Smart regulation well-functioning marketS

Summary Recent developments have shown that Finland is facing particularly large economic challenges. Facing up to the challenges requires substantial socio-political re-evaluations in many areas. Firstly, the relevant size of the public economy shall be re-evaluated, at least in certain respects. Secondly, the maintenance of a reasonably sized public service production requires changes which will promote productivity and efficiency. Thirdly, the general environment of operations shall be developed so as to promote commercial and economic activity. In general, there is likely to prevail a reasonable agreement about these types of challenges and development needs. However, the comprehension of the connection between these challenges and better regulation has remained weak according to the OECD (2010), and has broadened only recently. According to the OECD, there is no in-depth understanding in Finland on how better regulation can be used to encounter the said economic challenges, as up until the worldwide financial crisis, the constant stability of the Finnish economy prevented recognizing measures which could further improve Finnish competitiveness. On the other hand, as a result of the recession created by the financial crisis, the window of opportunity for raising the status of better regulation is now open. For example, the principles of the Better Regulation Programme of the Finnish government are excellent according to the OECD. But the guidelines for new regulation contain only few concrete criteria for practical implementation, and the enforcement of the principles of better regulation still remains weak. According to domestic estimates, the measures of public steering have been more versatile during the past couple of decades, and there has been a shift from steering by means of norms and resources toward more customer and market-oriented steering. However, the traditional steering by means of law-based norms and administrative steering have still retained their central position, although the quality thereof has been increasingly criticised. One particular problem is that, in some cases, the means of social steering have been decided quite conclusively in the Government Programme, and there is no genuine room for discussion and deliberation on the various methods of regulation. All in all, Finland has quite a resilient tradition of decreeing by law and of regulation, and for example according to the estimate of the National Research Institute of Legal Policy, Finland is one of the most legislatively intense countries in Western Europe. According to several evaluators, the 2000 Constitution has further heightened this tendency. Since, according to the prevailing interpretation, lower-level regulation cannot in effect be used any more, this has led to an increase in the number of laws and particularly to the degree of detailedness thereof. The increase in the number of details in the laws also leads to legislation which will become extinct faster than previously, as even the legislator cannot stop the current pace of rapid economic and technical progress. This setting increases the qualitative challenges of legislative proposals even more.

These challenges relating to legislation and administrative steering have been acknowledged both nationally and at EU level. Still, even at EU level, concrete measures have had to wait up until recent years, and for example the Commission confirmed the simplification of regulation and the improvement of the quality thereof as one of the EUs priorities only in 2005. Following this, more and more EU countries have began to apply some systematic method covering the entire legislation e.g. to define, measure and decrease the legislative burden. Finland has not had a project spanning the entire State Council to relieve the administrative burden. Nor has Finland been particularly active in joining the pilot projects initiated by the EU or OECD, even though in principle Finland has committed itself to the idea of relieving the administrative burden. Furthermore, the steering and guidance provided for impact analysis for example has not had a major impact on legislative proposals at least in a qualitative sense. All in all, many of the recommendations and instructions on better regulation still await practical implementation in Finland. Relieving the administrative burden, impact assessment, or attempts at better regulation in general are not an end in themselves. The need for better regulation is closely tied up to the economic challenges that have been described above. In order for the resources of the economy to suffice for all that is necessary in an environment of operations which is becoming economically more and more challenging, a more result-based, efficient and productive activities on all areas of the society are needed. I.e. better results shall be achived with resources that are more limited than before. Due to this, better regulation in general and the impact analysis relating to forms a major part of meeting this challenge: smart regulation will achieve the desired outcome at a cost which is as low as possible, and it will not unnecessarily strain other areas of social life and commercial activity. Regulation which is appropriate quantitatively and qualitatively and which is correctly measured will also improve the general functioning of the markets, which will in turn promote the efficiency and productivity of the economy. Well-functioning markets have an important role in safeguarding productive development and generally, in meeting the described economic challenges. Well-functioning markets have traditionally been safeguarded by means of competition control. Next to the traditional competition control, an increasingly important part of the competition authorities work consists of promoting competition, i.e. advocacy, which aims at better regulation both quantitatively and qualitatively in