But what reform plan dares to really finish them off, for good? There is, of course, a rational way out of this sordid mess, as I offered in March , in a Forbes. Any takers? Despite all the damage these interventionist agencies have inflicted, and regardless of the ease with which free market alternatives can be fashioned and fostered, the agencies are still viewed as sacrosanct and untouchable except with more funding and power. Thus future crises are inevitable. So self-sacrifice and misery are moral ideals? What fuels demand for ever-more financial regulation is this basic mistake about the ethics of greed.
As long as Wall Street is seen as unethical, greedy, and possibly corrupt, American will continue to worry about the capacity of large financial institutions to derail the economy.
Institutional Failure and the Global Financial Crisis
Allison has been president of the Cato Institute for the past year. The current arrangements for global regulatory governance also pose serious equity issues. By and large, less powerful states must dance to the tunes of the more powerful. The kaleidoscopic array of global regulatory programs exhibits a systemic imbalance between prosperity and protection, serving the interests of well-organized economic actors and disregarding environmental, health, and social harms and adverse distributional consequences generated by economic globalization.
Their primary aim is liberalize trade and promote investment through a broad suite of measures; reducing tariffs to zero in the case of TPP ; reducing very significant non-tariff barriers created by domestic regulatory differences and impediments on trade in goods and services; liberalizing domestic regulation and administration including by promoting transparency and anti-corruption; addressing structural barriers including those created by government procurement policies, state-owned enterprises, and, potentially, state industrial policies; promoting development of global supply chains and e-commerce; coordinating competition law programs; and enhancing protection for investment and intellectual property.
Equally important, TTIP and TPP provide innovative institutional arrangements for ongoing regulatory cooperation among the parties with a hub and spoke design comprising a central supervisory and coordinating body and task forces composed of domestic regulators in specific sectors.
The aim is not only to stimulate transatlantic economic growth but also to generate regulatory standards and methods that achieve global currency, potentially marginalizing existing multilateral regulatory bodies in the process. Both TTP and TTIP have attracted significant criticism and opposition in the EU, US, and some other TPP countries as industry-dominated ventures that will afford unjustified protections to intellectual property rights in foreign investment, harm labor, consumers, health and the environment, and undermine the authority of domestic political and legal institutions.
This essay first addresses the economic, geopolitical, and regulatory protective drivers of regulatory globalization. It then examines the various institutional forms that international regulatory cooperation has taken including the new generation of megaregional regimes, represented by TTIP and TPP. Next, it considers some of the structural consequences of regulatory globalization, including the imbalance between the promotional and protective functions of regulation, increases in agency costs, and the resulting challenges for administrative governance and law.
It then considers these challenges in the specific context of TTIP and TPP, including their internal governance, their relation with domestic administrations and administrative law, and their consequences for nonparty countries. It discusses how megaregional regimes pose novel challenges for domestic systems of administrative law by further shifting regulatory decision-making to global institutions and creating potentially significant agency costs.
It examines how familiar as well as new administrative law techniques can be deployed to promote greater accountability and responsiveness by global regulatory decision makers in TTIP, TPP and other global regulatory regimes. The discussion considers the importance of the internal law of administration, including US innovations, such as regulatory impact analysis and quantitative risk assessment, and how they can play an important and constructive role in the megaregionals. A conclusion follows. The different institutional forms of international regulatory cooperation IRC , including megaregional initiatives such as TTIP and TPP, are discussed in the next section of this essay.
All of these regimes respond in varying ways to three fundamental drivers: economic benefit, geopolitical considerations, and strengthened regulatory protections. One driver of IRC, prominent in TTIP and TPP, is the economic benefits from initiatives to liberalize trade and investment, strengthen the regulatory infrastructure of global commerce, and address market barriers created by domestic regulatory programs and administration. Taken together, these measures can deliver significant economic benefits for participating countries.
Liberalization of domestic regulatory programs and their governance can also generate broader political and societal benefits by dislodging factional entrenchment. The Abe administration plans ambitious implementation of TPP in Japan in order to open up competition in agriculture, insurance, medical services and other sectors, and a similar agenda is under consideration by leaderships in Europe. Enhanced legal protections for investment and intellectual property, however, have stirred widespread controversy and criticism.
All parties generally benefit from removal of regulatory impediments to trade; the distribution of benefits from investment and intellectual property protection measures is typically far more one-sided. A second driver for IRC initiatives is strategic. Other countries may adopt the standards of dominant jurisdictions to access their markets. Multinational firms have incentives based on logics of standardization and network effects to adhere to standards adopted by a jurisdiction with a major share of the market for products and services sold in other jurisdictions the California or Brussels effect.
