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date: 24 June 2017

New Policy Instruments

Summary and Keywords

New policy instruments have come onto the policy agenda since the 1970s, but there is a real question as to whether the ideas behind the design of such tools are actually all that “new” when you assess the role of the policy instrument in its particular institutional and policy context. Taking Hood’s 1983 categorization of instruments as tools that manipulate society to achieve public goals via nodality (information), authority, treasure (finance), or organization, we can find instances where innovations in these areas pre-date the 1970s. Nevertheless, the mention of these instruments in international organizations such as the Organization for Economic Cooperation and Development (OECD) and national institutions and debates as the means for both improving governance and protecting economic efficiency have increased in light of a number of interacting trends: the rise of neo-liberal and new management ideologies, the increasing perception of a number of wicked problems (e.g., climate change) and nested, politically sensitive problems (e.g., health and welfare policy), a rethinking of the role of the state, and other reasons. A typology is offered for differentiating changes and innovation in policy instruments. There have been some very notable and complex policy instruments that have reshaped politics and public policy in a particular policy sector: a notable example of this is emissions trading systems, which create market conditions to reduce emissions of climate change gases and other by-products. Information and financial instruments have become more prominent as tools used to achieve policy aims by the state, but equally significant is the fact that, in some cases, it is the societal actors themselves that are organizing and supporting the management of an instrument voluntarily. However, this obscures the fact that a much more significant evolution of policy instruments has come in the area that is associated with traditional governing, namely regulation. The reality of this “command and control” instrument is that many historical situations have witnessed a more flexible relationship between the regulator and the regulated than the term suggests. Nevertheless, many OECD political systems have seen a move towards “smart” or flexible regulation. In promoting this new understanding of regulation, it is increasingly important to see regulation as being supplemented by, supported by, and sometimes reinforcing new policy instruments. It is the integration of these “newer” policy instruments into the regulatory framework that represents perhaps the most significant change. Nevertheless, there is some reason to question the real impact new policy instruments have in terms of effectiveness and democratic legitimacy.

Keywords: policy instruments, policy tools, policy innovation, governance, regulation, information, market-based instruments, emissions trading, nudge, smart regulation

Introduction

Much of the academic work in public policy and public administration has argued that how the state and the public sector govern have changed from the 1960s; scholars have debated the nature of this change in various discussions of governance, new public management, and other interrelated concepts that are covered elsewhere (Rhodes, 1996). If public policy is broken into component parts, Hall (1993) suggests that we can look at the larger macro ideas that inform the outlook of the public policy and how it addresses policy problems, the content of this public policy in terms of its more specific goals and strategies, and the choice and selection of policy instruments. Policy instruments are the tools that policy actors use “to achieve policy goals” (Schneider & Ingram, 1990, p. 527). Policy instruments encapsulate the policy philosophies, goals, and outlooks of policy actors, and serve as the concrete manifestations of policy actions; instruments are where the tires of public policy meet the road (Hall, 1993; Kooiman, 2003, pp. 29–30; Wurzel, Zito, & Jordan, 2013). Public policy scholars such as Hall and Sabatier (1988) have convincingly argued that policy change tends to reflect less a change in paradigm and more incremental adjustments in the policy, often in the area of policy instruments.

The definition and role of “new” policy instruments (NPIs) in the public policy process are addressed. The adjective “new” deserves to be in quotation marks because there is a real question as to how new are the instruments under discussion. Hall’s seminal 1993 article was crucial in bringing the term “new policy instruments” (which is his definition of “second order change”) into the academic public policy discussions, but Hall was not making a claim about the presence and implications of such instruments. Rather, he was essentially focusing on “new” as one type of policy innovation in his framework, that is, the adoption of alternative instruments to the current ones in use. Many public policy scholars have focused more on the question of alternative tools rather than newness (e.g., McDonnell & Elmore, 1987). It was the rise of claims about “new governance” by scholars such as Rhodes (1996) that led Jordan, Wurzel, and Zito (2003) to use the term as an analytical proposition to test claims about changes in governance. Public policy scholars have tended to focus their distinctions on new modes of governance (such as self-regulation by societal actors) rather than a particular definition of new instruments (e.g., Héritier & Lehmkuhl, 2008). Nevertheless, as Lascoumes and Le Galés (2007) demonstrate, studying instruments is vital to the understanding of governance.