individual cases and on a general level. In the present context, advocacy refers to measures of the competition authority which aim at safeguarding the competitive environment and well-functioning markets but which are not based on actual monitoring and enforcement of the competition legislation. In the Act (711/1988) and Decree (66/1993) on the Finnish Competition Authority (FCA), which impose on the FCA the task of advocacy, the general observation underlying it is that in addition to antitrust violations by commercial undertakings - cartels, abuse of dominant position and mergers - competition may be significantly limited or distorted by public regulation and governmental measures. Particularly in economically difficult times, the danger is that, in the centralised system, straightforward solutions to problems are sought by measures which possibly produce quicker results than the market process in the short term but the results may be worse in the long term. It is clear that, particularly in difficult times, those who are not interested in the promotion of competition and well-functioning markets see that their opportunity for social influencing has arrived. Some of the literature of the field approach these attempts at influencing by quite cynical descriptions of how large corporations for example seek to advocate regulation that is useful for them, while at the same time seeking to raise the level of entry. Some of the literature approach the attempts at influencing as a more multidimensional description of the struggle between the various stakeholders to attain the desired regulation, and the outcome of this struggle is a form of compromise between several viewpoints. What is essential is that the view of regulation born purely through rational choice based on the common good has been largely challenged in the research of the field. Nowadays, there is also increasing emphasis on the administrative structures, arrangements, processes and standards which significantly limit the possibilities of individual actors both inside and outside the administration to influence legislation in a manner which is clearly harmful for public good.

It is the role of the competition authority in this endeavour to assist the other public actors to distinguish between regulation which can be clearly justified from regulation which extends too far from the economic perspective. This may take place for example by a closer inspection of which markets have problems relating to e.g. externalities, asymmetry of information or other similar factors that seem fairly permanent, and on the other hand, what are the markets in which the market mechanism itself would seem capable of solving possible temporary market failures. The competition authority can also suggest other regulatory options that can replace or complement the traditional command and control regulations when these would appear to be fitting in a specific case. Furthermore, the competition authority can suggest administrative arrangements, standards and methods of assessment that seek to safeguard the neutrality of the proposed regulation in relation to the interests of individual actors. The task of the competition authority is not always easy in this respect. When we talk about market failures for example, it should be remembered that e.g. due to the market actors inevitably insufficient information and limited rationality, all markets ultimately operate inadequately compared to the ideal models of literature. It cannot be deduced from this, however, that regulation is needed on all markets, because the often ignored fact is that like the markets, regulation also always fails if it is compared to the ideal models of literature. The everyday work of regulation is coloured with shades of grey and not black-and-white. In other words, in trying to aim at better regulation, institutions will have to be developed in an imperfect world, abandoning ideal models. Because of this, the position of empirical analysis is of utmost importance in examining the grounds and impacts of regulation. During the past ten years, advocacy as part of competition policy has gained momentum. In modern advocacy work, the common point of departure is not the dismantling of regulation as such but smart regulation which refers to regulation which is correctly dimensioned quantitatively; qualitatively accurate and of a high level; and measurable and has a de facto impact. Smart regulation is regulation which is genuinely necessary and which has benefits which clearly exceed the drawbacks. One of the main points of departure in modern advocacy work is also that advocacy and competition control reinforce one another. The monitoring of competition rules can be supported in many respects by active advocacy, and vice versa: advocacy lacks credibility, unless it is related to the powers of competition control and the knowledge obtained in the context of this work on the genuine problems related to the smooth running of the markets. The resource limitations that inevitably relate to advocacy work emphasise the need to direct resources in a way which ensures that in the midst of this work is ensuring the introduction of administrative structures, arrangements, processes and standards which eliminate the need to focus future advocacy efforts at individual regulatory problems which may be very small, concurrent and tie up too much resources. In other words, the focus will have to be shifted from the case-specific approach to more general advocacy work, not forgetting or bypassing the central role of details. In practice, this means the implementation of the principles contained in both national and international programmes for better regulation in the everyday work of legislators and regulation, as shortly put, better regulation serves the goal of safeguarding well-functioning markets to begin with. From these starting points, this presentation examines the areas of better regulation in which