Blog by Anna Pietikainen, Senior Policy Analyst, Regulatory Policy Division, Public Governance Directorate, OECD
Our consumption of essential services was profoundly transformed by the novel coronavirus pandemic. Internet and data traffic surged as many of us moved to work and learn online. Energy consumption slumped as offices closed and entire industries ground to a halt. Passenger transport collapsed, but crucial supply chains and trade still relied on freight transport services.
The ability of markets to continue to deliver these services was put to the test. Evidence from members of the OECD Network of Economic Regulators (NER) shows that emergency measures were quickly put in place across countries in network sectors such as energy, telecommunications, water and transport services. Priority was given to delivering essential goods and services in support of relief efforts. Consumers experiencing financial difficulties received assistance and disconnections of service were prohibited. Operators were helped to cover financial shortages and recover from economic loss.
These initiatives were often defined and implemented by arms-length economic regulators, to whom governments have delegated the regulation of network sectors that are based on natural monopolies, in part to decouple regulation from political decision-making and cycles.[i] Regulators are usually mandated with ensuring the efficiency of the market and the quality, reliability and affordability of services. In practice, this means for instance making sure that your power supply stays steady, your internet and mobile data don’t disconnect, and that, even at times of economic downturn, you can still afford to pay your bills – and at the same time, that investors get their money’s worth.
In addition to direct support measures to operators and consumers during the height of the crisis, regulators scaled back some requirements or demonstrated administrative flexibility – freeing up crucial resources both for operators and themselves. For example, certain deadlines were extended or suspended and reporting requirements on industry were eased. Many public consultations were deferred or put on hold, and those that proceeded have taken place fully remotely. Likewise, regulators put off some routine inspections or non-essential activities like dispute resolution, redirecting resources to managing the emergency.
These responses and the reported increase in concertation and co-ordination between actors, and, indeed, the continued delivery of essential services, can be hailed as testimony to the resilience of the system and its governance model.
What lessons can we draw going forward?
1) Despite the immediate success of emergency measures, the why, how and what of these initiatives should not hidden inside the black box of crisis management. Good regulatory practices are just as – if not more – important in the midst of emergency. Criteria used for decision making must be made transparent. Exemptions and easements should be time-bound and on occasions where important decisions could not be fully examined ex ante due to time pressures, post implementation reviews should be carried out. Such safeguards – and more – are crucial to upholding the legitimacy and credibility of regulatory regimes and public decision making more generally at a time when trust and leading by example are of essence.
2) The crisis hints at opportunities to continue improving the governance of sector regulation. Economic regulators showed agility when faced with the emergency: adapting rules to the new context, streamlining regulatory processes, and defining and implementing new ways of working. Lessons can be learnt for flexibility and outcome-focus for the regulation of markets even for “business as usual” work in a fast-paced context of change and market transformation. Moreover, in addition to legal frameworks allowing for flexibility rather than requiring emergency regulation, the introduction of regulatory easements was facilitated by strong relations and a degree of trust between the regulator and industry. This live experience makes a strong case for compliance-driven regulatory regimes and approaches such as ethical business regulation that rely on a degree of trust and openness between actors.
3) In an uncertain future, technical and objective regulatory activity by independent regulators remains an important pillar for the sustainable functioning of markets. The economic, social and behavioural effects of the crisis will continue to transform utility sectors. Government support to markets or targeted measures to bolster specific actors can affect market characteristics and structure in a durable manner. In an uncertain context that runs the risk of politicised decision making, evidence-based advice by economic regulators can provide valuable insights regarding the efficiency and resilience of markets, while upholding the principles of competition.
Learning from the response to the pandemic and continuing to uphold the principles of good governance and regulatory policy will be crucial in tackling the next phases of the pandemic and its effects on the economy. The OECD Network of Economic Regulators will continue to support regulators in this endeavour.
This blogpost is based on insights from the OECD Policy Brief When the going gets tough, the tough get going: How economic regulators bolster the resilience of network industries in response to the COVID-19 crisis. The brief includes examples of practice from 28 economic regulators from 16 countries that participate in the NER and was authored by Martha Baxter, Alex Durand, Anna Pietikainen, Ana Simion and Vincent Van Langen of the OECD’s Public Governance Directorate.
[i] Data from the OECD Indicators on the Governance of Sector Regulators shows that in OECD countries, a majority of regulators in the energy (86%), e-communications (83%) and rail transport (82%) sectors are independent bodies with adjudicatory, rule-making or enforcement powers (as distinct from regulators that are ministerial departments or agencies). For more information see: OECD (2019), Indicators on the Governance of Sector Regulators (database).