Regulatory State

The notion of the regulatory state suggests that the role of the state in economy and society is shifting from positive intervention to arms-length regulation and arbitration, particularly in advanced industrial economies. The supposed rise of the regulatory state has thus both a policy and an institutional dimension. It signals a formal end of Keynesian demand management as the dominant economic policy paradigm and highlights the creation of new administrative tools to steer market dynamics. It also has an international dimension, as the instruments of the regulatory state—independent agencies, commissions, and courts—engage in transnational governance through regulatory networks. Finally, the rise of the regulatory state poses important questions about the transparency and democratic accountability of governance.

Across the advanced economies, governments are relying less on direct economic intervention through fiscal and monetary tools and increasingly on armslength regulation to stimulate competition and ensure the provision of social goods. Likewise, they have withdrawn from directly running companies in fields such as transportation, telecommunications, and utilities. In these newly liberalized sectors, the role of government is now one of a neutral watchdog that ensures competition and, where necessary, social protection. What has happened, then, is not a sweeping deregulation, but rather a complex reregulation associated with a redefinition of the state's role in the economy.

While the process of delegating regulatory authority to nonmajoritarian institutions gained widespread appeal with the New Deal in the United States, it has picked up considerable speed in the 1980s and 1990s. [Page 821]In constructing the regulatory state, governments have developed a set of agencies, commissions, and special courts that develop, monitor, and enforce market rules and that increasingly shape policy at home and abroad. Regulatory agencies may set the policy agenda, specify regulatory statutes, and punish noncompliance. The formal and informal resources delegated and available to these institutions affect the state's capacity to shape political outcomes. Increasingly, these institutions take advantage of their domestic autonomy to work with their foreign counterparts, spearheading a new form of global governance rooted in transgovernmental networks. Thus, the regulatory state is at once the foundation and stimulus of transgovernmentalism.

Although the regulatory state is often heralded as a fast and flexible alternative to the cumbersome and overly bureaucratic strategies of a previous era, its emergence raises several important questions about democratic governance and accountability. Unlike Keynesian policies that were generally proposed and adopted by elected executives and legislatures, market rules are increasingly developed and implemented by unelected technocrats. To advocates, this mode of economic governance takes the politics out of market regulation; to skeptics, this is precisely the problem. Whereas the independence granted to new regulatory institutions is supposed to buffer them from capture by political and business interests, it also threatens to isolate them from direct democratic control. This dynamic has been most pronounced at the international level, where projects such as the European Single Market continue to suffer from a legitimacy deficit that many analysts attribute to the democratic deficit of new arms-length regulatory institutions.