the defects are the most obvious not only from the point of view of the competition authority but in which the effectiveness of the development work done would be likely to be the most extensive from the viewpoint of safeguarding well-functioning markets. The presentation does not attempt to summarize the related discussion in its entirety; instead, the basis of the examination is formed above all by the writings of Mtt (2009), which have as their clearly expressed goal firstly to close up the so-called regulatory gap, which has often been seen to be located in between the theoretical literature of the field and practical law-drafting. Secondly, a major part of the legislative materials empirically examined by Mtt has dealt in one form or another with market regulation from an economic perspective, which is a relevant choice of perspective for the FCAs statutory task. Finally, in Mtts writings, the conceptual discussion is strongly related to the empirical analysis of domestic legislative materials and the development proposals related thereto. From these points of departure, in the assessment of the fulfilment of the goals of better regulation, four key questions may be pointed out. Firstly, when striving at better regulation, we should ask which are the considerations used to defend the legislative proposals and how well these considerations correspond to the grounds proposed in

economics for judicial regulation. Secondly, we should ask what kind of regulatory standards the analysis of the effectiveness and appropriateness of the legislative proposals is built on in the government proposals, if such standards are used in the first place. Thirdly, we should ask to what extent the government proposals chart the regulatory options available to solve each problem and how well the superiority of these options has been compared. Fourthly we should ask if the impacts of the chosen regulatory option have been analysed in the first place, and whether the regulatory analysis has been conducted in the proper way. In practice, underlying the said questions is the thought that, as a rule, regulation should always be justified by explicit market failure which is sought to be prevented or redressed through regulation. Secondly, it should be clearly defined what are the criteria of successful regulation; in other words, to what extent the identified problem may be effectively influenced so that the social benefits of regulation clearly exceed the drawbacks and the costs. Thirdly, we must reflect whether judicial administrative steering is the proper way in the first place to seek to influence the identified problem, or whether the economic and social aims could be achieved by other steering methods replacing or supplementing administrative steering. Fourthly, the de facto impacts of the chosen regulatory or steering option should in practice be analysed using the appropriate methods for each occasion. From an economic perspective, the only valid justification of public regulation in this presentation is market failure, which refers to failure that prevents the efficient allocation of resources in the economy. This may include e.g. the monopolisation and centralisation tendencies in the market, externalities, and the general economic interest nature of a service, imperfect information in the market, transaction costs or other similar reasons. As a rule, in the sectors discussed in this presentation, regulation has been justified using at least some of these factors. Frequently, the grounds and goals of regulation and the connection to the chosen means remain at least partially unclear and unspoken. The cornerstone of the examination of regulatory standards is the cost-benefit analysis, where the idea is to show that the social aims of regulation clearly exceed its drawbacks and costs. Making a full-fledged costbenefit analysis is such a strenuous process, however, that it should not always be launched into in the context of minor regulatory reforms. Even then, however, a more concise and general analysis of the benefits and drawbacks of regulation should be made. But regulatory standards do not only refer to cost-efficiency and a cost-benefit analysis. For example, regulatory effectiveness as a regulatory standard receives surprisingly little attention in legislative materials in spite of its major position. All in all, the most important regulatory standards in this presentation include regulatory effectiveness, efficiency, flexibility and neutrality, and with some reservations, iterativeness. As regards the analysis of the regulatory options, the primary options of administrative steering in this presentation include incentive-based regulation, self-regulation and information steering. These are not the only options of administrative steering, however. Instead of an exhaustive list, a more detailed analysis of the preconditions and potential problems of the main options has been considered more important in this presentation. Even though it is important to consider the options of administrative steering, in some cases administrative steering may still be the most appropriate option from the point of view of the principles of better regulation. The impact analysis is not an isolated, ex post performance; instead, it is a way of thinking cutting across the entire legislative and regulatory process. Hence, the impact analysis does not revert to a single method necessary for the making of a cost-benefit analysis: if the points of departure for making an impact analysis are erroneous or inadequate, not even the best technical method or performance of analysis can guarantee truthful results. This is why the preparation of an impact analysis should begin at a sufficiently early stage. All in all, an essential part of better regulation is a proper impact analysis, sufficiently early begun, which largely integrates and operationalises the three other above-mentioned elements or dimensions of better regulation.

