The Visible Hand : Coordination Functions of the Regulatory State

“We are all socialists now,” Newsweek magazine declared some months ago. And with Republican stalwarts George Bush, Chris Cox, and Alan Greenspan respectively presiding over two of the largest expansions in federal programs since the New Deal, confessing to the failures of self-regulation, and calling for some nationalization of U.S. banks, surely the authors were on to something. More accurately – if no less dramatically – it is clear that the reign of de-regulation as the motivating framework for the design of regulatory policy, and for scholarly analysis of the regulatory state, is now behind us. Less clear, by contrast, is what should be put in its place. In what follows, I argue that an essential element in our efforts to re-conceptualize the regulatory state must be a heightened emphasis on its role in encouraging, fostering, and facilitating coordination. In a variety of increasingly important spheres of the modern social and economic order, the need for efficient coordination demands the embrace of distinct forms of regulation, in the service of distinct ends. In many areas of regulatory concern, command-and-control regulation can serve to minimize the incentives of individuals to abandon socially optimal equilibria, in the pursuit of private gain. In other critical areas, however, an analysis focused on individuals, on incentives, and on defection is inapposite. When it comes to preventing financial crises, developing the infrastructure of the internet, and articulating common standards for high-definition television – to name but a few examples – regulation designed to alter individual payoffs proves to be both unduly costly and inadequately effective. In these and other coordination settings, a regulatory paradigm oriented to group and social dynamics, to expectations and information, and to failures of coordination emerges as a kind of “new regulation.”