1. The Broad Framework for Occupational Regulation
The Role of Government
One of the fundamental questions that this review will address is the role that government should play in regulating auctioneers.
It is generally considered that society as a whole will be better off if people are free to buy the goods or services that best meet their needs. People are then able to make choice between different prices and qualities of goods and services. This recognises that different people have different preferences about price and quality.
However, there are some situations where people make decisions that are not in their own or society's best interests. When this happens, the market is said to have failed, and sometimes these decisions can endanger lives or cause injuries.
Regulation can be used to counteract the failure of the market to achieve optimal outcomes. However, it is recognised that regulation imposes costs. This cost is often known as "government failure". Typically government failure includes:
- Inefficient production of goods and services; and
- Over-regulation.
Over-regulation occurs where the extent and/or nature of regulation is greater than that needed to address the problem. Costs to the industry players and consumers could present themselves in the following forms:
- Reducing competition, innovation and consumer choice;
- High compliance costs in complying with numerous regimes and regulations; and
- Uncertainty in respect of the legislative interface.
The government therefore wants to achieve the appropriate balance between counteracting market failures and avoiding unnecessary regulation. This will ensure that in addressing market failures, the government attains its objectives efficiently and effectively.
The purpose of this review is to see if there are ways of bringing the regulatory regime for auctioneers more in line with the wider government strategy for occupational regulation. This strategy is based heavily on the following six principles developed by the OECD1 for high-quality occupational regulation2:
- Exclusive rights should not be granted where other mechanisms exist which more directly address the market failure with less restriction on competition, such as the collection and publication of information on the quality of professionals, assistance to accreditation or quality-rating agencies or the strengthening of civil liability rules.
- Where there is no alternative to granting a profession an exclusive right to perform a service, the entrance requirements into that profession should not be disproportionate to what is required to perform the service competently. Where the competencies required for different services differ widely new professions should be created with different entrance requirements.
- Regulation should focus on the need to protect small consumers. Sophisticated commercial purchasers of professional services (including large corporations and large hospitals) are in a position to assess their own needs and to assess the quality of the services they purchase and should not necessarily be required to use the services of a licensed professional.
- Restrictions on competition between members of a profession should be eliminated. These include agreements to restrict price, to divide markets, to raise entrance requirements or to limit truthful advertising. Recognition of qualifications of professionals from other countries should be promoted. Citizenship and residence requirements should be eliminated.
- Professional associations should not be granted exclusive jurisdiction to make decisions about entrance requirements, mutual recognition, or the boundary of their exclusive rights. At a minimum, these decisions should be subject to independent scrutiny, perhaps by an independent regulator. For example, where entrance to a profession is by means of an examination, the professional association should not have exclusive control over the difficulty of the exam and what constitutes a passing standard.
- Competition between professional associations should be encouraged, provided mechanisms are in place to ensure the entrance requirements for entry into the profession do not drop below the standard of competency required to perform the exclusive service. Where two professional associations have similar entrance requirements, they should both be allowed to perform the exclusive services of the other.
New Zealand's framework for occupational regulation is closely related to the principles outlined above.
Different Ways of Regulating Occupations
The Government has various means of regulating occupations; some are exercised through occupational regulation legislation, while others comprise non-statutory measures. The different forms of regulation are:
- Disclosure:Providers of a service are required to disclose specified information to prospective users of the service. Disclosure is used where the threat is to individuals' finances and customers have a choice of whether to use a particular service or not.
- Registration: Service providers give their names and addresses and pay a fee. Registration is normally required where the threat to public safety or welfare is minimal. There are no restrictions to entry to the occupation apart from the requirement to be on the register is you wish to enter, or continue to practise, a particular occupation. Registration does not convey any suggestion of competence or quality of service. It has administrative benefits, such as providing a means of identifying practitioners so information can be provided to them and it may be used to enforce other legislation. As an example, having a register of auctioneers may assist the Police in investigating thefts.
- Certification: An agency is empowered by statute to certify to the public that individuals have satisfied particular requirements that indicate their competence in a particular field. The certified practitioner is given the exclusive right to use a certain title. Those who are not certified can offer their services in competition with certified practitioners but under a different title. Certification provides information to the public by giving assurance that the practitioner has met certain requirements at the point of certification. It does not deal with the quality of the work done or the competence of the practitioner once the person has been given the right to use the certified title, except that certification is usually accompanied with disciplinary processes aimed at providing a means of removing the right to use the protected title if the practitioner falls below the standards acceptable to the regulating body.
- Licensing tasks:Legislation involves granting an exclusive right to perform certain tasks to defined groups of people. For instance, only registered medical practitioners, dentists and veterinarians may prescribe drugs. Regulation of this kind is generally used where poor performance of a particular task is likely to impose severe costs on consumers or where the government wishes to control who is to carry out certain functions for the state.
- Licensing workers in an occupation: This regime explicitly prohibits all but licensed persons from offering certain services. Entry to the occupation is dependent upon the worker meeting prescribed standards. Entry qualifications normally involve education and some discretionary criteria related to character or fitness to practice.
Licensing workers is the least flexible form of occupational regulation as those not meeting the entry requirements are unable to practice. It minimises the risk to the public from unskilled practitioners by requiring that all who practice have met particular standards on entry but it does not usually deal directly with the continuing relevance of those standards or the current competence of workers after they are licensed.
As with certification, a disciplinary process exists which may result in transgressors having their licence suspended or removed.
Where the licensing is primarily within the control of the occupational group the group has incentives to increase the barriers to entry by raising the standards required. This means that there is less competition to existing members of the groups and this enables higher prices to be charged.
Licensing reduces public search costs but can reduce consumer choice as there are limits on the range of practitioners able to provide a particular service and there is less incentive on licensed practitioners to differentiate by offering different levels of quality and service. While there may be competition within the occupation, it is restricted to competition for a limited and specific range of services.
- Information provision: The Government can produce information for the public to make consumers aware that some services provided by occupations, if performed incompetently or dishonestly, could pose a risk. Information may also be provided to raise awareness of consumers of the remedies available to them through consumer protection legislation, and to help them to choose competent practitioners.
- Training:Government funds training and provides the means of assessing training to ensure that members of occupational groups are trained to a sufficient level of carry out their tasks competently and safely.
When considering the best form of regulation for the auctioneering industry, it is important to consider the nature of the risks posed by the industry, and the availability of other means to counter these risks.
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