Avoiding Regulations: Try Meta-Regulating

By Mark Edwards
Assistant Professor, School of Business, University of Western Australia
Posted on 23 August 2011
Filed under Governance, Politics

As Carmen Lawrence has pointed out here in her series on economic growth and human well-being, the issue of climate change is directed related to that of economic growth.  Our endless quest for growth is leasing us up against planetary limits in resources (resource limits) and in the earth’s capacity to absorb the outputs of that growth (sink limits).  Climate change is essentially an atmospheric sink limit that demonstrates the planet’s growing inability to absorb further emissions of carbon dioxide without significant disruption to the climate system. Growth and climate change are running into each other and this impasse will not be solved without a transformation in the way we define, measure and regulate economic growth. 

One of the central issues with growth is that economies are both regulated (by governments) and self-regulated (by organisations and families and personal behaviours) according to certain economic indicators.  The dominating player among those indicators is Gross Domestic Product (GDP). The problems associated with using GDP as a global indicator of national progress are well known.  In September last year the former Secretary to the Treasury, Dr Ken Henry, made a speech in which he pointed out that policy makers need to “appreciate [the] limitations ... of GDP as a measure of economic well-being or progress” (Henry, 2010, p. 23).  Cautionary warnings like this have been made for many decades (see, for example, Kennedy 1968) and yet our infatuation with the GDP indicator continues to such a degree that growth is taken as the general measure for economic, social and cultural advancement at every level of decision-making from the corporate, to the national and global levels. 

What I want to point out here is that individuals, organisations, governments and virtually the whole international economies self-regulate their economic behaviour according to this single measure.  My point is not so much that GDP is a bad measure of real, sustainable and sustaining growth (which it is), but that we need such measures to set our economic direction at all levels of social existence from the micro to the macro and mundo. 

While GDP figures are released only every quarter, the flood of more specific indicators of economic performance are announced daily and their primary role is to act as proxies for estimating annualised GDP figures and predictors of future growth rates. In between the quarterly GDP announcements we use company profits, interest rates, job advertisements, home loan approvals, house prices, unemployment rates, car registrations and many other economic indicators as indicators for economic growth and adjust our economic goals and future plans at the state, national and international levels accordingly.  Whether it was intended as such or not, GDP, as a measure of economic growth, has become the compass by which we set our course into the future, the main gauge by which nations and the global community judge their ongoing progress. 

The problem is that this GDP compass is setting us off in a completely wrong direction if we want to attack the true causes of climate change and secure a sustaining and sustainable environment for advancing national or international development. 

Economists have long noted the problems in how GDP growth is calculated and used (Duncan & Gross 1995; Stiglitz, Sen & Fitoussi 2009).  David Gruen (Director of Macroeconomics at the Department of the Treasury) recently argued that the way we currently use GDP actually risks “the wellbeing of future generations” (Tandon 2010).  In the absence of a more inclusive measure of development, the holy grail of achieving endless growth as measured by GDP is no longer something to celebrate or even aim for. The thing is, however, that we need some measure of national development and while there are several alternative measures in the wings (Hagerty et al. 2001), none of them is ever likely to compete with, or even complement, GDP as a global indicator of national growth. 

What is needed is a new kind of regulatory intervention to reshape and re-contextualise GDP itself.

Of course, GDP needs to include and integrate broader indicators of production including those that measure the input of cultural, biological and environmental systems.  As the Stiglitz-Sen-Fitoussi (2009, p. 12) report states, “the time is ripe for our measurement system to shift emphasis from measuring economic production to measuring people’s wellbeing” (emphasis in the original) and, I would add, people’s wellbeing cannot be separated from the health of cultures and natural environments.

The need to broaden GDP (or someother measure of national advancement) is clear but what is not so well acknowledge is the self-regulating power that such measures hold over personal, familial and communal behaviours and economic choices. Thus, we not only need a more inclusive and balanced measure of growth, as represented by a reformed GDP, but we also need new regulatory mechanisms for harnessing the self-regulatory power that such national measures unlock. 

Ken Henry points out, “the metrics we use to measure our goals affect the path we take to reach our goals” (Henry, 2010, p. 24).  This means that our indicators of macro-level national progress and growth regulate the micro- and meso-level behaviours we engage in (as individuals, organisations and communities) to pursue those national goals. 

