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  • 1. REGULATION OF INDUSTRIES <br /> HEADLESS 4TH BRANCH OF GOVERNMENT<br />26/11/2009<br />1<br />Mike Simiyu LBS2009 <br />
  • 2. outline<br />Definition<br />Concepts of Regulation<br />Limitations of Regulation<br />Structures of Regulation(US)<br />Methods of Regulation(US)<br />Regulated industries e.g. Airline, Banking<br />26/11/2009<br />2<br />Mike Simiyu LBS2009 <br />
  • 3. What is Regulation?<br />Tranditional definition:<br /> The imposition of rules by a government,backed by the use of penalties and the authority of the state,that are intended to change the behaviour of individuals or groups.<br />Broader: Any technique or approach designed to control,alter or influence behaviour.<br />26/11/2009<br />3<br />Mike Simiyu LBS2009 <br />
  • 4. Why do we have regulation?<br />Economic: to promote efficient functioning of the markets-competition,fraud,banking,insurance and contracts.<br />Administration: to<br /> manage the operation of<br /> the public and private <br /> sectors-taxes,human<br /> rights,intellectual property<br /> rights and criminal law. <br />26/11/2009<br />4<br />Mike Simiyu LBS2009 <br />
  • 5. Why do we have regulation?<br />Social: to protect wellbeing and rights of society-health and safety,environment,child protection and labour practices.<br />26/11/2009<br />5<br />Mike Simiyu LBS2009 <br />
  • 6. Limitations of regulation<br />Ineffective-cross-jurisdictional or border issues.<br />Complex global environment-<br /> greater flexibility and harmonization.<br />Time needed to develop or amend-<br /> to quickly respond to the changing <br /> science and technology.<br />Unintended costs or results<br />Effectiveness limited by regulatory authority<br />Changing citizen expectations and trust in<br /> the government<br />26/11/2009<br />6<br />Mike Simiyu LBS2009 <br />
  • 7. the structures of regulation(US)<br />In the US article 1,section 8 of the constitution,federal regulation of business proceeds under the interstate commerce clause( where congress has been given power to regulate commerce among the several states).<br />State regulation of business under the police power of the state( i.e state power to regulate business to safeguard the health,safety, morals and general welfare of it´s citizens although not mentioned in the constitution but recognized by the courts).<br />Independent regulatory commissions( which are maily exercised by administrative agencies or executive departments and has become most important form of regulation in the US today).<br />26/11/2009<br />7<br />Mike Simiyu LBS2009 <br />
  • 8. the methods of regulation(US)<br />The early methods of government regulation were:<br /> 1. Judicial regulation<br /> 2. Direct legislative regulation<br /> 3. Local franchise regulation<br /> 4. Commission regulation(today)<br />26/11/2009<br />8<br />Mike Simiyu LBS2009 <br />
  • 9. Judicial regulation<br />Was based upon statutes and ordinances enacted by the local,state or federal governments´(legislative bodies).<br />However statutory law was proceeded by the common law.<br />The common law was developed in England during the Middle age period.<br />There were no preventive features in the common law about regulation although monopoly and restraints of trade were held to be contrary to the public interest.<br />The common law recognized certain occupations as ``common callings´´the duty of serving all customers, at a reasonable price without discrimination. <br />The courts system was not able to handle the required volume of cases which arose from the regulatory adjudication thus making it discontinous,expensive and slow.<br />26/11/2009<br />9<br />Mike Simiyu LBS2009 <br />
  • 10. Direct legislative regulation<br />Started towards the end of 19th century.when the states started to enact general incorporation laws.<br />The regulatory provisions were equally ineffective,since they continued to be written in broad, i.e general terms.<br />They were also inflexible due to Economic conditions were constantly changing as modern technology was developed.<br />Adjustment were required if the law was to be up-to-date.<br />The legislatures were only in session for a few times and their attention was being claimed by other matters.<br />Direct statutory regulation proved to be poor method of controlling an industry.<br />26/11/2009<br />10<br />Mike Simiyu LBS2009 <br />
  • 11. Local franchise regulation<br />Was exercised by the enactment of city ordinances(law).<br />Inorder to enter,certain businesses had to acquire a franchise from the relevant city council before they could commence operations.<br />The franchise set exact standards for service to be rendered,rates to be changed.<br />The methods of renewing the franchise or the provisions for the locality’s taking over the company,which were run for a definite period.<br />Proved to be an ineffective method for detailed regulation because it had little regard to the public interest.<br />Changes in the prescribed rates or in service standards were made with great difficulty.<br />26/11/2009<br />11<br />Mike Simiyu LBS2009 <br />
  • 12. COMMISSION REGULATION<br />The commission operated under general legislative statutes,which are reffered to as ``independent´´ regulatory commissions(agencies).<br />The first state commission was created in 1870,which there main task was fact-finding and advisory bodies, with jurisdiction limited to the railroads.<br />Six states set up such commission before civil war:Rhode island in 1839,New Hampshire in 1844,Connecticut in 1853,New York and Vermont in 1855, and Maine in 1858,ohio 1867,and Massachusetts in 1869.<br />These commissions made recommendations to their state legislatures.<br />26/11/2009<br />12<br />Mike Simiyu LBS2009 <br />