Focusing more specifically on the empirical question about the existence of new instruments, the idea of promoting innovation in policy instruments, particularly market instruments, has been on the agenda of international institutions such as the Organization for Economic Cooperation and Development (OECD) since the 1970s (e.g., OECD, 1980) and on the academic agenda for a similar timespan. Nevertheless, there is a real question as to whether the ideas behind the design of such tools are actually all that new when the role of the policy instrument is assessed in its particular institutional and policy context. The question requires a detailed understanding of the political circumstances to determine the place of the policy instrument. The core aspects of the instrument, which can be new in a particular context and time, are explored in a framework specifically developed by Zito.

Certain core definitions are examined, and an analytical typology defines what constitutes something “new” about these instruments (the typology is further developed in Zito, 2015). Some of the developments and their implications for the study of public policy are surveyed. Zito’s expertise is in the areas of environmental and energy policy, and the empirical examples accordingly will tend to be in this area. However, this is apt and analytically important given that these policy areas reflect prototypical trends found in environmental and energy politics that are happening in many other policy sectors.

Definitions and Analytical Tools

Before unpacking the dimensions that can make an instrument new, it is useful to lay out how to categorize the different instruments and how they function. Systematizing the different types of instruments allows a closer isolation of what is new about particular instruments. The approaches of Hood (1983) and Bemelmans-Videc, Rist, and Vedung (1998) are used to answer this question. A theoretical approach is adopted for understanding how instruments interact with public policy.

Policy instrument scholars have offered a range of classification systems for policy instruments, too many to review here (e.g., Etzioni, 1961; Brigham & Brown, 1980; Doern & Phidd, 1983; Hood, 1983; Salamon, 2002; Lascoumes & Le Galés, 2007; Howlett, 2011). The two that have particular force in differentiating how instrument design diverges, namely Hood (1983) and Bemelmans-Videc et al. (1998), offer different dimensions. The Hood typology, which has been extended by Howlett (2011), focuses on how the government makes use of resources in designing policy tools; Hood (1983) establishes four fundamental resources in governing: nodality, treasure, authority, and organization. The first two categories can be simplified by referring to them as information and finance.

Information is when the government uses instruments where information is released (to incentivize targeted societal actors), or is collected (to inform actor behavior). The public sector becomes an important conduit or hub for the use and communication of this information. Finance articulates the method by which public actors make use of public assets to modify societal behavior through some form of incentives or disincentives. Authority encapsulates the legal power and other sources of legitimacy of the state. Public actors use these legal powers to regulate and sanction societal actors. Organization is the ability to impact policy by the creation of institutions and bodies to address the particular policy problem (this might involve the creation of a new bureaucracy, network, quasi-autonomous non-governmental organization [quango], and so forth). Howlett (2011) sought to expand the Hood typology by focusing on the purposive nature of the policy actions: substantive instruments in the four Hood categories directly affect the delivery of goods and services in society while procedural policies are those in which the state configures the policy process itself in a way that steers actor (and this might be public officials) behavior toward achieving the government’s aim or implementing its programmatic goals.

Bemelmans-Videc et al. (1998) offer a useful contrast by focusing on a somewhat different dimension of policy instruments, namely differentiating them by how they impact on the target actors, most likely within society. The authors focus on the degree of intervention and the exercise of power to differentiate three categories: carrots, sticks, and sermons (Vedung, 1998). Sticks refer to the traditional tools of government that focus on regulation enforced by the threat of sanctions and that highly constrain the behavior of the target actors. Carrots feature economic incentives to induce actors to behave differently. Sermons intervene only by seeking to communicate information that induces actors to change their behavior. In contrast to the sticks, sermons offer the least amount of constraint and intervention in the target actor’s viewpoint, while carrots are more intermediate.

