We cannot eliminate risk

The Productivity Commission's review of government regulation shows that -- contrary to popular belief -- we don't actually live in an era of economic deregulation.

Australian government departments and agencies introduced 2380 regulations in 2004-05 -- a record.  The federal parliament passed 172 pieces of legislation -- an increase of more than 10 per cent over last year.

Meanwhile, compliance of government authorities with the obligation to complete regulation impact statements has fallen.  The regulators are ignoring their own regulations.

Given this, the federal government's announcement last month of a regulation taskforce to cut business red tape should be welcomed.  The aims of the taskforce are worthwhile.  Identifying duplicate or redundant regulation is important, as is examining the alternatives to regulation, such as self-regulation.  The quality of the people on the taskforce is first rate and no doubt it will make some valuable recommendations.

The only fault is that the taskforce's terms of reference miss the point.  It has been asked to consider how regulations could be simplified and compliance costs reduced.  No mention is made of the factors that cause governments to impose regulation.  There won't be any real reduction in red tape as long as politicians and bureaucrats pretend that reform is achieved when a questionnaire is reduced from 10 pages to five pages, and it takes one hour to complete instead of two.

Excessive regulation is a symptom of a society-wide problem.  And that problem is our attitude to risk.  Voters now seek a life without risk.  Where there is risk, they expect government regulation to eliminate that risk -- regardless of cost.  And on the occasions when harm does eventuate, judges willingly pass on the burden of compensation to the whole community, often regardless of fault.

Liberals don't baulk at business regulation because they have become accustomed to measuring state interference in markets purely in terms of the size of the public sector, and placing additional burdens on business doesn't necessarily increase the government's share of gross domestic product.  Regulation is attractive to many in the ALP because it appeals to their distrust of market mechanisms.

Undoubtedly, the impact of regulation on business is enormous;  an estimate some years ago put the cost at $17 billion.  But a focus merely on costs of regulation neglects the issue of how to discriminate between good and bad regulation.  Worse, by concentrating only on business regulation the rapidly expanding regulation of social activities is ignored.

In the long term, the consequences for a free society of regulating previously unregulated social activities could be greater than those flowing from any restrictions on economic activity.

Perhaps surprisingly, one of the best statements on the topic came in May this year, in a speech by Tony Blair to the Institute of Public Policy Research in London.  The British Prime Minister spoke of how "the idea that it is the job of government to eliminate risk can lead to the elimination of common sense".

Governments around the world are now intent on promoting "social capital".  The exact nature of social capital is still debated, but at a minimum, it is the network of relationships of trust and reciprocity between individuals upon which a healthy society depends.  While social capital is being encouraged, social regulation is destroying the basis on which people once used to interact.

The imposition of food-handling regulations on a parent who bakes a cake for a fete at their child's school might minimise the risk of food poisoning.  However, it also limits the likelihood of parents taking the trouble to bake a cake in the first place.  As a result children, schools and the community suffer as private, voluntary effort is reduced.

Blair talked of aged-care workers not being able to assist patients who fall on the floor.  Instead of simply helping patients to their feet, assistants are required to obtain hoists before they can help.  "No doubt, most care workers help anyway -- but if basic human acts of care are being prevented by intrusive regulation, it is absurd", he said.

If the Regulation Taskforce succeeds in cutting red tape, it will have achieved something useful.  But it will be only the beginning.

As the taskforce proceeds, it could contemplate Blair's admonition:  "There is usually a seductive logic to any new regulation.  There is almost always a case that can be made for each specific instrument ... We cannot respond to every accident by trying to guarantee ever more tiny margins of safety.  We cannot eliminate risk.  We have to live with it".

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