The US, in alliance with Western European countries, has long dominated international economic policy through multilateral regimes promoting a liberal regulatory agenda. A third driver of IRC is strengthening the capacity of states to deliver effective regulatory protection to their citizens. The ever-growing global economic activity generated by the regulatory standards and infrastructures in support of global investment, trade, commerce, generates growing harms caused by uncorrected market failures operating on a broader scale.
At the same time, global economic integration, technological changes, and the rise of global supply chains as well as the mobility of investment have undermined the ability of states acting unilaterally to protect their citizens. Regulatory failures in one jurisdictions spill over into others in the form of financial contagion, unsafe products, pollution and climate change, and illicit trans-border activities. Intergovernmental cooperation is needed to muster the regulatory capacities to fill the regulatory gaps.
Securing global public goods such as climate protection and financial stability will require cooperation among all major jurisdictions. In order to carry out their missions, domestic regulators who would otherwise prefer not to cede or share authority may be persuaded or forced to do so. The market failures generated by global economic integration and growth and the regulatory challenges in addressing them can be grouped in four categories:.
By their very character, such ills cannot be addressed effectively by uncoordinated measures adopted by individual states. The first of the four types of problems outlined above is most relevant to those global regulatory bodies, including TTIP and TPP, which focus on regulatory standards governing international trade in goods and services. Although the primary drivers for TPP and TTIP have been economic and geopolitical, they can also promote more protective regulation of internationally traded goods and services, and recently have been defended on this ground.
Collaboration among regulators can achieve scale economies in gathering information, collaborative learning regarding best regulatory practices and decisional tools, and build the knowledge base for effective regulation. Developed countries have also sometimes sought to leverage the market access elements in IRC regimes in order to promote stronger environmental and labor regulation by developing country parties. Regulatory globalization has resulted from the accumulation of discrete, largely uncoordinated initiatives by powerful countries, non-state actors, and international organizations to address specific promotional or protective objectives in different sectors of global economic activity.
These regulatory cooperation initiatives have taken a variety of institutional forms:. Cumulatively, these various initiatives have generated massive globalization of regulation. The evolutionary dynamics of IRC activity and its distribution among these different institutional forms is a subject of the emerging field of global organizational ecology. TTIP and TPP are the next steps, responding to profound global economic and geopolitical changes and the erosion of multilateralism. TTIP and TPP have, however, quite different structures and reflect somewhat different trade and regulatory strategies.
Although TTIP involves only two jurisdictions, the EU and US together account for around 30 percent of global trade and nearly 70 percent of foreign direct investment. If the EU and US can succeed in reaching agreement on trade and regulatory liberalization and convergence, they will stimulate transatlantic trade and investment and strengthen their economies and geopolitical influence.
Their standards could well become the effective standards for the globe. For analogous reasons other countries and international standard-setting organizations will also adopt the standards. The power of the Transatlantic Empire is waning, but together the EU and US might muster enough clout to leave a mark on global trade and economic regulatory policy and perpetuate their influence for some time to come. In TPP, the US seeks to help strengthen Japan as a partner by stimulating liberalization of its economy and enlisting a variety of the smaller developing and developed countries in the region as a regional counter to China, and by establishing a template for an inclusive Asia-Pacific Free Trade Agreement.
TTIP and TPP together account for two thirds of world trade, putting the US in a position to exercise very considerable leverage if it can successfully orchestrate and coordinate the activities of the two regional pivots.
The overall pattern of global regulatory cooperation displays a striking asymmetry. Regulatory regimes to promote trade, investment, and commerce predominate and are generally effective. Measures to afford regulatory protections in order to address the harms generated by the economic activities stimulated by the promotional regimes are, overall, much weaker and incomplete.
The most powerful global regulatory bodies promote the objectives of dominant states and economic actors, whereas regimes to protect weaker groups and individuals are often less effective or virtually nonexistent and are thus unable to protect their interests and concerns.
The regulatory games involved in promoting markets and in addressing their failures are quite different.
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Firms have strong interest in common regulatory standards and measures to constitute and facilitate the markets in goods, services, and financial products by aligning the activities of the various market actors involved. The structure is that of a coordination game. Many global regulatory programs—private, public, and hybrid—are focused on generating standards and other regulatory infrastructures to solve such coordination games.
