 16 sectors across 49 nations, 1960–2002 On this background it is not surprising that the study of regulation and governance, once fragmented across disciplines and subject areas, has emerged at the cutting edge of paradigmatic change in the social sciences. Regulation, especially in its soft decentred and fragmented forms, becomes a major issue on the agenda of disciplines that deal with international rela- tions, international political economy, global governance, international relations and international law, institutional economics, public administra- tion, public policy and comparative politics. Scholars from disciplines with well-established interest in regulation such as Law and Society, Law and Economics, Criminology and American political development are increas- ingly finding themselves interacting with a legion of scholars from other disciplines. Some of the interest in the study and effects of regulation can be safely ascribed to the rise of regulation and rule making as a major form of gov- ernance. Much of the rest is due to the contribution and inspiration of John Braithwaite’s scholarship and his personal qualities. John’s work, which does not respect disciplinary boundaries, places regulation both as a core concept, and as a major puzzle for the social sciences. The success of this x Foreword project may affect not only the study of regulation but also the scientific standing of the social sciences more generally. This book suggests that we can be cautiously optimistic about our ability to overcome the challenges ahead of us. David Levi-Faur The Hebrew University, Jerusalem Preface In the 1990s people started recognizing that while the state was running fewer things, it was regulating more of them, and spending ever higher pro- portions of its budget on regulation. So some analysts (including me) started talking about the state as a regulatory state. Then it was recognized that many other organizational actors beyond the state were also doing a lot more regulating of other organizations than in the past, so some ana- lysts (including me) spoke of a regulatory society. Along came David Levi- Faur and Jacint Jordana to point out that capitalist markets had become more vibrant at the same time as regulation of markets had become more earnest. Not only did they coin a term, ‘regulatory capitalism’, that better cap- tured the realities than the ‘regulatory state’ or ‘regulatory society’, they also produced a large body of cross-national data on the global expansion of privatized markets and regulatory institutions. David’s foreword to this book gives the flavour of these data. At the Australian National University (ANU) we established a Regulatory Institutions Network to study this phe- nomenon. David Levi-Faur joined us as a Faculty member for a period, Jacint Jordana as a Visiting Fellow. They proved delightful and stimulating members of our intellectual community. David proposed that we start a new journal called Regulation & Governance,which we set up with Cary Coglianese as a Co-editor and Jacint Jordana as a member of the Editorial Board. We said in the promotional blurb for the new journal: ‘Research on regu- lation and governance, once fragmented across various disciplines and subject areas, has emerged at the cutting edge of paradigmatic change in the social sciences.’ The notion that the kind of globalizations that had evolved by 1980, the kind of societies we now live in, are regulatory cap- italist, rather than neoliberal or welfare states, is an example of the kind of reframing of social science agendas this new field is stimulating. The long journey of Western history of the past millennium is from feudalism to regulatory capitalism (so far), with liberalism, neoliberalism, the welfare state, fascism and communism all re-theorized herein as significant side- tracks of modest duration within that long history of the West. With the exception of three decades of Chinese communism, these are Western sidetracks that the South and East have not followed in long or xi xii Preface large ways. Levi-Faur and Jordana’s work shows graphically (for example, Figures F.1 and F.2) that regulatory capitalism in contrast is something that in its first three decades has expanded remarkably rapidly beyond the West. Chapter 2, for example, discusses how waves of scandal and reform on Wall Street create large ripples of regulatory reform in China.
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