Regulators and their conflict of interest
Brian Flemming
THE FINANCIAL CONFLICTS OF INTEREST THAT POLITICIANS OCCASIONALLY FIND THEMSELVES IN, AND THAT SO ENTERTAIN THE PRESS, ARE MINOR COMPARED TO THE CONFLICTS THEIR DEPARTMENTS ENTER INTO BY ROUTINELY BOTH REGULATING AND FINANCING, INSURING AND PROMOTING INDUSTRY. FROM THE WESTRAY MINE DISASTER, THROUGH AQUACULTURE, TO GENETICALLY-MODIFIED FOODS, THIS CONFLICT IN ROLES ONLY LEADS TO TROUBLE. IF GOVERNMENTS WANT TO REGULATE, THEY SHOULD ONLY REGULATE. IF THEY WANT TO DO MORE, THEY SHOULD HAND OVER THE REGULATORY JOB TO SOME OTHER AGENCY.
Disclosing and denouncing the personal conflicts of interest of the political and mandarin classes has long been a thriving cottage industry for Canada s chattering and columnist classes. A senior politician like Finance Minister Paul Martin will be regularly attacked for having a conflict between his ministerial policy duties and his (blind-trust-controlled) business empire. Even Prime Minister Jean Chretien was criticized in Tate 1999 for having an alleged conflict when public money was given to an inn in which he’d once had an interest.
Nova Scotia’s premiere John Hamm, was recently hauled across the coals for a conflict between his (properly publicly-disclosed) ownership of shares in a large local corporation and the possible grant of government assistance to that enterprise. When Hamm said he would – following the custom of captains of industry – leave the cabinet room when that issue came up, critics were quick to point out that his colleagues would know he wanted that assistance to be approved so his absence would not remove the conflict. No Calpurnia he.
Over the last few decades, at all levels of government in Canada, detailed codes of ethical conduct have been drawn up prohibiting ministers and bureaucrats from having conflicts both when they are in office and for months or years after they leave office. Judges must even avoid the perception that they have a conflict that might in any way prevent them from judging cases objectively.
It appears the only sure way for wealthy, active politicians to make it through this ethical swamp is to follow the Ross Perot route. When “running for the American presidency in 1992, Perot disclosed that his entire multi-billion dollar fortune was invested in US Government treasury, bills. That tactic may have been poor tax planning by Perot, and inimical to the long-term growth of his capital. but it effectively prevented any accusations of conflict against him.
Now that the floodlights of detailed disclosure have fully illuminated the ten-am of public-private conflicts, it is time to focus on the most serious remaining public conflict of interest: the one that occurs when governments attempt, simultaneously, to regulate and promote or regulate and finance certain industries.
A recent example of an attempt to end such a conflict occurred last year, when the Mineral Resources ACT of Nova Scotia was amended – more than seven years after the Westray mine explosion took the lives of 26 miners. Guided by the recommendations of an independent judicial inquiry into the tragedy, the Nova Scotia government announced that henceforth government regulation of mine safety would be overseen by the Department of Labour not the Department of Natural Resources.
When introducing these amendments in the Nova Scotia House of Assembly, the natural resources minister Hon. Ernest Fage, said his department should no longer remain in the conflicting roles of “regulator” and “promoter” of the same industry. Too bad 26 men had to lose their lives in order to convince at least one government department that it could no longer live with what turned out to be a devastating conflict.
So different are the mind-sets needed to carry out the disparate functions of regulation and promotion of the same industry, it is incredible this obvious conflict was not outlawed long ago. Yet, many provincial and federal economic development strategies still put government departments in a regulatory-versus-promotional conflict. Environmental rules may be bent to get a mine up and running. A new call-centre may be allowed to avoid the usual labour standards or workers compensation regulations. Most of the time, job creation is the key rationale for permitting these conflicts to continue. That was certainly the case at Westray.