It is essential for all the above-mentioned basic questions or dimensions of better regulation that there are no ready-made answers and solutions which would work in all situations. The effectiveness or appropriateness of regulation is always ultimately an empirical question, which firstly depends on the details for executing the said regulation and secondly, the prevailing circumstances in each case. In practice, legislation and regulation always unravel as a bundle of detailed observations of each option, and the details of regulation frequently determine how successful specific regulation can be considered. This goes for all regulatory options. Correspondingly, the applicability to the prevailing circumstances is often decisive for the practical use and appropriateness of regulation. For example, in rapidly changing circumstances, the possibilities to use incentive-based regulation may be fairly limited due to the regulatory delays related to this. In some circumstances, the traditional administrative steering may prove to be a more appropriate option than information steering from the point of view of a cost-benefit analysis. On the other hand, in many cases, administrative steering may be quasi-profitable and be based on a very narrow examination of administrative costs. As the appropriateness and effectiveness of regulation is ultimately always determined by its details and the prevailing circumstances, the presentation also examines in more detail a group of individual sectoral examples from the point of view of safeguarding effective markets and the challenge involved in the creation of better regulation. As a rule, from the point of view of promoting the effectiveness of competition and the markets, the examination of the general principles and the examination of the sectoral details and circumstances should supplement and support each other. The aim of this examination has not been a close dialogue between the general principles in the conceptual level of regulation and the sector-specific empirical reality, as attested by the example of academic discussion. A more detail analysis in this respect may be considered the task of academic research. Instead, the aim has been to describe the regulatory problems in individual sectors as they appear from the viewpoint of safeguarding effective markets, which is the FCAs task. A secondary aim of the sector-specific examination has been to pay attention to such considerations in the sectoral regulation which have obvious relevance for a more general discussion on better regulation. It should be remembered in this respect that according to the OECD (2010), a more specific idea of the connection between better regulation broadly understood and the effectiveness of the markets has only begun to be defined in recent years. In the observation of the FCAs regulatory problems, the traditional emphasis has been on specific dimensions of better regulation such as the economic grounds of regulation and the immediate effects in the market. Based on the recommendations of the OECD country report, there may be cause to broaden the angle of inspection of competition policy at least in certain respects. The practical aim of sectoral examination is, in any event, to approach regulation from two angles above all. The first one is the attempt to demonstrate the versatility related to regulation as a social phenomenon and the related decisive role of the details of regulation and the prevailing circumstances for the effectiveness and appropriateness of competition. Another angle is to bring forward, based on what has been said, topical challenges relating to each field from the viewpoint of political decision-making. As regards sector-specific examination, an apparent problem is the number of fields chosen for a more detail observation. All business fields contain some form of regulation, and to make an exhaustive presentation in this regard is impossible, in view of the resource limitations. Hence, a group of fields has been chosen for a more detailed observation in which regulation may be generally considered to play a major role and which are connected to some topical questions on the social decision-making agenda from the viewpoint of regulation. Furthermore, the entirety of the fields chosen for a more detailed examination is meant to illustrate in a versatile way the complexity of regulation and the wealth of detailsdescribed above. For the first, two fields have been examined which have at the core of their business logic the distribution network and the command thereof. These fields are the postal and the telecommunications fields. As regards

both of them, the expressed aim of special regulation includes the promotion of competition. The most interesting general observation in these fields is that as regards telecommunications, promoting competition has succeeded fairly well, although this has required an active role by the competition authorities and cooperation with the regulatory authorities in supervising the aims of regulation. But in the postal sector, the results achieved in promoting competition are modest. The proposed new legislation would not seem to increase competition in the field either, although some of the most problematic sections form the point of view of the old regulation will be redressed. Despite the modest results in promoting competition in the postal sector, it has not been proposed e.g. that access to the dominant operators network should be regulated (cf. the telecommunications field) or that the regulatory authority should take a stronger role. In the postal sector, the areas of the proposed new regulation have been analysed in which the explication thereof would be necessary from the point of view of promoting competition. In the telecommunications sector, attention is paid to the fast technological progress in the field, in which the expansion of the fiber technology would seem to require clarifications in the regulatory framework. The financial markets are in many ways at the heart of the modern economy: if the operations of the financial markets are disturbed, the entire economy may be at risk. The core of the market is formed by banks and the money transfer above