The ruses of public power

by Jean-Claude Thoenig

The organisation of democracy takes place within the legal-organisational framework of the state. A weakening of the state and its functioning therefore constitutes a danger for democracy.

When we think about the role of States today, there is a need for vigilance. They tend to switch between affirming their omnipotence and serious weakness. In some cases, their power is strong only on the surface.

If the State appears to be a monolith, whether in controlling its agenda or conducting its policies, it is just one actor among others. These various segments often function in a disjointed way: governance by power poorly co-ordinated between its sections, a fragmented or silo-type administration. More than ever, it is subject to major hollowing-out processes and neo-corporatism.

– An increasing erosion of hegemony

The State finds itself part of and dependent, both in fact and in law, on many multi-level systems and multi-actor arenas addressing agendas, decisions and checks in a wide variety of sectors. This ranges from permanent public bodies at global or inter-state level to time-limited contractual processes involving local public and private actors. These systems of ‘variable geometry’ eat away at the genuine autonomy of State competence and action, both in a legal and practical sense.

– A lasting state of near-bankruptcy

This results from the legacy of the Welfare State; from its less effective policies and massive costs; from the end of combined growth and double-digit inflation; and from the fiscal rebellion of the middle classes.

– The nomad’s overwhelming hold on the sedentary

States have exclusive control over a given territory, which sets the bounds of their jurisdiction, their offering of service and their scope for legitimate action. Public services do not choose their clientele: every citizen-customer has to be satisfied. On the other hand, businesses are not (or are barely) limited by territory. They are mobile and have discretion, in terms of geographical establishment, sectors of activity, legal regimes, property rights, competition and tax. While private companies can select certain segments of the market, the State is by comparison a dwarf. Everything happens as if the margin that public bodies (especially the State) enjoy in defining their choices and actions is restrained, if not strait-jacketed.

– The mirage of mimicry

As the State sees its strategic capacity amputated and its scope for financial freedom removed – two essential elements when running a business – it paradoxically retains the hope of imitating businesses’ management methods. This approach denies (or in any case minimises) any fundamental difference between public and private administration. It favours the emphasis on results, without clarifying whether the efficacy produced is internal (result-cost ratio) or external (reaching desired or unexpected objectives, medium-term societal impacts generated). The citizen is reduced to a customer or consumer who is presumed to possess the financial, cognitive and informational means necessary to acquire the service he or she desires. Executive agencies autonomously take operational decisions set down by the leader (e.g. the political power).

Four factors are weakening the State to the point where they even pose significant obstacles to its modernisation. We may consider them ‘ruses’ that the State itself practices and maintains in order to mask its impotence:

– Public consumerism

The State takes refuge in the fiction of ‘social demand’, which has two consequences: one is the weakening of the principle of representation by casting doubt on the capacity of political intermediaries – legislative and executive – and its role in the identification of key issues and in shaping the policy agenda. The other (assuming payment is not requested by the consumer) is that the State is the recourse for every kind of demand: no limit to its action or the resulting burden on public finances. One must also note the ideology underpinned by the procedure of participatory evaluation. This participatory or deliberative democracy, often employed to bypass the limits of representative democracy, seems to be a means of calling the latter principle (and the assumptions underlying it) into question.

– Clientelism

While corruption is understood as an exchange of favours between incompatible (if not conflicting) interests that is punishable by law, clientelism involving the State takes the form of coalitions of interests, established by policy, that provide satisfaction to a collection of minority groups without any appearance of cost (e.g. diffuse distribution costs), and in consequence provokes a strong reaction from non-beneficiary groups.

– Symbolic use of regulation

The State is regulating less and less, even nothing at all. The most spectacular cases come under the economic sphere, via regulation as well as via incentive.

– The State reduced to public order

There is a sharing of roles between the State and the world of business. Companies endorse it openly via their representatives. They ensure the effective creation of wealth. As for the State, increasingly it finds itself unable (and has tried even less) to ‘alleviate the suffering of the world’ via redistribution, because it hardly has the means to do so. More precisely, the role of the Welfare State, with its redistribution in favour of disadvantaged classes, is being reduced to a kind of ‘State lifeguard’ policy that permits it to guarantee a level of public order necessary for wealth creation.

Jean-Claude Thoenig

 

29.8.2018

 

More democratic implementation of the EU better regulation agenda

By Andrew Kakabadse

The Communication for Better Regulation and Better Results, published last May, was a real step forward in the European Union. But it needs completion by taking account of the receiving end. Greater attention needs to be given to the corporate requirements and experience of addressing multiple stakeholder agendas in highly competitive markets. Better regulation will be achieved only if one captures also  the nature of business strategy and leadership and the role of regulation in all this. This requires that one starts with innovating the consultation processes.

Better EU regulation requires many things : greater coherence across Member States, more effective scrutiny and coordination across the policy cycle and evidence based, cross-sector impact assessment of regulatory and policy decisions. Equally and aptly it requires stakeholders engagement and following this mechanisms for sensitive and meaningful consultation, to start with for problem definition, because this in turn influences the problem solution development. Over time and with experience, this will lead to effective collaborative governance, a democratic necessity in today’s societies with their complex intertwined problem. From the perspective of EU Institutions, public authorities and civic society share the critical concerns of better regulation which should not only regulate access to and functioning of markets, but also stimulate innovation and development, both not enough emphasized.

However the most glaring deficit, besides the need for culture change to reach all parts of the Commission, is evident – the Commission continues to look, like many governments, at one side only of economic reality : there is no mention of how business strategy is formed and executed. The reactions of the receivers influence whether better results are achieved. Attention needs to be given to the processes of corporate strategy generation and to the leadership of strategy execution so as to ascertain the relevance and attention given to addressing regulatory issues in the boardroom. In effect, the whole point of strategy is to realise competitive advantage and differentiation, for without this the enterprise cannot survive, and regulation affects this directly.

Hence it is necessary to show the link (or not) between strategic understanding and regulation and from this creating the mechanisms to harness regulation and strategic thinking and execution. Is regulation an integral element of corporate strategy or not ? This critical relationship requires scrutiny as well thought through strategy and effectively led strategy execution are the fundamental building blocks of sustainably realising competitive advantage. In so doing attention must be given to examining the soft side to strategy and coming to an understanding of the executive capability to focus on soft strategy as a lever of differentiation.

Therefore, examination of regulation is needed in conjunction with the board room mindset toward the significance of soft strategy. In contrast to hard strategy, product and service enhancement, merger and acquisition considerations and generally tangible asset based decisions, soft strategy focuses on the non-tangible aspects determining the corporate future. Included are reputational enhancement, brand development and risk minimisation. In mature and ever more competitive markets, it is soft strategy that is shaping the boardroom debate. The particular relevance of public policy and regulation considerations, the degree of alignment of thinking on competitive advantage and differentiation at senior levels, the level of dynamism in markets which require a reshaping of the elements of competitive advantage and the degree to which government and regulation are sensitive to such dynamism, require simultaneous scrutiny.

This is absent in Commission efforts till now. In effect it captures the better regulation issues from the perspective of government but not from the corporate point of view. But it takes two to tango and to work towards better regulation. Needed is to study both view points to ascertain the relevance of regulation in strategy consideration, the operational and opportunity costs of not doing so and what would then be recommended as ways of realising collaborative governance. This how competitive advantage and economic growth can be stimulated in Europe.

21.07.2017

Andrew Kakabadse