Contemporary control-culture governments are so unaccustomed to thinking about these very real conflicts that they are constantly prepared, through a form of bureaucratic cognitive dissonance, to deny or disregard them. Take aquacultlure. Together with the federal Department of Fisheries and Oceans, fisheries departments in 5ev-eral provinces are currently promoting, regulating and financing this young industry. A Westray-class disaster (minus the dead miners) is looming in those places where officials are championing open-cage farming of fin-fish such as Atlantic and Pacific salmon and steelhead “trout” (which are not in fact trout but members of the salmon family.)
Net-cage aquaculture has already spawned ecological disasters worldwide. Everywhere salmon have been farmed, wild fish stocks are in dramatic decline. As if this were not enough, there have been many fin-fish financial fiascos. A recent Canadian example was the New Brunswick catastrophe in which more than a million salmon had to be slaughtered because they had caught infectious salmon anemia (TSA) in open cages in the ocean.
That regulatory failure cost federal and provincial governments $23 million when both levels of government were forced by political pressure to add the role of insurers to their already-conflicting regulatory, promotional and financing functions. Yet aquaculture continues to be the darling of today’s fish bureaucrats, who seem bent on surpassing the spectacular failure in fisheries regulation their federal counterparts pulled off with the east coast groundfish and the Atlantic and Pacific salmon.
When, as a result of these public sector conflicts the predictable and inevitable ecological disasters occur a clone of the judge who investigated the Westray tragedy will astonishingly “find” that one department of government by itself should not have been allowed to promote, regulate, finance and insure aquaculture. After that conclusion is published, commentators will ask why the fish bureaucrats spent millions and millions of dollars advancing the interests of a dangerous industry, rather than conducting basic scientific research into the effects of certain kinds of aquaculture. And everyone will wonder again why the average citizen has so little confidence in the management skills and scientific honesty of its political and bureaucratic masters.
Another huge governmental conflict of interest crisis is brewing in Ottawa, where genetically-modified (GM) foods are beginning to trouble both bureaucrats and the Canadian public. Science tele-celebrity David Suzuki has stoked the embers of public fear by claiming Canadians are “unwitting guinea pigs” in a vast, hidden experiment involving GM foods.
Suzuki’s “Frankenfood” scare has led 200 present or former federal food-directorate scientists to call publicly for an end to the conflict they claim exists in Canada’s Food Inspection Agency, which both regulates and promotes food. One anonymous scientist recently said, “Health should never be put in the hands of a department that is supposed to be looking after the producers’ interests. Britain recognized that only after mad-cow disease.” Amen to that!
Recent polls revealed that a majority of Canadians would be less likely to buy GM food if they knew it had been genetically modified. If asked, the same Canadians would no doubt also overwhelmingly demand that the country’s food regulator be just that, a regulator, not a promoter of GM foods like canola.
Because governments have always relied on a “spin cycle” of tragedy disaster or fear to create new regulatory regimes, GM foods look like the next candidate for increased government regulation – even though a good case can be made that they are already well-regulated. Ethically, the federal government has a duty not extend its regulatory reach any further into the GM food world without first divesting itself of its current, conflicting roles, of promoter of, or financier for; GM foods.
It is passing strange that recent campaigns for government regulatory reform have concentrated more on the “paper burden” or on the hidden cost of regulation than on these more fundamental failures of regulation due to conflicts of interest and a consequent ethical failure that would not be tolerated if committed by an individual minister or the head of a regulatory agency.
The time is long overdue for governments at all levels to promulgate a constitutionally- effective self-denying ordinance in which they promise to avoid these serious, and often potentially deadly, conflicts of interest. If they do not, then some creative and enterprising lawyer might eventually sue governments for the damages they will have caused by willfully ignoring the effects of these conflicts.
In the meantime, the following “regulatory commandment” should be posted on the walls of the offices of all ministers’ and deputy ministers’: Thou shalt not simultaneously regulate and promote, regulate and finance, or regulate and insure any industry.
