Time is right to break monopoly of regulators

Since the introduction of National Competition Policy in 1995, few parts of our economy have been able to avoid competitive reform. However, one aspect of regulation has avoided any significant reform as a consequence of the policy, and that is how we regulate professions.

With federal, state and territory governments now discussing what to include as part of the next wave of competition reform, it is time we properly debated this issue. Professions in Australia are still highly regulated. The extent is generally determined by regulators such as the Royal Australian College of General Practitioners in the case of general practitioners, or state and territory law societies in the case of lawyers.

These bodies set requirements relating to education and training, administer examinations and monitor the conduct of members of their respective professions. It is obvious that some form of professional regulation is necessary. Without it, consumers cannot be sure they will obtain some basic standard of service when they employ the services of a professional, and are therefore exposed to dangers and risks stemming from professional misconduct.

However, while such regulation is supposedly intended to protect consumers, in many cases it ends up harming them. That's because regulators basically serve current members of their profession, as in the end it is the members who decide the make-up of such regulators and pay the fees that support them.

They are basically monopolies and they act just like any monopoly would be expected to act. So rather than simply adopt regulations intended to protect consumers, they tend to adopt regulations that have the effect of restricting entry into their particular professions. If they can restrict entry into their professions, they can restrict competition for current members and therefore enable them to charge higher fees for their services.

But there is a way of protecting consumers while improving competition. This can be done by taking away the monopoly status of regulators and opening professional regulation to competition. Rather than having a single body that regulates a particular profession, multiple regulators should be allowed to undertake this role. These bodies could be businesses managed like any other businesses or associations governed by members of the profession.

Members of a profession would have the choice of submitting to regulation by a particular regulator, paying the appropriate fees and adhering to requirements set. There would be two countervailing effects that would determine what requirements these regulators would adopt. As they would compete with other bodies for members of a profession to submit to their regulation, they would have an incentive not to adopt particularly restrictive regulations.

At the same time, they will be aware that the confidence and trust of consumers is very important. If consumers do not have confidence and trust in a particular regulator, they will not seek the services of those monitored by it. In such a situation, members of a profession will seek to submit to the regulation of another more reputable regulator. As a consequence, regulators would have an incentive not to adopt particularly liberal regulations.

These two countervailing effects would ensure that regulations do not unnecessarily restrict entry into professions, protecting consumers from the risks and dangers of professional misconduct while ensuring that they do not have to pay for this protection through higher fees for professional services.

This proposal is likely to attract a lot of criticism, particularly from regulators and current members of professions. It is obvious that they will challenge any policy that exposes them to competition, even if that policy will benefit consumers. So it will be up to federal, state and territory governments to take the lead on this issue, and the next wave of competition policy reform will provide a perfect opportunity to do so.