October 1, 1999
With Responses From
Oct 1, 1999
5 Min read time
Proposals to reinvent regulation are all the rage today. Perhaps the most vivid illustration is the transformation of the Endangered Species Act from a draconian ban on development to a flexible vehicle for ecosystem protection through Habitat Conservation Plans. As Sabel, Fung, and Karkkainen document, such reinvention efforts are now being pursued with much energy and imagination at all levels of government, as well as in the private sector. It is clear what reinvention is designed to replace: a regime purportedly dominated by centralized regulation and punitive sanctions. Much less clear is precisely what reinvention means or how reinvention relates to the existing framework of environmental law.
At present, three different ways of thinking about reinvention are emerging in the environmental arena. Although we don’t yet know the future of reinvention, it seems likely to lie somewhere in the triangle marked out by these three models. The first model, which is ably developed by Sabel, Fung, and Karkkainen, views reinvention as a multilateral process. This model eventually hopes to produce new, ecosystem-based governance structures. Another model is unilateral, focusing on the potential for self-regulation by firms. In this model, the government’s primary role is catalyzing and enforcing rules designed by industry itself. The third model is bilateral. It focuses on bargaining between regulators and the regulated, with public interest groups and others playing a secondary watchdog role. All these models highlight governance, self-regulation, or bargaining as the key feature of reinvention. In these models, or in some combination of them, we must seek the future of reinvention.
The governance model is the most exciting, since it promises not only efficient environmental regulation but also a rebirth of participatory democracy. Sabel, Fung, and Karkkainen see the seeds of this model in some existing programs such as Habitat Conservation Plans or the new watershed planning efforts for the Chesapeake and San Francisco Bay areas. Although this model may have genuine transformative potential, there are also serious risks in switching from existing governance structures. While existing structures are imperfect, they have been honed over time. The new governance structures that Sabel, Fung, and Karkkainen advocate pose a host of unresolved questions about the representativeness of participants, the accountability of governments and others, and the incentives for all of the parties to participate constructively.
These issues have yet to be resolved persuasively. As to the putative representatives of the public interest, we must wonder who will anoint them, what incentives and resources they will have to participate constructively, and how their performance will be assessed. (This has been a recurring and sometimes bitterly contested issue in the formation of Habitat Conservation Plans.) How will the national interest in environmental quality be protected in a system that delegates effective management to the local level, and what will prevent a "race to the bottom" by local regions seeking economic advantages? After all, the reason we have federal environmental regulations such as the Clean Water Act is that the states weren’t doing their jobs. And should we trust the "foxes"–the targets of regulation–to sit on the committee in charge of designing the proverbial hen house? We risk recreating the pattern of previous generations of government regulation, where regulatory bodies like the Interstate Commerce Commission were dominated by the very industries they were supposed to be regulating. If we find answers to these question, the governance model may prove transformative–but these answers will not be available overnight.
The self-regulation model, if anything, puts even more faith in taming the foxes so they will voluntarily help guard the hen house. It’s easy to be cynical about this approach; firms often seem to be more interested in minimizing their costs than in protecting the environment. But in recent studies, environmental economists have identified various incentives for firms to improve their environmental records–including pressure from customers, the desire to head off more rigorous regulation, and negative stock market reactions to environmental misconduct. And, as Sabel, Fung, and Karkkainen point out, there have been some impressive efforts at self-regulation by the nuclear industry, and in the wake of Bhopal by the chemical industry. There is also fairly persuasive evidence that disclosure laws, like California’s extensive toxics disclosure rules, actually have a significant effect on the performance of industry. Still, it would take an exceptional degree of optimism to view self-regulation as the mainstay of environmental protection. All too often, harming the environment is good for profits, and even the best intentioned business managers cannot ignore the ultimate reality of the balance sheet.
This leaves the bargaining model, which takes the existing regulatory scheme as a baseline, and views reinvention as a way of negotiating from this baseline to outcomes that are better for both industry and environment. A simple example is provided by the EPA’s program for Supplemental Environmental Projects (SEPs). A SEP allows a firm to avoid paying part of its fine for environmental violation by undertaking a project like cleaning up a local lake. This is a familiar process to lawyers, who are used to seeing similar forms of negotiation used every day to settle disputes. If we had complete trust in the federal government as a guardian of the public interest, we could be positive that the outcome of this process would be better for the environment (otherwise the government wouldn’t agree) and better for the industry (otherwise the firm wouldn’t agree). We could then celebrate a "win-win" solution. The problem is that we can’t be completely confident of the government’s ability and incentives–"capture" by industry is a familiar problem.
So we will need safeguards, probably including some involvement by public interest groups. But designing these safeguards isn’t easy. For instance, if involvement by public interest groups is too extensive, the bargaining process may devolve into a form of the governance model. One option is to leave public interest groups out of the initial bargaining process, but empower them to overturn the deal if it inadequately protects the environment.
Making the bargaining process work is a challenge, but seems less audacious than trying to redesign the governance system or place all our trust on the good will of industry. At least in the short- to medium-term, conceptualizing reinvention as a form of bargaining, rather than as a novel form of governance or as self-regulation, seems to be the most useful way to move forward. But in the end, more will depend on the ability and imagination of the re-inventors than on the conceptual frameworks of academics.
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