Donald Macrae

In gesprek met Donald Macrae. Former Director General, now an international consultant in strategic policy and regulation.

You’re a consultant in strategic policy and regulation. What does that imply?
I advise governments on regulatory systems. More specific, on how to make regulatory systems work. I have got a lot of background in how to create regulation. But in the last years I have been specializing more in how to make regulatory systems work on the ground. A legislative framework is just a set of abstract concepts and rules. What matters in terms of getting real change, is how that is implemented and how that is enforced.

When you say how it is implemented, who do you refer to?
Essentially it is what business does. But how you change what business does is a very complex matter. It is the business that delivers the change - not the regulator. The regulator’s job is to effectively work with the businesses in order to deliver change. Sometimes the best approach is sanctions, punishment and robust enforcement. But very often that is not effective at all. What is more effective is trying to provide enough support to raise the overall compliance levels.

Can you give me an example?
One of the best illustrations is in food safety. Take China for example. If you want to feed the population of Shanghai, then you don’t achieve very much just by closing down some of the bad food businesses. It does not create safe business. And statistically speaking, the number of really dangerous businesses that try to poison their customers is tiny. So just focus sing on the bad guys is not actually going to deliver the regulatory outcomes.

In order to deliver safe food to 25 million people you need to have millions of small food businesses doing the right things. It is the regulator's job to understand how to support small businesses to get it right. Can we help them deliver safe food? They will still catch the bad guys and prosecute them. But that’s more to ensure the population they still try to catch the bad guys. It’s not really for the regulatory system.

You’re saying you need to have both. On the one hand have enforcement, penalties, show you are on top of it, and on the other hand influence the system in a different way?
Yes, you need both. If nobody gets punished or found out, then the respect for the system will deteriorate. Because of the nature of business. There was this one business, they were doing everything supremely well. When I was talking to their managing director, I asked ‘Is there any point in inspectors coming to inspect you?’ He said, ‘Yes, it keeps me honest.' I was surprised. He would still be weighing up whether to comply with some rule or not. Even a businessman who is trying to be honest, trying to do everything right, will say ‘well actually that rule, I don’t see much value in it. I don’t really feel persuaded by it or see that there is a good reason for me to abide to it simply because it is there.’

Rob Velders argues as a supervisor you need to know when to enforce and when not to enforce a rule. When I am listening to you, in some way I hear you say the same thing.
Yes, one of the regulators I deal with has a reputation for being extremely literal. It is very difficult to get him to agree that anything is unimportant. Most of his colleagues are far more sensible, and therefore will accept a proposal we made and allow us all to move forward. That other colleague might say it is not good enough because it is not perfect. Ultimately, if you want business to deliver your regulatory system, you have to come to some sort of deal with them.

Are you saying regulators should not demand more than can be expected?
There is no point in demanding more than can be delivered. There is a Director General in the Netherlands whom I dealt with quite a lot. His view was that when you design a new regulatory system, you have to take into account just how difficult it is going to be. If you think that 80% of business will do it simply because it is there, then fine go ahead. If you’re not going to get that 80% compliance, then think very carefully about how well this rule is enforceable. There has to be an element of deal making between the state and business. There is no point in having a regulation that asks you to do the impossible. But then as a business I might think that something is impossible - maybe also for the convenience of it - because it wouldn’t cause so much trouble.

That’s what makes it very difficult. The thing is – I have dealt with politicians who still believe that all we need to do is make a rule and that will deliver the public goods. That is unrealistic. You have to look at what the reaction of the party that you are trying to change is going to be. And it may well be that parties will pack up their business and go and do something else. It is a question of finding a balance. The rule has to be capable of being implemented.

But who defines that balance?
That is a skill of a good regulator. In trying to find out how far you can push business and how you can help the business move towards that way of thinking. I agree with you, businesses may well say 'Oh no, this is impossible.' You need to go through all of that as well. You cannot just say, 'This is going to be difficult for business, therefore we’re not going to do it.' You can push them. But you have to understand how far you can push them. And you have to understand how they are going to react. They may react in surprising ways and you may end up with a worse situation then you had before.

Given your background and experience, how did you find that balance?
I didn’t. When I was making regulation, I wasn’t thinking in that sort of way. It wasn’t until the final 5 years that I got involved in systems thinking, and got far more aware that it is far more complex than I thought. We didn’t really understand what we were doing in some cases.

Do you have an example?
The example we all used to come back to was teenage pregnancies. This was a very difficult social problem. We thought that teenage pregnancies was a particular social problem because of the many consequences that came from that. And therefore, if we could reduce teenage pregnancies, then that would help build a different society. The challenge was how do we reduce these pregnancies. Two years earlier, we would have never thought of that. Five years earlier we would even have thought it is not a role of government: it is entirely up to teenagers to sort out what they want to do. We had a government under Tony Blair that was much more interested in these sort of social issues. Once we started talking about behavioral change were we moved to new ways of thinking. We started to get more concerned about understanding enforcement. How do these systems work? We can do a lot of research and try to think what regulation should say, but how do we then deliver it?

Do I understand you correctly if you say that through system dynamics and focusing on the whole system, you got better regulation than if you as a regulator just designed policy without any consultation?
Absolutely. Because you don’t understand what the impact is going to be. The problem with just trying to design behavioral change to deliver one public good, is that you’re expecting your subject to change behavior in that direction. But that is only one issue that subject is dealing with. So, it may be that, yes, the subject has to deal with what you try to do, but there are a lot of other issues in his life as well. And how does a change that you want him to do for your little policy fit with all the other things he is facing? This is one of the biggest problems of policy. Assuming that this is the only issue that matters.