Developed country jurisdictions such as the EU, US, and Japan that place a high priority on protecting their citizens secure this goal by requiring imported products and services to meet their domestic standards but also by ensuring that standards adopted by global regulatory programs to solve coordination games serve protective as well as commerce-facilitating goals.
Because TTIP and TPP are focused on regulatory coordination of trade in goods and services, they provide the potential for strengthened global regulatory protections in those sectors. Here the relevant economic actors have no inherent incentives to follow common regulatory standards, but rather the reverse.
These activities must generally be regulated by the jurisdictions where they take place. Securing international agreement on common regulatory measures have the character of a cooperation game in which there are competitiveness incentives for countries to free ride, either by not joining an agreement or shirking implementation.
There is often no clear focal point for agreement on common measures, which is impeded by conflicts over the distribution of benefits and burdens of different arrangements. Effective monitoring and enforcement mechanisms or other compliance incentives must be deployed—a difficult enterprise. Proponents are also beginning to invoke regulatory protections for consumers as a justification for these regimes.
A second explanation for asymmetry in global regulatory programs, which in many respects complements the first, is based on the two level structure governance of global regulation, where governmental and other political actors operate both at the domestic and at the international level. Eyal Benvenisti and George Downs have emphasized that domestic executives inherently have far greater power in the construction and operation of global regulatory programs than do domestic legislatures and courts,  and that well-organized business interests are also better equipped than loosely-organized consumer, environmental, and social interests to influence global regulatory decision-making.
Business interests also enjoy this advantage in the domestic context, but courts and legislatures are avenues for influence by less-organized interests and provide a counterweight; these institutional checks are far less powerful and effective at the global level.
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The economic and geopolitical objectives of domestic executives and the interests of business actors in promoting; trade and investment are often aligned. The globalization of regulation manifests the iron law of regulatory agency, which holds that steps by principals to strengthen their regulatory capacities generate correlative increases in agency costs.
The United States, like other developed countries, has equipped agencies with a succession of new and more powerful regulatory technologies under what are in many cases very broad delegations of regulatory authority and lawmaking discretion. These steps have created ever more serious agency costs for their principals whether understood as Congress, the President, or the citizenry. US administrative law has adopted innovations to manage the associated agency costs and secure accountability and responsiveness to principals by requiring greater transparency, participation, and reason giving for agency decision-making and expanding the availability and scope of judicial review.
The agencies themselves often seek to control their own internal agency costs through a variety of internal administrative law mechanisms. For example, formal decision-making procedures and judicial review may impede timely and effective regulatory decision-making. In some instances, accountability mechanisms may make agencies less responsive to their principals. Like previous innovations, they have created new and significant agency costs and consequent opportunities and challenges for administrative law.
Global regulatory bodies often enjoy substantial autonomy and may pursue objectives at variance with the interests of their principals. The task of managing agency costs is greatly complicated by multiple principals, the variety of organizational forms for IRC, and the fact that they operate in a fluid and variegated global administrative space radically different from established domestic government structures. The smaller countries parties to these regimes, on the other hand, face acute agency problems. The recent shift by the EU and US from multilateral to bilateral and megaregional regimes intensifies such problems.
Beyond the governments that are parties or not to global IRC regimes are the interests and concerns of their citizens and non-state actors including business representatives at domestic and transnational NGOs speaking on behalf environmental, consumer and social interests. How far can mechanisms of administrative law, analogous to those developed at the domestic level in advanced countries, be developed to promote a degree of responsiveness and accountability by global regulatory decision makers to these constituencies?
This is a task for global administrative law GAL. The governance issues associated with TTIP, TPP, and other institutionally complex IRC bodies, fall along three dimensions: horizontal structures and procedures for IRC decision-making; vertical relations between IRC decisional processes and their regulatory outputs and domestic regulatory structures, decisional processes, and measures; and external impacts of IRC regimes on and their relations with jurisdictions that are not members of the cooperation regime.
The interplay among these elements shapes the performance of the IRC regime and its consequences for the welfare and concerns of diverse individuals and actors across many jurisdictions. The decision-making processes of the global regulatory body must secure its primary mission of reaching agreement on regulatory measures. One is to reduce the barriers and cost burdens on international trade and investment created by different regulatory measures and methods in different countries. The second is regulatory liberalization: to eliminate or reduce the impediments and risks of protectionism closed by regulatory decisions and measures that are not substantially justified by legitimate regulatory objectives, and by opaque domestic systems of administrative regulatory governance that are difficult to navigate and foster arbitrary decision-making.