The other analytical lens required to assess instruments is the question of what set of theoretical dynamics to focus upon. Of the various schools of thought concerning policy instruments, the focus is on constitutivists or what may be called contextualists (de Bruin & Hufen, 1998, pp. 16–17; Linder & Peters, 1998, pp. 40–41). Contextualists focus on the importance of the political and societal contexts in which the tool is adopted; they emphasize how the tool is interpreted and constructed in this particular context. Lascoumes and le Galés (2007, p. 11) contend that this approach is particularly important because it highlights the more critical underlying societal and governmental changes because “[p]ublic policy instrumentation reveals a (fairly explicit) theorisation of the relationship between the governing and the governed. In this sense, it can be argued that every public policy instrument constitutes a condensed and finalized form of knowledge about social control and ways of exercising it.” This means that instruments reflect how those who govern approach the act of steering society; instruments also have their own impact, independent of policy choice. Thus, given how much of the overarching governing process is encapsulated in the policy instrument, the existence of new policy instruments suggests that there is a significant transformation in the way we are governed, and thus merits careful study.

What Constitutes “New”?

Policy instruments (rules, financial instruments, political organization, and information) exist as long as governments have made public policy. Hood notes in his examination of policy instruments that the analysis of policy instruments has existed at least since the Enlightenment era (Hood, 2007, p. 128). Thus it is arguable, for instance, that government in Britain has instituted environmental instruments, such as Edward I in 1273 prohibiting the burning of “sea coal” to protect public health; this has long pre-dated the actual identification of environmental policy as a distinct public policy goal in early 1970s Britain (Vogel, 1986; Weale, O’Riordan, & Kramme, 1991).

What makes an instrument new is that some element of it has changed in a given context. Given the importance of the state as an important wielder of policy instruments in governance, the context that is most relevant for policy analysis is defined as the distinct, national policy sector. A range of possibilities will be explained in detail. In considering these possibilities we need to look at the design of the instrument and ask about who is doing the targeting, who is being targeted, and the context of the targeting (including the nature of the policy issues as well as how they are being targeted) (Bagchus, 1998, p. 50). The traditional expectation of instruments, for example, is that governments are doing the targeting, but that might not be true in a particular context and therefore might constitute a new, significant development.

The typology of new policy instruments (NPIs) is original to Zito and imagines policy instrument change on a scale of how great is the change in design: it starts with the most complete design change and ends with the least design change. Policy instruments may be new in a given context if: (1) they are an instrument with a relatively new design for how actors are targeted; (2) elements of the design of the instrument have been transformed in a way that it has a different impact on the targeted; (3) an instrument where the design and targets might not have changed significantly but the wielders of the instrument are different in the same context; (4) an instrument that has been transferred from a different context and thus is normally targeting a different set of actors; (5) the target and perhaps even the design of the instrument has changed as the targeting scope for the instrument has widened; (6) an instrument where the design and the target of the instrument remain the same but the calibration of the instrument is intensified to the degree that induces the tool to take on a different role and significance in the same context; and finally (7) the design of the instrument has not substantially changed, but the instrument mix surrounding the particular tool has changed and therefore the role and impact of the original instrument has changed.

This typology is important because of several implications. It brings home to the reader that considerable transformations of the instruments in a policy sector may have happened without actually changing the number of instruments; a simple count of the instruments may entirely miss the shift in governance. Equally, a focus on a single instrument at a time might completely miss the wider significance of the transformation of the sector given the instrument interactions.

New Design

There are circumstances in which a policy instrument reflects such a degree of innovation that it must constitute a new instrument. True examples of this are relatively rare in the period since the 1970s, however. Evidence from the environmental policy sphere supports this contention (Wurzel, Zito, & Jordan, 2013), but other policy sectors require scrutiny to confirm this hypothesis.