  • 13. Commission regulation<br />They enforced railroads safety standards,but they had no control over rates.<br />They rely heavily on publicity and public opinion to obtain enforcement of their orders.<br />By 1887,congress created the interstate commerce commission to regulate the nation‘s railroads<br />Commission regulation of other industries was slower to develop, reflecting in part their later development.<br />The public clamour for reform,became widespread early in the twentieth century as many abuses began to appear. <br />26/11/2009<br />13<br />Mike Simiyu LBS2009 <br />
  • 14. Statutes and functions of the commmission<br />The commission occupy a unique position in the structure of American government for their independent status.<br />The commission is in theory independent of the other branches of government both at federal and state levels.<br />The appointment of commissioners are for definte but on staggered terms this ensure lack of partisan responsibility.<br />Removal of commissioners from office is limited this is provided by the statutes which confine the executive power of removal to inefficiency or nelgect of duty even where there are no statutes legal barriers exist.<br />Procedural features of the commission inhibits executive control.<br />26/11/2009<br />14<br />Mike Simiyu LBS2009 <br />
  • 15. How independent is the commission?<br />While in theory the commission is independent but nevertheless has a direct relationship with the executive,legislative and the judiciary branches of government.<br />Relationship to the executive- the president has the power to appoint commissioners as terms expires or resigns and with some exceptions to name the chairman while at the same time the president can use a variety of means to force the resignation of a commissioner whose conduct or policies does not agree with the chief executive.<br />Relationship to the legislature- being an administrative body,the regulatory commission is created by the legislative authority and depends on legislation for its powers and the commission may exercise only such powers as the legislature confers on it.<br />26/11/2009<br />15<br />Mike Simiyu LBS2009 <br />
  • 16. How independent is the commission?<br />relationship to the judiciary- as the powers given to the regulatory commission is broad in nature,there is always a concern that the constitutional rights of parties involved will be endangered thus to avoid this danger,the courts must act as a check on the action of administrative agencies and also must interpret the rulings of the regulatory commission from the point of view of the constitution and existing legislation inorder for the commission recommendations to be released or offered to the end users.<br />Independence: outdated concept?- in creating regulatory commission,legislatures sought to establish agencies that were free from control of the executive and the legislature inorder to ensure continuity of policy and to keep political pressures to a minimum.<br />26/11/2009<br />16<br />Mike Simiyu LBS2009 <br />
  • 17. AIRLINE REGULATIONS<br />Many national airlines are government owned and operated and private airlines are subject to a great deal of government regulation for economic, political, and safety concerns.<br />the government often intervenes to halt airline labor actions in order to protect the free flow of people, communications, and goods between different regions without compromising safety.<br />The US and UK ``deregulated´´ their airlines in the past,which made it possible for the airlines to negotiate their own operating arrangements with different airports, enter and exit routes easily, and to levy airfares and supply flights according to market demand which caused uneven profitability for most airlines.<br />Most international air traffic is regulated by bilateral agreements between countries e.g freedoms of the air,open skies.<br />26/11/2009<br />17<br />Mike Simiyu LBS2009 <br />
  • 18. Economic consinderation for airline regulations<br />Ticket revenue- airlines assign prices to their services in an attempt to maximize profitability.<br />Operations costs-airlines have a high level of fixed and operating costs in order to establish and maintain air services.<br />Assets and financing-Airline financing is quite complex,<br /> since airlines are highly leveraged operations.<br />Airline partnerships-code sharing is the<br /> most common type of airline partnership.<br />26/11/2009<br />18<br />Mike Simiyu LBS2009 <br />
  • 19. Banking regulations<br />commercial banks are regulated by government entities and require a special bank licence to operate.<br />Unlike most other regulated industries, the regulator is typically also a participant in the market, i.e. a government-owned (central) bank which also has a monopoly on the business of issuing banknotes, however is not the case in all countries.<br />In the UK, for example, the Financial Services Authority licences banks, and some commercial banks (such as the Bank of Scotland) which issues their own banknotes in addition to those issued by the Bank of England, the UK government&amp;apos;s central bank.<br />26/11/2009<br />19<br />Mike Simiyu LBS2009 <br />
  • 20. regulation Requirements for of a bank licence<br />Minimum capital<br />Minimum capital ratio<br />&amp;apos;Fit and Proper&amp;apos; requirements for the bank&amp;apos;s controllers, owners, directors, and/or senior officers<br />Approval of the bank&amp;apos;s business plan as being sufficiently prudent and plausible.<br />26/11/2009<br />20<br />Mike Simiyu LBS2009 <br />
  • 21. references<br />Charles F. Philips,Jr (revised edition august 1969) The Economics of Regulation (the Theory and Practice in the Transportation and Public Utility Industries)<br />Wikipedia, the free encyclopedia.<br /> Further readings; other online materials. <br /> THANKS FOR YOUR EARS<br /> AND REMEMBER REGULATION STARTS WITH YOU!!!<br />26/11/2009<br />21<br />Mike Simiyu LBS2009 <br />

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