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MAJONE, G. (1997) From the Positive Regulatory State: Causes and Consequences of Changes in the Mode of Governance
Estudio/Working Paper 1997/93.

Summary:
In the late 90s Giandomenico Majone described the changes in the mode of governance as a shift from the positive to the regulatory state. He claims that due to preoccupation of theorists by changes in strategy and structure in the private sphere, the public sphere remained largely neglected. However, the processes to be observed are significant and far-reaching and therefore deserve attention. The late 1970s marked the beginning of the decline of the positive state. Until then, the predominant ideology of Keynesian welfare state laid upon policy-makers the necessity to attend to three main types of economic intervention: 1) the redistribution of income through transfer of resources and provision of merit goods1, 2) the economic stabilization through management of economic growth and employment and 3) market regulation in strive to correct market failures: monopoly power, negative externalities, incomplete information, insufficient provision of public goods and so on. The state functioned as a planner, producer of goods and services, and even as an employer of last resort. The consensus about the desirability of the welfare-state has, however, waned, and the idea of the positive state has increasingly become to be seen as the source of the problem. It was the term government failure which began to retain saliency and public policies promoted privatisation of the public sector, competition and various reforms. Privatisation, liberalisation and welfare reform brought about the onset of what Majone calls the regulatory state. While public ownership had historically been the default means of economic regulation, it became clear that it doesnt equate with public control. An alternative solution is leaving public utilities in hands of private owners while subjecting them to regulation by special bodies. The emerging mode of governance is often referred to in terms of deregulation. This would, however, be only partially true. While there certainly is some easing of control going on, the ongoing process can better be thought of in terms of disassembly of the rigid direct governance structures and re-regulation on a different level2. The process of introduction of the regulatory state in Europe is further intensified by the europeanisation of policy making, which manifests itself by increasing interdependence of domestic and supranational policies within the EU. Generally we can speak of concatenation of several basic strategies leading to the growth of the regulatory state in its dual role of external (market) regulator, and of internal regulator [Majone 1997: 12]. The changes in the inner face of the regulatory state can be described as a shift from direct government to government by proxy. In line with the mantra of administrative decentralisation and regionalisation, singlepurpose units with their own budgets are being introduced to replace the formerly monolithic entities. Responsibility for service delivery is being delegated to private, for profit or not-for-profit, organisations, and to non-departmental bodies operating outside the normal executive branch framework [Ibid: 10]. The basis of the relation relies on contractual or quasi-contractual arrangements and competitive tendering takes place. The new structure of responsibilities requires new forms of control and accountability. Instead of providing services directly, the regulatory bodies set standards and checks on quality control, and even if both public, the bodies operate at arms length. Examples of such initiatives can are the British Next Steps and the new approach of the EC/EU.
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Education, insurance, health-care and the like The change can better be explained as a change in quality rather than in penetration.

simon.fiala@seznam.cz With the change of the mode of governance comes also a change of instruments being used to govern. While the dominant instruments of governing used to be taxing (or borrowing) and spending, the characteristic of the new mode is rule-making instead. This change brings about a peculiar problem: it has become difficult to gauge activity of an agency as long as the costs of regulation are not being borne by the regulating body, but by the subjects of regulation. This problem has been particularly accessed in the context of the EU, in which case the costs of policies are being borne by the member-states. There is therefore a need to revise public-choice models to incorporate the new direction3. As new actors increasingly occupy the policy-making sphere, we can also see new styles of governance being introduced. The new breed of flexible, specialized and autonomous agencies and commissions operates at arms length from central government. This means weakening of the corporativist mode of government and its succession by disjointed pluralism, within which the regulating agencies are being constituted in the halfway between the government and pressure groups. Within the pluralist environment a new sphere of influence emerges for the judiciary to intervene in. As the externalization advances, and more transactions take place in the open market, disputes cannot be settled through invocation of authority and the courts are being called to decide. The judiciary therefore becomes an active political player despite of the resentment of many. A new actor the expert replaces the politician to an extent. While the expert knowledge is an important source of legitimization of regulatory agencies, it also asserts a problem of accountability and legitimacy. As long as there is the informational asymmetry, the expert is in an advantageous position in relation to the politician to whom she is supposed to be accountable to. This situation creates a considerable range of discretion on the side of the expert and therefore a new insecurity on the side of those to whom the experts are supposed to be accountable to. The struggle over power moves into regulation, and parliament is often effectively circumvented by technocratic governing bodies. Rule-making is gradually being cut from direct accountability to electorates. Such changes in the mode of governance can be reasonably perceived to have serious consequence with regard to democratic legitimacy. From the literal understanding of principles of democracy as the rule of the people it follows that the decision-making bodies need to be under direct control of elected representatives. Such a view would be inconsistent with the pluralist, technocratic and autonomous agency model. Does it follow that the patterns described challenge the basic principles of democratic theory? Not necessarily as there are other views on principles of democracy. Such a one is the Madisonian model, which holds that democracy should rather be concerned with prevention of the tyranny of the majority. The aims of democracy within that view are to share, disperse, delegate and limit power. As long as we grant certain face legitimacy to the new model described, we can proceed to discuss the problem in more concrete terms. It may be helpful to distinguish procedural and substantive legitimacy. Procedural legitimacy concerns whether the agencies are created by democratically enacted statutes (which define the agencies legal authority and objectives) and whether regulatory decision-making follows formal rules. Agency decisions must be justified and open to public participation, peer review and judicial review. Substantive legitimacy concerns the capacity to engender and maintain the belief that they are the most appropriate ones for the functions entrusted to them [Ibid: 28]. Substantive legitimacy depends on policy
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The classic theories hold that bureaucrats try to maximize the size of their agencys budget, which is made possible by the informational asymmetry. Regulatory bodies, however, do not expand through expenditure, but through providing benefits to interest groups.

simon.fiala@seznam.cz consistency, expertise, the ability to protect diffuse interests, professionalism, clear definition of their responsibility and accountability by results. In case we find the new breed of agencies being successful in meeting the criteria of legitimacy sketched above, we can conclude that the question of independence can be reconciled with democratic accountability. We can do so, however, acknowledging that delegation to bodies, which are not subjected to direct electoral accountability, cannot be justified in case of redistributive policies. The theoretical sketch above doesnt, however, quite fit the realities yet. The speed of adoption of the agency model of governance varies from state to state. A major impediment of the transformation is the institutional and intellectual legacy of the interventionist state. While states increasingly realize the need to commit to policy credibility, the national governments are still tempted to interfere out of political expedience. There is, therefore, a long way to go.