all. On the other hand, the financial markets are composed of many supplementary parts, one of which is the employee pension scheme gathering and investing major capital. These have been examined in more detail after the networking industries. In the regulation of both the banking sector, at the heart of the financial markets, and the employee pension scheme, the aims of preserving trust, stability and security have typically been heightened in relation to the advocacy goal. On the other hand, the two markets have some clear differences in the starting points of regulation. The regulation in the finance and banking markets is supranational as a rule, and national latitude is small, whereas the regulation of the employee pension scheme is strongly based on national considerations and the institutional special features of the national system. Still, in the regulation of both sectors the advocacy aim is strained compared to the other regulatory aims. In the banking and finance sector, particular attention has been paid to the apparent threat of over-regulation following the international banking crisis. Particularly the political pressure for more stringent regulation has been considerable. In the employee pension scheme, particular attention has been paid to how regulation could be used to spur actors to competition to the extent that it is possible in a system where the competed area remains limited due to its nature. Next, three sectors are examined in detail in which the basic argument of the proposed regulation is the climate change. The climate change is one of the major ideologically charged slogans of the day. Combating climate change in the construction sector is a good example of how the basic starting point of the market economy has largely turned upside down: new, better solutions are not developed on the actors own initiative but on the initiative or order of the authorities. In recent times, the justification for the new rules on the energy performance of buildings has been that e.g. the marketized progress of low energy construction has not been as fast as desired and that large-scale low energy construction may only be achieved by statutory steering. This presentation does not seek to deny or question the apparent need to take concrete measures to combat climate change. The intention is to pay attention to the vicious cultural circle in which increasing regulation is justified by the malfunctioning of the markets, which serves to further deteriorate market activity. The government proposal issued in December 2010 based on the report of the trade location and steering working group contains a total reform of the location steering of large retail outlets, in which particular emphasis lies in firmer steering of large regional retail outlets. According to the proposal, the law would stipulate on the content of the county and general plans when they concern large regional retail outlets. County plans would contain the maximum dimensions of the outlets and the lower limit of the dimensions of a retail unit. Many arguments and aims have been put forward for the new regulation: preventing climate change; securing sustainable community development and the availability of services; anticipating for the aging of

the citizens, and creating preconditions for viable competition. Particularly the prevention of climate change has been seen to require putting a stop to the dispersion of the community structure and the increase of shopping traffic. But creating preconditions for competition is still not contained in the aims mentioned in the government proposal. In the preparation of regulation on large retail outlets, the assessment of options has not had a visible role. This is noticeable particularly from the angle that many concurrent aims and goals have been set on regulation which relate e.g. to climate impacts, the development of nearby services and town centres and so forth. Hence, the risk of imbalance between the goals and measures is apparent. The reasoning behind the regulation on causal connections is manifestly unclear and problematic. Hence, the proposed impact analysis and the logic thereof remain unclear. On the basis of the preparatory materials, it is for example unclear what would be the impact or incentive mechanism which would lead to the improvement of nearby services from a firmer regulation of large retail outlets. In the context of the preparation, the impacts of the new regulation on competition have been bypassed and in particular on entry as an essential requirement of it. This may be considered a clear defect in the proposed new regulation, because due to this even the possibilities of large international competitors to enter the market would seem to deteriorate when regulation would considerably restrict the use of a central competition method i.e. location decisions. As a result of the discussion on climate change, the emphases of the EU waste management and environmental policy have also changed. The demands have become stricter and more detailed, although the basic principles of regulation have largely remained the same. Still in Finland, too, a total reform of the waste legislation has become topical. In the context of the reform process, lively discussion has been waged on e.g. the role of the private and public sector in waste management. The legislative framework on environmental protection and environmental business has a strong influence on the formation of market structures in waste management and recycling. In this respect, attention should be paid to two viewpoints. Firstly, in the context of the regulation on the waste management sector, the freedom of choice of the companies and end customers is being narrowed in a way which may be considered problematic for effective markets. Secondly, new and innovative business models in a field which is developing heavily may not be well suited to the socalled waste hierarchy underlying the regulation. All in all, regulation in the waste management sector is another example of how goals related to combating climate change can be used to explain the bypassing of the basic principles of the market economy. The third main group under consideration are sectors where