Institutions and Regulatory Reforms for the Age of Governance
The CRC Series on Competition, Regulation and Development
Edited by Jacint Jordana and David Levi-Faur
Chapter 3: The History of Regulation in the United Kingdom: Three Case Studies in Search of a Theory
1 Iain McLean INTRODUCTION Regulation has existed for as long as governments have interfered in private actions: that is, for ever. The economic theory of regulation was revitalized by the neoclassical revolution (Stigler, 1971). In the last 25 years, political scientists have also identified a distinct ‘politics of regulation’ (see especially Wilson, 1980). Majone (1994) has gone so far as to claim that European democracies have become ‘regulatory states’ in which government has retreated as direct controller of the means of production, but advanced as an indirect regulator of them. Others label this the replacement of ‘government’ by ‘governance’. Theories of regulation may be grouped into public interest, regulatory capture, and median-voter classes. The public interest theory states that regulation is the solution to certain sorts of market failure, especially market failure due to natural monopoly (see especially Foster, 1992). A normative version states that given such failure, regulation ought to occur. A positive version (that no scholar known to me is brave or foolhardy enough to espouse) would state that given such market failure, regulation does occur. However, what Wilson (1980, 370) calls ‘policy entrepreneurs’ may create a public interest if they persuade enough people to believe that it is in the public interest to do what they advocate. Regulatory capture, endorsed by a wide ideological range of scholars, from Marxists to the public choice movement (Virginia branch), is both positive and normative. In a strong positive version, it predicts that regulation comes into existence to serve the interest...
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