This is where the notion of meta-regulation enters the picture: Regulating the indices we use to achieve national goals is a form of meta-regulation that can potentially guide our economic behaviour towards more sustaining and enriching national goals. Where traditional command-and-control forms of government regulation attempt to directly control organisational and corporate activities through legislated standards, meta-regulation guides the (self-)regulatory process itself. Morgan (2003, p. 490) defines meta-regulation this way: "[Meta-regulation] captures a desire to think reflexively about regulation, such that rather than regulating social and individual action directly, the process of regulation itself becomes regulated."

Supporting the recommendations of Stiglitz, Sen and Fitoussi and others, the meta-regulation of GDP would involve the deliberate broadening of the indicator to include and integrate measures of social, cultural and environmental well-being. But even more importantly, the lens of meta-regulation provides a means for seeing how our inherent enthusiasm for achieving “growth” can be expressed via more sustainable activities and more enriching goals. 

A root-and-branch solution to climate change will not emerge without the meta-regulation of (inter)national measures of economic advancement. 

This, of course, also means that there will need to be some kind of international co-ordination of such measures.  Whatever the actual constituent elements of those measures will be, the central role of meta-regulation and its co-ordinated governance will need to be acknowledged.     

Meta-regulation provides a new lens for understanding the dynamics involved in our infatuation with GDP and how we might alter it to target more balanced goals.  For example, GDP and its ancillary indicators constitute a dynamic feedback system that we and our organisations use to inform our mindsets, behaviours, goals and intentions.  This is particularly true for international and global issues such as climate change, which cross all kinds of national and jurisdictional boundaries.  Focusing on the meta-regulatory potential offered via indicators such as GDP can unlock organisations’ inherent energies for attaining goals. 

Whereas direct command-and-control regulation enforces standards through imposing sanctions and restrictions, meta-regulatory interventions aimed at improving indices of success tap into our self-generated capacities for change and creativity (Parker 2002). Through regulating the goal of development rather than trying to control behaviour itself, the conditions for self-regulation, self-determination and innovation are supported rather than suppressed.  And so the meta-regulatory task of guiding private and public organisations to achieve certain goals “is premised upon a change in mentalities or culture, rather than on coercion” (Scott 2003, p. 214). 

If our measures of success, as exemplified in GDP growth, continue to tell us that unlimited production and consumption of goods and services is the great national goal and that we need not bother with the long-term, planetary implications of our economic actions, then the multiple crises that face us in the 21st century will only deepen. In particular the climate change crisis will deepen and, as Naomi Oreskes has pointed out, lead to much greater and more direct regulatory actions of the command and control variety. Such old-style regulations will themselves have many unforeseen impacts on natural environments as well as social conditions. I don’t see that regulatory option ending in anything but unwanted consequences and massive social unrest. On the other hand, meta-regulatory interventions have the potential to capture innate social and psychological forces that use people’s inherent drives for healthy innovation and balanced growth of a more grounded and holistic nature. The meta-regulation of these growth indicators can help us turn a reflexive eye onto the compasses we use to set the direction of our domestic as well as national economies.  The alternative of staying the course with a broken compass is not a sensible option.  

References

Duncan, J & Gross, AC 1995, Statistics for the 21st century: Proposals for improving statistics for better decision making, Irwin Professional Pub. , Chicago.

Hagerty, MR, Cummins, RA, Ferriss, AL, Land, K, Michalos, AC, Peterson, M, Sharpe, A, Sirgy, J & Vogel, J 2001, 'Quality of Life Indexes for National Policy: Review and Agenda for Research', Social Indicators Research, vol. 55, no. 1, pp. 1-96.

Kennedy, RF, Remarks of Robert F. Kennedy at the University of Kansas, March 18, 1968, University of Kansas. Available from: <http://www.jfklibrary.org/Research/Ready-Reference/RFK-Speeches/.aspx>. [April 14].

Morgan, B 2003, 'The Economization of Politics: Meta-Regulation as a Form of Nonjudicial Legality', Social & Legal Studies, vol. 12, no. 4, pp. 489-523.

Parker, C 2002, The Open Corporation, Cambridge University Press, Melbourne.

Stiglitz, JE, Sen, A & Fitoussi, J 2009, Report by the Commission on the Measurement of Economic Performance and Social Progress, Commission on the Measurement of Economic Performance and Social Progress.

Tandon, S, 17th Sept. 2010, Treasury admits GDP used inappropriately, ABC. Available from: <http://www.abc.net.au/news/stories/2010/09/17/3015176.htm>.

This is an updated and extended version of an article that first appeared on The Conversation.

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