the gist of the regulatory issues is related to competition neutrality problems which have received much attention in recent years. These analyses relate to the municipal enterprises; to Finnish Broadcasting Company, Yleisradio; and the electronic communications market more generally. As a result of the continuous expansion of the municipal business, the question of regulation has become more topical, because municipal or public businesses in general often have competitive advantages which the others cannot achieve. Following the so-called Destia decision of the European Commission, particular attention has been paid in this respect to the state or municipally owned enterprises. Particularly the position of the municipal enterprises and intervention therein has proved to be a difficult question from both the judicial, administrative and political angle. Due to EC influences, in particular, a major regulatory method is the incorporation requirement of municipal enterprises. The problem in this approach may later prove to be its narrow scope, and the impacts of the new regulation in the market should be carefully assessed. There has been a desire to reform the funding of the Finnish Broadcasting Company, Oy Yleisradio Ab. The proposal on the reform of the funding caused wide social discussion, which is likely to commence anew when the issue will come up again during the new government reign. The special nature of the broadcasting business favours the extension of the service to all citizens. However, the funding of the Finnish Broadcasting Company should ensure the preconditions for competition neutrality as far as possible. The challenge then is the definition of the service task and the sizing thereof, and hence also the funding method. For example, in accordance with the Amsterdam minutes, the Member States have a wide discretion in the determination,

arrangement and funding of the national broadcasting business. To ensure efficient supervision, the definition of the public service task should be as specific as possible and it should also contain a competition impact analysis because an unclear definition will easily lead to suspicions on competition restraints. A clear definition of the public service task will create better possibilities to competition neutral activities outside the public service task, at the same time reinforcing competition in electronic mass communication in general. The funding of the Finnish Broadcasting Company should also ensure as far as possible the preconditions of competition neutrality. For reasons to be specified below, the best option from this angle would be budgetary funding from tax revenue. Finally, two sectors have been discussed which do not have a similar connection to each other as the other fields discussed. These are taxi traffic and district heating production. These two are good illustrations of how contrary the situation may be in different sectors when it comes to the amount, effectiveness and appropriateness of regulation. The regulation of taxi traffic in Finland may be considered a relatively minor field when it comes to the national economy, but it is regulated in great detail with many overlapping methods on grounds which are weak economically. Parallel regulation causes extra administrative costs, raises the entry threshold and weakens the quality of steering and the accuracy of regulation. The main reason for the over-regulation of the taxi traffic is that over the years, an increasing number of new instructions have been introduced to redress the detected faults in the sector, which has produced new problems which have been met by adding and specifying the regulations without intervening with the entirety of regulation. Whereas in district heating, the situation is opposite to that of the taxi traffic: it is a relatively major field economically and the target of no direct regulation. In practice, indirect regulation is directed at district heating through other administrative steering. A major example is the obligation to join in the district heating network which has been set in the Land Use and Building Act. When this obligation has been set, district heating companies have been provided with practically boundless opportunities for price increases, because in the region of a district heating network, the district heating companies have become the obligatory trading partner to the end customer referred to in the competition law. During the past year, the FCA has extensively investigated the development of the prices collected by the district heating companies from their end customers. Preliminary results would suggest that the prices have heavily increased in recent times. In principle, it is possible to intervene with excessive pricing by means of competition legislation. In practice, the threshold for intervention has been set very high in the case-law. If the prices of district heating have clearly increased and will continue to increase in the future, it shall finally have to be assessed whether more detailed regulation ensuring the benefit of the consumer should be directed at the pricing and other terms of delivery of the district heating companies who hold the position of an obligatory trading partner with respect to the end customer. All in all, on the basis of a more detailed sectoral inspection, obvious deficiencies can be detected in the practical implementation of the general principles of better regulation. The sectoral inspection presented largely confirms the findings of Mtt (2009) on these shortcomings, as suggested by his extensive analysis of legislative materials. Firstly, the economic principles of regulation are rarely opened up, and generally the aims of regulation are frequently unclearly expressed and the balance between the aims and means of regulation has not been considered. Secondly, the indicators showing the efficiency of regulation and the attainment of the goals are usually unclearly expressed if expressed at all. Thirdly, the pondering of the options of judicial administrative steering is lacking and usually confined to some obvious alternatives without a thorough analysis of the major preconditions and limitations of the practical functioning of each option. Fourthly, impact analysis of the proposed regulation is generally sketchy due to unclear problem definition and it is lacking methodologically. It can be seen from many impact analyses conducted that they have de facto been quickly made ex post, and are based above all on the method of introspection. However, the impact analysis should not be a disconnected output, made ex post and only based on administrative orders; instead, it is a way of thinking which is integral to the entire legislative and regulatory process, which both integrates and oprationalises the basic principles of better regulation and aims at as efficient