A prototypical example of this type of innovation is emissions trading systems. The economist John Dales (1968) developed the core idea of creating market conditions where the targeted actors, in this case companies or states, are allocated specified allowances in terms of the amount of emissions they can inject into the environment. Those target actors with the ability to reduce their emissions have an inherent incentive to sell or trade a portion of their emissions allowances to those actors who may need more. The idea was translated into a particular policy context, namely U.S. air pollution regulation where economists such as Baumöl and Oates theorized the importance of economics in the implementation of environmental policy and where there was a political pressure on the Environmental Protection Agency (EPA) to look for ways of reducing both environmental damage and the sanctions on economic activity in regions unlikely to meet the targets (Lane, 2012). Thus the EPA investigated the concept of “offsets” (i.e., emissions from new sources balanced by reductions from older sources together with concepts such as the “bubble” notion of aggregating and setting targets for overarching regions). With the development of other concepts such as the notion of a ceiling or “cap” on the total amount of emissions, the federal process developed instruments in the 1980s to reduce sulfur dioxide and nitrogen oxide (Wurzel et al., 2013). A number of conceptual innovations as well as translation of ideas into new policy areas were required in this instance. Given the nature of the policy problems that require policy innovation, it is likely that truly new designs for public policy will share such characteristics.

Altering the Design of the Instrument

One of the key dynamics of governance change that tends to fly under the radar is the evolution of extant instruments that have nevertheless been given substantial design alterations that create a considerable difference in policy outcomes. And the innovation may occur in areas that are not associated with new governance, namely the regulatory realm. Two trends seem to be particularly important in shaping the design of instruments since the 1970s and they often intersect: dissatisfaction with the nature and outcome of the instruments resulting in political pressure versus actual policy learning about how to improve instruments.

The first is the political and intellectual context that shows a greater predisposition, whatever the merits of the case, to believe that the instrument can be improved. In thinking about the place and timing of the rise of new policy instruments, it is worth recalling the 1960s when a range of economists particularly in the United States began to publish a number of arguments critical of regulation as well as the regulators who were believed to be often captured by particular interests (Collier, 1998). With the economic turmoil and recession hitting in the 1970s, this argument had penetrated the political arena in the form of neoliberalism and deregulation.

It hit the United States first and then the European Union (EU) countries as well as other Organization for Economic Cooperation and Development (OECD) states. It has tended to push policy makers to wish to build more flexibility and streamlining into the piece of regulation. Since the Reagan administration in the 1980s in the United States and the 2000s in the European Union, there has been a push in both administrative arenas to have to justify the benefit of legislation over the costs. The EU has tended increasingly to rely upon more flexible forms of regulation, to the point of creating a High Level Group of Independent Stakeholders on Administrative Burdens, which advises the EU Commission on how to implement a strategy of reducing burdens (Wurzel et al., 2013). This administrative reduction approach has spread further under the Juncker Commission of 2014 with the reorganization of Commission processes to review regulatory burdens (EU Commission, 2015b). This has led to the creation of further review bodies, such as the High Level Group of Independent Experts on Monitoring Simplification for Beneficiaries of the European Structural and Investment Funds in 2015, to streamline the administrative demands attached to the receipt of structural funds within the EU (EU Commission, 2015a). Agriculture seems to be the next EU area planned for high-level discussion of instrument re-design (Maler, 2015). This policy discussion has spread to the OECD as well (OECD, 2010).

Often linked to this agenda push is the analysis that suggests that previous experience of instruments can be improved upon. A wide range of countries and institutions have evaluated the success and cost of regulation and sought to adjust the design. Two lines of thinking are proving very influential in Anglo-American policy thinking but more widely in the OECD.

Gunningham, Grabosky, and Sinclair (1998) have developed a label that has become popular across the EU: “smart regulation.” Whatever the underlying connotations of this label, the idea that regulation still has merit and that it can be targeted in a more nuanced fashion has gained great currency. It is worth noting that the Gunningham perspective emphasizes the importance of mixing regulation with other non-regulatory instruments, but this instrument dynamic is categorized here as a separate innovation. In terms of the instruments, Gunningham et al. (1998) argue the importance of a parsimonious approach to the degree the instrument intervenes with its target as well as the importance of responsive feedback and early warning systems. The OECD documents have internalized some of this approach arguing for, among other things, a complete life cycle analysis of instruments (OECD, 2010). It is worth noting that the focus of this innovation is on the design mechanisms within the instrument, nested in the policy context.

