Ensuring the right to private property and economic freedom was a neoliberal idea widely promoted in the mid-20th century. State intervention in the economy was meant to be limited, guided by economic criteria, and protected from the opportunism of politicians seeking reelection. The goal was to protect the individual from the power of the state. Neoliberals even viewed the institutions of the former EEC with a certain fondness, believing that, as supranational bodies, they could shield investment and trade from the excesses of national governments and did not need to do much more.
Over the past three decades, the EU has developed its own version of the regulatory state. It drew inspiration from the American experience, where the expansion of environmental regulation, consumer protection, and workplace health and safety from the 1950s to the 1980s relied on agencies independent from government. Alongside the goal of economic freedom, another gained prominence: correcting market failures, considered to be present in almost all markets, in order to protect consumers, workers, and the environment. However, the distrust of political opportunism was shared with neoliberals, which is why economic regulation was to be carried out by independent bodies.
This regulatory model has been increasingly rejected in the United States on two grounds. The first is a matter of principle. The current U.S. administration appears to believe that all executive power should be subordinate to it. It should be able to dismiss the leadership of any public entity if its decisions are not to its liking, or to issue directives to eliminate or create environmental or financial regulation.
Second, the U.S. government argues that independent agencies have regulated without sufficient oversight and have become obstacles to economic freedom. In doing so, it turns the original idea on its head: the intention was to protect the market from political opportunism, but the result was to subject the market to the opportunism of regulators. Therefore, it is now deemed necessary to return power to politicians, who should exercise it free from bureaucratic constraints. In this view, elected political power is not a source of opportunism, or, if it is, it causes less harm than the opportunism of independent regulators.
The idea that there is excessive regulation is also accepted in the EU, with a landmark being the Draghi Report. However, in this case, politicians and regulatory bureaucrats tend to align. The legislative process is initiated by the Commission, and the outcome is approved by the Parliament and the Council of Ministers. In terms of implementation and supervision, however, more or less independent entities prevail. The Commission itself acts as guardian of the treaties. At the national level, multiple authorities and agencies interpret more or less indeterminate legal concepts and decide whether to impose sanctions or grant licenses. According to many companies, these interpretations tend, out of precaution or populism, to be almost always interventionist. From this perspective, rather than enforcing rules, these bodies generate regulation without sufficient oversight and with costs for society.
There is a quadrilemma when attempting to correct market failures, protect individuals and companies from political opportunism and bureaucratic opportunism, and promote economic freedom. In the EU, there has been a tendency to prioritize the first two objectives, accepting some degree of bureaucratic opportunism and imposing limits on economic freedom. In the United States, the current approach downplays the risks of political opportunism and questions whether market failures are significant enough to require state intervention.
In my view, the best approach to this quadrilemma has three components, with varying weight depending on the market: less regulation through legislation, a more precise definition of the responsibilities of independent bodies, reducing the broad discretion they sometimes hold, and a clearer delineation of the government’s power to intervene in the management of regulatory entities and in regulatory activity itself. However, I am not betting that this path will be followed. In any case, we shall see how this unfolds and hope that it ends well.
João Confraria, Professor at CATÓLICA-LISBON