The evolution of independent regulation

Last Friday I participated in London in a very interesting debate organized by the Regulatory Policy Institute about the future of independent regulators in network industries. These agencies were born in the XIX in the US with the Interstate Commerce Commission, and were introduced in Europe after the British privatizations of the 1980s. Since then, they have been made mandatory by EU directives in energy and telecommunications, and have proliferated in many developing countries under the recommendation of international institutions. It was very interesting to listen to the ideas of past and present regulators about the evolution of the institution in the UK. Antonio Estache and myself participated in a session about the experiences with independent regulators in other countries. It was interesting to see that there was a sort of convergence between other countries and the UK. Whereas the UK had lost some of the initial enthusiasm with the institution, European, Latin American and other countries had seen the institution expand, but only very seldom reaching a true high level of independence from government. One of the reasons why British regulators seem to have lost some of their earlier independence is that they are doing more tasks now than when they started their operations 30 years ago. Initial regulators where expected to be in operation for a few years before the advent of competition, and in that short period of time their basically only role was to fix the productivity parameter X in the RPI-X formula. Things have become more complex over time, and there is today a general recognition that more competition means more and not less regulation, and that regulation interacts with other areas of public intervention that are much less prone to strategic delegation. Democratic societies are willing to delegate into insulated experts when they do a small number of tasks that are easy to monitor and for which they can be held accountable.