In contrast, the second innovation focuses on re-thinking how policy designers understand the behavior of the target audience while seeking to alter how the target group perceives their choices, rather than controlling their choices. This is the world of behavioral economics, or “Libertarian Paternalism,” as its main exponents Richard Thaler and Cass Sunstein (2008) termed it. The core idea behind the “nudge” approach, which became the shorthand label, was that economics thinking, and by extension public policy thinking, miss important insights into human nature when they focus on rational behavior. These approaches have rather ignored the problems of human weakness and the tendency to not rely on a full information search, because of human apathy, misperception, and so forth. The nudge involves altering “people’s behavior in a predictable way without forbidding any options or significantly changing their economic incentives” (Thaler & Sunstein, 2008, pp. 5–6). Without applying explicit, forceful coercion on the targets of the instrument, the approach seeks to nudge humans into different behavior patterns by taking soft options that do not involve significant sanctions or costs if the target humans reject them. This approach has tended to focus on getting policy actors to refine their use of tools rather than to adopt radically different ones. Thus, a government sends out a standard letter about failure to pay taxes, but modifies it to note what percentage of taxpayers the target of the letter was in.

Again, the context of this development is important, with the focus on liberal democratic governments trying to avoid both costs (that were associated with command and control regulation and other “top down” measures) to the policy maker as well as the target audience—all while still pursuing public objectives. Thaler and Sunstein focus their design toolbox on the informational and communicative aspects (“information, peer pressure and priming” of human thinking—p. 71), but they are quick to point out that governments and markets still have their value. The 2010–2015 U.K. coalition government (Conservative–Liberal Democrat) created the first truly notable behavioral analysis team, or “Nudge Unit” (as it was nicknamed), claiming a number of policy successes (Gov.uk, 2012). It is significant that it has operated in a political economic context of fiscal austerity while at the same time the government has been seeking to incentivize economic actors to grow the economy. The Obama White House followed suit in 2014 with the creation of the Social and Behavioral Sciences Team (Social and Behavioral Sciences Team, 2015).

Designing for a New Wielder of the Instrument

This third category encapsulates the reality when traditional instruments are altered less in terms of their design or target, and more because the actor empowered to pursue the policy is different, and the larger public policy goal consequently differs as well. Given the traditional focus of public policy on the role of the state in a hierarchical relationship, the focus of the recent innovation has been on the targets of the public policy being able to manage or regulate their own behavior. Of course, this is not a new idea in the Western context as the medieval European guilds regulated quality within their ranks and Ancient Greek and Roman associations enforced certain codes of behavior (Greif, Milgrom, & Weingast, 1994). However, it can be innovative in that the private actors themselves use these practices in a way that bypasses government actors while fulfilling certain public aims. At the same time, it can be recognized (and verified) by other societal actors, including and often most important, the consumer.

The environment and sustainable development has been a prototypical area where there has been a focused re-think about how economic activity is regulated. Thus we see the spread of certification systems in forestry, building, fisheries, food, mining, tourism, clothing, and so forth (Cashore, Auld, & Newsom, 2004; Sharma, Teret, & Brownell, 2010). These mechanisms tend to combine market incentives as the economic actors seek to present a particular image of themselves to both the public sector and society, but an important aspect of the design involves the provision of information, including the particular performance and process standards that the certification requires. In these instances, the producers, consumers, and other stakeholders are involved in the instrument. Thus, returning to the Howlett (2011) distinction, there is both a process element of involving stakeholders that is important as well as the stated outcome of providing more sustainable products.

