3.4.1 Subsidiarity of Economic Regulation

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Regulation, at levels of subsidiarity up to and including national, is mostly mature:

· Employees are subject to their employer's regulations.

· Local government regulates businesses of all sizes: e.g. in terms of trading hours, planning permission and licences to operate.

· National government also regulates businesses on such matters as health and safety, restrictive practices and consumer protection.

· Financial regulation, though, is patchy in its coverage because there are several organisations involved without any unifying framework to allocate terms of reference to them. The Board of Governors of the Federal Reserve System, for example, can set regulations for minimum levels of bank reserves but it cannot set rules for how the ratings agencies assess the risk of complex financial products.

To say that national regulation is mature is merely to remark that most of the necessary institutions and processes exist. That is not, of course, to say that its implementation in any country is the best framework that could have been devised; each country arrives at its own shifting balance between political and economic considerations and no system is immune to malpractice.

The EU is an example of multinational regulation. The Commission has introduced a harmonised set of commercial regulation, to avoid countries having to comply with many different sets of regulations in what is intended to be a single market, and the European Central Bank provides some financial regulation in the Eurozone. These can be considered to be the most mature of the world€™s existing multinational regulations, but there are issues with their political acceptability (6.6.5.4).

Some global regulations are in place but there are gaps and issues:

· Multinational companies face multiple jurisdictions. For example, Microsoft was subject to American antitrust legislation but was also prosecuted for restrictive practices in Europe €“ illustrating the difficulty of a global company having to comply with different countries€™ requirements and repeatedly being placed in jeopardy.[1]

· Transnational fraud has become an increasing problem, particularly via the Internet. The practical difficulties of extradition mean that many criminals are able to commit fraud in other countries with de facto immunity from prosecution €“ though there are exceptions: the so-called €œNatWest Three€ case was of three British citizens, working for a British company, who were eventually successfully prosecuted in an American court for fraud. They had to be extradited to face the charges but the process was prolonged and expensive.[2] Smaller crimes often go unpunished.

· The global financial crisis of 2007-8 gave an impetus to collective regulation, but progress is slow for political reasons: negotiations are needed, to harmonise the rules, as described later (3.5.5).

Politicians find it easier to drum up nationalist sentiment, against the concept of being dominated by other countries, than to try to explain to people the benefits of international cooperation. Nationalism is a widespread problem, which is addressed in the relevant chapter (6.6.4.2).