King Canute and the regulation tide

THE Institute of Directors has a seminar coming up that will look at the rising tide of regulation in Britain and what can be done about it. It is to be chaired by King Canute - or the modern day alternative, Ruth Lea, head of the Institute's policy unit.

Actually, that is a bit unfair to Canute. He knew the tide could not be halted. The IoD, in contrast, is in the position of his courtiers, still believing that with the right words or the right leadership it can. I fear it is likely to get its feet wet.

These things go in cycles. Voters demand liberalisation when they realise how wasteful and inefficient regulation is. They vote for regulation when they are disgusted by the excess or unfairness of unregulated markets and have forgotten how wasteful regulation is. At both ends of the range the pendulum swings too far - too much regulation and too much liberalisation.

Thus the free-for-all of the 1920s led to excess which was corrected - or rather countered - by the regulation of the 1930s, which for fairly sensible reasons ran on through the war.

The de-control and relative economic freedom of the 1950s led to more regulation in the 1960s, followed by stagnation in the 1970s. That created the climate for Thatcherism and now we have had that boom - 20 years of it - the public has forgotten, if it was of an age to know, just how difficult it was to live, work and do business in the trade union-dominated world of 30 years ago. So the pendulum is on the way back.

The pressure groups are in place, resistance to further privatisation finds popular support, opinion-formers rail against globalisation, the business community alienates even its friends with displays of boardroom greed and Governments, which see themselves increasingly as providers of services rather than leaders of nations, pass the laws to give the people what they think they want.

Nor are they actively discouraged in this. There is a veritable army of lawyers and accountants and a whole industry of compliance who profess to be concerned at the increase in regulation but who make a good living as a result of it.

And the more Americanised our system becomes, the more they and other advisers demand a written rule book they can follow rather than rely on the British tradition of principles and judgment.

We also fool ourselves by how much liberalisation actually takes place in good part of the cycle. If deregulation is defined as getting Government out of the economy, it has not gone anywhere.

As Colin Robinson points out in the Challenge of Change, a compendium of articles published to mark the 50th anniversary of the Society of Business Economists, Government spending when steel, ships, coal, airlines, gas, electricity, water, rail and much else were in the State sector and had to be paid for was 40% of Gross National Product.

All those industries have now gone across to the private sector and - rail excepted - the Government meets none of their financial demands. But despite being relieved of this vast burden, State spending is still 40% of a very much larger GNP.

There is a vastly improved climate for doing business today compared with 30 years ago but Government has not been shrinking. Rather, it has been getting sharper and instead of demanding that it own the assets of nationalised industries, it now directs them more subtly through a panoply of regulators who either follow Government guidelines or get replaced by someone who will.

This is something the financial sector needs to understand as much as anybody. The world has changed and products sold 10 years ago to private investors are no longer acceptable. Public and politicians have a different perception of what should be sold, how safe it should be and what it should deliver.

The financial services industry has been particularly slow in recognising this for what it is - a sea change in the national mood that is not going to go away. Blaming Brussels or even the Labour Government misses the point. Regulation promises to give voters a benefit and appears to be free - so they demand excess of it.

One of the speakers at the IoD seminar mentioned above is David Arculus, chairman of the Better Regulation Task Force. That surely is a title that sums up where we are. It is not the De-regulation Task Force and he is not engaged on a futile drive to have it rolled back. Instead, he has the limited but laudable ambition of trying to improve the regulation we are going to get anyway by subjecting it to cost-benefit analysis, preferably before a new rule is implemented.

Even that is uphill work - but it is probably the best that business can hope for.