Innovation by Policy Transfer

The policy transfer concept articulates a process by which knowledge at a given time and place is used in another time or place (Bennett, 1991; Dolowitz & Marsh, 1996, 2000). It isolates the agents of transfer within broader political structures. The knowledge they transfer could relate to policy goals (or paradigms), the policy content, policy instruments, or administrative arrangements. Dolowitz and Marsh (1996, 2000) note that such processes can be voluntary or involuntary, or somewhere along the spectrum. The insight that this argument gives is that the transfer and therefore the policy instrument innovation can occur within the same polity (i.e., ideas for policy tools are transferred from one policy area to another), or across polities (whether across subnational boundaries or national boundaries).

An example of the former is the use of zoning for environmental purposes. Zoning itself is a longstanding planning device used by local (and sometimes national) governments to enhance particular neighborhoods and areas by placing restrictions on land use. The idea arguably existed in Europe for centuries, although we see its codification for instance in France in the 1840s and it extensive use in reaction to the rise of the Industrial Revolution (Williams, 1922). The focus on enhancing development, public health, and beautification of areas all featured as aims. As environmental protection became a concern, innovative governments such as the Netherlands decided to focus land use planning to respond to pollution spillover from manufacturing processes (Miller & Roo, 1996).

Returning to an earlier example, the emissions trading system is also a classic transnational example of a policy transfer. It was originally implemented in the United States to combat air pollution, and U.S. negotiators at the UN climate negotiations managed to get the instrument inserted into the provisions of the 1997 Kyoto Protocol despite the objections of other prominent actors such as the EU delegates (Wurzel et al., 2013). It was mildly ironic in the circumstances that the EU Commission seized on the opportunity presented by the presence of the ETS in the Protocol to make, with the eventual consent of the member states, the ETS the central climate change mitigation instrument for the EU. A significant point for understanding the role of policy transfer is that what was transferred was the broader approach rather than specific details (Zapfel, 2007). Differences in political as well as many other important, specific circumstances mean that policy transfer tends to be broader ideas or even simply the rhetoric and soundbites. This reality is strongly emphasized by China’s plans to create the world’s biggest carbon market (Bloomsburg News, 2016). Not only were there motivations to fulfill climate change commitments, the Chinese government also had important strategic political and financial reasons for exploring and developing the system. Furthermore, the Chinese took a different approach to developing a national system, with seven Chinese provinces running their own pilot schemes to help test the system (OECD, 2016).

Instruments with New Target Actors

This scenario focuses on changing the policy instrument by altering who is the focus of the steering by the instrument. Within this category there are several possible dimensions to this innovation. One version is to keep the essential instrument in place but simply by redefining the people who must carry the cost of the instrument. The transformative role such design can have is seen in the evolution of the Dutch energy taxation in the period of the 1990s. Thus the Dutch government desired to increase the revenues gained from the energy tax but feared the consequences for Dutch industry, particularly firms with international competitiveness issues (Wurzel et al., 2013). In 1996 the Dutch government instituted a tax on small users of gas and electricity, including small business and households. The same instrument had another innovation in that its revenue was supposed to be used to reduce other taxes, such as income tax burdens. In this way the focus of the tax as well as the nature of the incentives it provided was transformed.

Another scenario for transforming an instrument is by widening the scope of actors targeted by it. Perhaps the newest dynamic seen in this innovation has been the internationalization of instruments. Here a prototypical example of this is quality management systems and auditing, where an organization engages in a management process of continually upgrading its performance. The British Standards Institute (BSI) developed the BS 5750 as the world’s first certifiable management system covering internal organizational processes (Kollman & Prakash, 2002). The BSI designed these standards in 1979 to be used by any manufacturer. Over time the International Standards Organization (ISO) adopted these standards to form its own ISO 9000 management series, and the standards were extended beyond manufacturing to include services (British Standards Institute, 2015). Although this development shared some elements of a policy transfer process, the standards themselves have not been transferred but rather their scope and reach have been expanded to new markets. The core attractiveness of these systems is that the same standards are being used and therefore are recognized by other economic actors across the world. Another development that happened over time was that these management standards took on public priorities and were incorporated in an overall governance response. In the case of the management standard, the European Union developed its own standard to induce businesses to incorporate environmental aims directly in their management improvements.