and appropriate use of social resources as possible. Due to this, special attention should be paid to impact analysis when better regulation is striven for. In this regard, OECD (2010) has e.g. paid attention to the fact that there are no instructions available on how to make impact analyses in practice for those who conduct them in Finland. The new 2009 guidelines on impact assessment by the European Commission with extensive appendices seek to patch up the apparent defects. The FCA has summarized e.g. the Commission and OECD materials and made a checklist for the analysis of competition and market impacts (cf. Appendix 1). In this regard, it is vital to comprehend that, ultimately, the impact analysis deals with a philosophy which is more related to a common policy by the state administration than it is to a single analysis technique, research method or checklist. In other words, although there is a group of alternative methods and procedures at the core of the impact analysis to assess the benefits and drawbacks of regulation, the impact analysis is also a vehicle for changing the administrative culture and way of thinking. The European Commission has stated that as part of an inevitable cultural change in the administration, impact assessments have been set as an integral part of the Commissions own decision-making. To this effect the Commission has found that the most efficient way to create better regulation is to impose on those who decide about regulation in individual cases the responsibility for the impact analysis of their proposals. In other words, the responsibility for the impact analysis cannot be entirely outsourced to consultancies or research facilities, even if these may have their own role e.g. as the conductor of complex technical analyses. At the same time, the Commission has found that those who decide about regulation should be given enough instructions on how to make the practical analyses. For this purpose, the Commission has published new guidelines in January 2009 on how to make an impact assessment, and together with the appendices these have been considered quite extensive and otherwise successful in outside reviews. Some essential preconditions have been found for the implementation of the cultural change sought through the establishment of the impact analysis: the impact analysis should e.g. be began at an early stage of preparation; it shall be part of the clearly expressed general goals and principles of better regulation; and those who decide about regulation in individual cases shall be made to commit themselves to the assessment of the impacts of their own proposals. According to international follow-up studies, the main precondition for the functioning of the impact analysis is that a so-called watchdog unit be established at a high level in the central administration. The duty of the so-called watchdog unit is to make sure that the impact analyses are made in the first place and that they fulfil at least certain minimum qualitative criteria. But the task of the unit is not to make impact analyses itself. The core tasks of the unit referred to here include recognising the new challenges related to better regulation and making initiatives to develop better regulation and the related impact analyses. Secondly, the tasks include the qualitative coordination and general monitoring of the impact analyses. Thirdly, the tasks often include the examination of validity of the individual impact analyses in major issues, in particular, and providing training, consulting services and written instructions to other administrative units. It is essential that irrespective of the exact job description such a unit would exist in the first place and that it would have genuine powers. For example the Impact Assessment Board (IAB) operating inside the European Commission can bar the progress of a specific legislative or regulatory project if the impact assessment has not been made at all or if there are no obvious grounds for not making it. The IAB may also refer back a project for preparation if the impact analysis contains obvious defects. For example in 2008, the IAB used this possibility in one third of the 135 cases investigated. According to follow-up studies, the introduction of the system has itself considerably improved the quality of regulation. Finland does not have a watch dog unit here referred to at all which would coordinate the making of impact analyses and monitor the quality thereof, and in its reviews, the OECD (2003; 2010) has found this one of the major drawbacks of the Finnish regulatory system.

All in all, the OECD finds that Finland now has a sufficient amount of instructions on both better regulation in general and the impact analysis itself. But according to the OECD (2010), the challenge is implementing these instructions in practice. The most important single step for practical implementation and the rationalization thereof would be the establishment of a high-level competent unit which would focus on securing the quality of impact assessments and better regulation in general as presented above. The size of the unit would is not important but that it would have genuine powers. In addition to coordination and general monitoring, this unit should also be given the task of follow-up and coordination of other practical tasks related to the shortcomings of the regulatory system. Only this way can a comprehensive administrative cultural change be initiated, inevitable both for functional markets and the most appropriate use of the resources of the national economy.