Both of which have high potential for protectionism. Efforts to advance these two objectives through IRC confront a variety of obstacles, including affected differences among participating jurisdictions in their economic, social, and political circumstances; in their established standards and modes of regulation including conformity determinations and implementation and enforcement arrangements ; in their regulatory preferences; in their decision-making institutions and procedures; and in their underlying regulatory cultures.
Changes in existing arrangements involve adjustment costs for regulators and the regulated, and draw opposition from adversely affected interest groups. Moreover, the costs and benefits of new measures may vary appreciably across countries. Large differences in levels of development among the parties, as in TPP, make regulatory convergence more difficult.
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Even if the parties have similar levels of development and have already achieved a high degree of integration, as in the EU-US case, differences in risk preferences and long-entrenched regulatory approaches and cultures can create substantial obstacles. Regulators resist loss of decisional autonomy and changes in established regulatory ways, and are unlikely to be motivated by general benefits to the economy from regulatory cooperation.
In addition, IRC often involves processes such as intensive consultation and information sharing between the respective regulatory authorities. These measures may secure agreement on convergent regulatory measures and methods or in other ways reduce impediments to trade created by different regulatory systems; they may also promote liberalization in regulatory measures and administrative systems. TTIP and TPP reflect a new level of ambition, proposing cooperation through joint use by regulators of RIA and risk assessment and other evidence-based decisional methodologies.
If successfully deployed on a joint and cooperative basis, these disciplines can promote both convergence and liberalization by revealing that particular features of existing measures are not necessary for achievement of the regulatory objectives in question, or involve disproportionate burdens. RIA can also promote consideration of alternative measures and arrangements that are superior. In addition, TTIP and especially TPP propose strong transparency and regulatory due process requirements for domestic administrations, going beyond those provided in the WTO agreements, in order to promote liberalization.
Office of Information and Regulatory Affairs OIRA discloses that structured and transparent evidence-based analysis of costs and benefits of regulations and alternative measures can promote a better match between regulatory means and ends, and reduce undue regulatory burdens and rent seeking. They can also stimulate cooperative programs to learn from the experience with different regulatory approaches in order to determine best practices for the future. To the extent that RIA, risk assessment, and other analytic evidence-based methods for regulatory decision-making are adopted and successful in the context of global regulatory cooperation, they would represent another striking global diffusion of US administrative law innovations, FOIA, notice and comment rulemaking, and environmental impact assessment.
While the global-level decision-making procedures for TTIP and TPP have yet to be resolved in detail, they will include an institutional platform for ongoing regulatory cooperation in the form of a regulatory cooperation body RCB that will establish and oversee the implementation of an agenda for specific initiatives by sectoral working groups of domestic agency officials. The objective would be to steer efforts towards sectors and issues promising the greatest progress in agreements with high payoffs in reducing regulatory barriers and burdens.
It is increasingly recognized that regulatory cooperation must extend to the mechanisms and procedures for developing, implementing, and enforcing regulatory measures question work to bring about convergence between regulatory programs,  High-level officials would oversee the work of the RCB and the enterprise as a whole and could supply political muscle to push through agreements that the regulators in specific sectors might resist or be unable to achieve.
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An important and innovative institutional feature of TTIP and TPP is the hub and spoke design that packages regulatory measures in many different sectors in a single IRC that promote agreement by expanding opportunities for horse trading and logrolling across issues. The central regulatory cooperation bodies that TTIP and TPP will establish can help realize these opportunities and mobilize ongoing higher-level political participation from the jurisdictions involved that will be needed in order to push the domestic regulators out of their grooves and break through bargaining impasses.
In TTIP and TPP, as in other IRC bodies, the primary modes for deciding on common or coordinated regulatory measures and methods will be a combination of expert deliberation and negotiation, neither of which is likely to be successful if conducted in the open. Businesses have far more technical knowledge and experience regarding regulatory standards than NGOs and even many government officials.
Business experts must often be at the table in order to produce workable and effective regulatory standards; they will thereby have a substantial influence on the policy elements of IRC, which typically cannot be divorced from the technical elements. Successful negotiation of agreements on global regulatory standards and measures requires a combination of expert deliberation and bargaining, neither of which can successfully be conducted in the open.
But closed decision-making processes invite critiques from civil society actors, who have attacked TTIP and TPP for lack of transparency and effective opportunities for civil society participation.