Change through Altering Calibration

This scenario encapsulates the possibility that policy makers will raise the severity of the instrument to such a degree that the purpose of the instrument will take on new possibilities. As such, there is not really a design innovation in this move, but it can create a significantly different policy outcome. A classic example of this in Europe has been when governments have raised the value added tax (VAT) on fuel to such a degree that it starts having an environmental impact by changing behavior and consumption. The target of the tax has not changed, and the revenue goes in the same coffers as it has done before, but those taxed are induced to reconsider their behavior, with a tacit or implicit policy goal being achieved. The U.K. Conservative government under John Major, for instance, steeply raised the VAT on domestic fuel with implicit aims of deterring fuel usage (Helm, 1998).

Innovation by Policy Mix

This seventh and final scenario captures the possibility that the instrument itself is not new in terms of design or purpose, but that a change in the policy context may transform its role and purpose. Flanagan, Uyarra, and Laranja (2011) attribute the concept of policy mix to the economist Robert Mundell. Mundell noted that, by the manipulation of the exchange rate (either by making it floating or fixed), policy makers can make monetary policy become a powerful tool while weakening the role of fiscal policy, or do the reverse (Flanagan et al., 2011).

Designing a policy mix may be an accomplishment of a single government, particularly when operating in a new field or under crisis conditions. Thus the EU Commission and the Council of Ministers agreed on a whole raft of policy instruments to deal with the Euro crisis, fleshing out the instruments beyond the original EU treaty creating the Economic and Monetary Union (Hodson, 2015).

Although a substantial creation of a new policy mix is possible, the creation of the mix tends to be more incremental and gradual. Streeck and Thelen (2005) make a persuasive case for saying that institutions can change in gradual but significant ways. Particularly important for our purposes are their notions of displacement (i.e., slowly rising salience of subordinate change relative to dominant mechanisms) and layering (i.e., new elements attached to existing mechanisms gradually change the status and structure of the policy process) (Streeck & Thelen, 2005). These ideas alert us to the possibility that governments will create instruments that will continue to exist and interact with newer instruments in the same area. Often the resulting interactions may not be fully understood, given the complexity of these interactions.

Table 1. Typology summary.

Innovation Type

Core Characteristics

1. New instrument design

Mechanism and interaction with policy actors and targets are new.

2. Change in design

Mechanisms of the instrument design are altered.

3. Change in who governs

Design and target stays same, but the actor wielding instrument changes.

4. Policy transfer

Instrument design is moved to a new policy location, with new actors.

5. New targeting

The target actors of the instrument are changed.

6. Calibration change

Actors and design remain the same, but the instrument is recalibrated.

7. Policy mix change

Instrument design and targeting remain the same, but other instruments transform the role of the instrument.

Concluding Thoughts

Table 1 summarizes the different types of new instruments. The landscape and development of instruments are surveyed to contextualize the developments enumerated. Focusing particularly on North American and Europe, these developments are conceptualized in terms of three loose stages that reflect the evolution of governance and policy instruments: pressure, innovation, and mixes.

Taking Hood’s 1983 categorization of instruments as tools that manipulate society to achieve public goals via authority, information, finance, or organization, we can find instances where innovations in these areas pre-date the 1970s. The Organization for Economic Cooperation and Development (OECD) liberal democracies have various distributive, redistributive, and regulatory policies in place using regulations, information, and financial incentives (Lowi, 1972). Nevertheless, the mention of these instruments in international organizations such as the OECD and national institutions and debates as the means for improving governance and protecting economic efficiency have increased in light of a number of interacting trends that have occurred in the 1970s and onwards.

The rise of neo-liberal and new management ideologies directly challenged the role of the state and how the state governed (O’Connor, 2002). It is also no coincidence that the 1970s saw the conceptualization of the term “wicked” policy problem (Rittel & Webber, 1973). These are problems that are both unique and yet linked to and symptomatic of other problems. There is great uncertainty about how to resolve them and yet any action taken as a response tends to have significant policy consequences.

