1 Introduction
Infrastructure and utilities constitute the backbone of contemporary economic systems and an essential platform for the working of societies. The development of infrastructure and utilities marked the industrialization of Western countries and the economic growth that they experienced, especially in the twentieth century. At the time of writing, several initiatives to develop infrastructure and utilities are under way, especially in Asia and Africa and with the support of various international organizations and donor countries. From railways to power grids, from water and sewage plants to telecommunication networks, new infrastructure and utilities are regarded as essential to improve the living conditions of billions of people, open opportunities for business and trade and strengthen the capacity of governments to deliver public policies.
Infrastructure and utilities are complex systems whose development should be accompanied by appropriate regulation. Regulation of infrastructure and utilities is a function that is intended to steer the conduct of entities that operate infrastructure and utilities services. Regulation has many repercussions for the working of infrastructure and utilities systems, including the determination of prices for infrastructure and utilities services, the making of investment in infrastructure and utilities assets, the intensity of competition between infrastructure and utilities service providers, and the conditions of access to services for the users. Good regulatory systems result in quality infrastructure and utilities services at affordable prices, while bad regulatory systems lead to mispriced services, under-investment or over-investment, and unfair distribution of costs and benefits across the society.
This book aims to discuss the many policy and management issues related to the regulation of infrastructure and utilities that contemporary societies face. From China ās intent to modernize the country and strengthen its trading routes abroad to the USA ās efforts to upgrade national infrastructure, from the aims of many African countries to lift millions of people out of poverty to the interest of many Asian countries towards public-private partnerships (PPPs ), the field of infrastructure and utilities is a lively arena where many stakeholders seek to pursue their agendas. Different countries face remarkably similar issues, while others deal with quite specific and contingent circumstances. While it would not be possible to discuss any specific and contingent scenario, this book aims to cover the most common problems with infrastructure and utilities that governments, regulators, firms and users typically encounter.
What is regulation? Who regulates what? What is regulatory policy? Before embarking on our travel through the variegated landscape of todayās regulatory systems across countries and sectors, we address these fundamental questions (and provide some definitions along the way).
2 What Is Regulation?
Regulation is a term that is used with different meanings depending on the particular disciplinary, institutional and temporal context. Quite often, scholarly works refer to the distinction made by Baldwin et al. (1998: p. 3) among a narrow sense of the term (regulation understood as the promulgation of an authoritative set of rules, accompanied by some mechanism, typically a public agency , for monitoring and promoting compliance with these rules), a middle-range sense (all efforts of state agencies to steer the economy) and a broad sense (any kind of mechanism of social control). The first meaning is relatively constraining because it relates regulation to formal rules only. It papers over the regulatory function played by sources of influence on behavior such as, for example, informal institutions and self-imposed discipline. The third meaning, on the other hand, is too broad because it includes any possible kind of influence on behavior, such as social rejection, shame and ridicule. It is often in the second meaning that regulation is understood within contemporary scholarly discourses in the disciplines of economics, public administration and political science.
Regulation can also be defined as the diverse forms of intentional use of authority by state and non-state actors to affect a different party (Black 2002; Lodge and Wegrich 2012: p. 6). Authority may take the form of formal legal force or informal inducements that impact on behavior. This definition, therefore, is both wider than referring to formal rules and mechanisms of compliance and stricter than relating to any kind of social influence. We may notice, however, that this definition is ābroad enoughā to include many different forms of regulation, such as command and control exercised by governmental authorities, price-caps posed by independent regulatory agencies , and the āmoral suasion ā (that is, the capacity to exert influence without any use of formal authority or force) exerted by authoritative actors.
Regulations are typically assembled into packages of institutions and processes that are designed with the aim of subjecting certain actors to systematic influence. In this sense, common definitions of regulatory systems are the ones used in Organisation for Economic Co-operation and Development (OECD ) works as āthe processes and institutions through which regulations are developed, implemented, enforced, adjudicated and revisedā (OECD 1994, 1997) and in World Bank publications as āthe combination of institutions, laws and processes that give a government control over the operating and investment decisions of enterprisesā of the regulated sectors of the economy (Brown et al. 2006a). Examples of regulatory systems include public ownership (where processes and institutions provide direct control of firms by state actors), franchise allocation (where the behavior of firms is influenced by ex ante competitive pressures for the award of the franchise contract and by ex post monitoring and sanctioning by the awarding authority ), and discretionary regulation (where the behavior of firms is affected by the use of tools in the hands of independent regulatory agencies , such as price-caps or Rate of Return limits) (GĆ³mez-IbƔƱez 2003).
3 Who Regulates What?
Regulation is traditionally divided into three branches, namely, economic, social and administrative regulation . Economic regulation is primarily concerned with correcting market failures and imperfections, such as those that arise from monopolies, asymmetric information among customers and producers and externalities. Social regulation is fundamentally concerned with the protection of the public interest, in such terms as environmental preservation, workplace safety and consumersā health. It should be highlighted, however, that the regulation of the economic or social behavior is not taken as an end by itself. Regulation is a mean to accomplish desired economic or social outcomes, such as maximizing consumersā surplus, stimulating innovation , protecting the environment, or safeguarding the welfare of workers and consumers. Administrative regulation , finally, refers to paperwork and administrative formalities (so-called āred tapeā) through which governments collect information and intervene in individual decisions.
Regulation is exercised in many forms and by different actors. In a traditional definition, Selznick conceived regulation as a āsustained and focused control exercised by a public agency over activities that are valued by a communityā (Selznick 1985: p. 363). This view entails that regulation is exercised by public agencies, including central government departments and other public bodies, such as independent regulatory agencies . The term āagency ā is used here in a sense that is typically attributed in US public administration studies, where it refers to governmental organizations in general. The term may have different meanings in other countries and temporal contexts, however. For example, within the European Union (EU) āagenciesā are typically understood as āa structurally disaggregated body, formally separated by the ministry, which carries out public tasks at a national level on a permanent basis, is staffed by public servants, is financed mainly by the state budget, and is subjected to public legal proceduresā (Pollitt et al. 2004; Pollitt and Talbot 2004).
Public authorities play a primary role in steering the economy and the society. Regulatory functions, however, can be also performed by industry or corporate self-regulatory bodies, insurance companies, auditors, consultancies, non-governmental organizations (NGOs), standard-setting organizations (such as the International Accounting Standards Board) and professional bodies (such as the Institute of Chartered Accountants) (Hutter 2006). Attention should be placed to the many actors who can play regulatory functions. In some country contexts where public authorities are relatively weak or in some industry conditions where new technologies and services are just emerging, regulation from the regulated themselves (self-regulation) and from the civil society (including the users) can play a very important role.
The specific way in which various state and non-state actors contribute regulating a sector of the economy or a part of social life constitutes a regulatory regime . The term is defined as āa historically specific configuration of policies and institutions which structures the relationship among social interests, the state, and economic actors in multiple sector of the economyā (Eisner 2000). We can use the term regulatory regime to broadly refer to the constellation of ideas that justify the steering ...