These new challenges combined with an unraveling of the economic and welfare certainties that were the foundation of the post–World War II state. The economic difficulties and uncertainties with the collapse of the Bretton Woods system, the OPEC crisis, slowing overall economic growth rates, greater trade competition from Asia, and other factors all create a picture of states struggling to govern (Jordan & Richardson, 1979).

An increase can be seen the types of instruments being deployed to cope with the policy problems. Policy ideas are often taken from other countries and political entities. New policy ideas are accumulating. Some new ideas do appear such as management standard certification and emissions trading systems. But many of the “new” instruments are the deployment of money, rules, information, and institutional mechanisms in a way that will be familiar to previous policy designers. Nevertheless, there is at a rhetorical level at least a greater emphasis placed on flexibility and the involvement of stakeholders by turning to carrots and sermons, market and informational instruments.

With the rise of wicked problems such as climate change, a whole range of policy instruments is required. One dimension is the share or extent of the world population’s involvement in climate change emissions—leading to a range of mechanisms to “reach” the behavior of diverse, low-level sources of climate change emissions, as opposed to merely the point sources such as power stations. At the same time, the potential costs to other policy goals as well as the uncertainty about both the problem and the remedy have led policy makers across the OECD to accumulate instruments. As economic and social behavior and activity become global in scope, we witness the creation of instruments that are global in focus (e.g., Forestry Certification or the ISO standards), or are part of a global network of linked activity. Accordingly, for example, there is a continued policy discussion among OECD countries about linking climate change emissions trading schemes, with such geographically diverse actors as Australia, California, China, South Korea, and the European Union involved in discussions. Wicked problems such as climate change are great generators of both instruments and policy instrument innovation.

Zito is involved in a four-country analysis of the governance change in the education, energy, environment and health sectors from 1970 to 2015 (Capano, Zito, Lewis, & Raymer, 2015). In all four sectors an increase is seen in the number of new instruments being deployed to cope with the policy problems within the sector. This includes greater use of informational and market-based instruments. However, an extremely important finding and point to emphasize is that the traditional instruments have not disappeared in these sectors. Indeed, the traditional regulatory instruments found in the environment and energy sectors remain across the OECD, and the traditional instruments in education and health remain. These traditional instruments continue to evolve as the governance in the sector evolves. To truly understand governance in the modern policy context we must look at how the older instruments have evolved, as well as the newer additional tools. This requires far more systematic study. This reality also begs the question as to whether there is something lacking in the new policy instruments that the traditional instruments provide. Is there a dynamic inherent in the nature of governing that makes it difficult for new instruments to truly displace the old (Jordan, Wurzel, & Zito, 2013)?

Equally important, the consequence of all of the layering of instruments is that governance occurs by policy mixes. In judging the effectiveness of our governance efforts, we need to be able to monitor the contributions made both by individual instruments (controlling for the others) and by the overall mix. This research agenda also requires a systematic comparative study of countries and policy sectors to understand why certain mixes of instruments exist in particular political systems and others do not (Jordan et al., 2013).

Comparative studies are needed to more systematically determine how the different OECD countries have innovated in each policy sector. To what degree has governance been transformed in a given sector in a particular country by each of the seven mechanisms? Examples of all seven innovations can be found in the area of environmental policy, but even in this heavily studied area more research can be done.

Policy instruments give a much greater sense of how governing works and how governance has changed in OECD public policy. However, it is beyond the scope here to delve into some of the broader implications that link to policy and governance change. Of particular importance is the question of the democratic implications of new instruments and therefore governance. Proponents of instruments such as certification and labeling will argue that greater roles and responsibilities are being accorded to various societal stakeholders including consumers. Nevertheless, we can point to questions about elite participation in designing and implementing these tools, the prioritization of market concerns and interests and so forth that might not reflect the values and outlooks of the citizens (as opposed to consumers). One of the great realities of state regulation, and why it persists, is that different actors, including often businesses, feel that the state and its elected representatives can be held to greater accountability than some of the other governance arrangements. It is when we can systematically answer all these questions concerning instruments that we will begin to grasp how the nature of governance is changing in the modern liberal democratic state.

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