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The article written by Kath Walters and John Stensholt (2002) is aimed at describes the auditing reform undertaken by the Australian government in 2002. This reform was supposed to ease the regulation of auditing firms as well as businesses (Walters & Stensholt 2002). It is possible to argue that the Economic Interest Group Theory of Regulation can explain the events described by the authors.
According to this framework, different groups attempt to protect their own economic interests and in many cases, they do it at the expense of other stakeholders (Belkaoui 2004, p. 134). To some extent, this argument is illustrated by Kath Walters and John Stenholt (2002).
These authors point out that many corporate executives oppose to tighter regulation because it will result to significant expenses for their organizations (Walters & Stensholt 2002).
Moreover, the legislators, who introduced the reform, did not emphasized such a notion as public interest as the main rationale for the reform. Instead, they emphasized such aspects as costs, productivity, and organizational effectiveness. This is one of the examples confirming the Economic Interest Group Theory of Regulation.
It should be taken into account that Economic Interest Group Theory of Regulation also focuses on the role and motives of those individuals and groups act as regulators. According to this model, they should not be perceived as agents that only seek to maximize the public welfare since this view is not quite substantiated (Gilardi 2008, p. 17).
It is more likely that the goal of these people is to develop policies or strategies that can enable them to remain in the positions of power or get re-elected (Deegan 2012, p. 24; Levi-Faur 2011, p. 50). Similarly, the legislators who developed the reform, could be motivated by the same goal.
They understood that tighter regulation of auditing firms and corporate governance could make them very unpopular among businesses; more importantly, their parties could be deprived of funding. This is one of the concerns that can explain their decisions.
It should be noted that the Prime Minister, John Howard also focused on the productivity of businesses and accounting firms, rather than the needs of other stakeholders such as investors (Walters & Stensholt 2002). To some extent, his rhetoric indicates that policy-makers cannot be viewed only as impartial judges who cannot take any sides.
This assumption is critical for the Economic Interest Group Theory of Regulation. Unlike many other models, this theory does not describe regulators as some arbiters who have no interests of their own (Rowley & Schneider, 2008, p. 464).
It should be taken into account that according to this model, various stakeholders pursue their self-interests in a rational way. In other words, they understand that groups are more likely to succeed if they reconcile their goals with the objectives of other stakeholders (Dewar 2009, p. 81).
In particular, interest groups provide some justifications explaining why a certain reform or regulation should be adopted by policy-makers. For instance, one can mention that the auditors explained why it was necessary to limit the intervention of the state into the activities of businesses (Walters & Stensholt 2002). In their opinion, this interference will only make the work of accountants and businesses less effective.
Furthermore, they noted that the increased costs of compliance could prevent the companies from achieving growth. This component of Economic Interest Group Theory of Regulation is also important for describing the behavior of interest groups, their rhetoric and the strategies that they can adopt in order to achieve their objectives.
The main advantage of the Economic Interest Group Theory is that it does not try to present an idealistic description of businesses or regulators. The proponents of this model believe that various stakeholders such as corporation are driven by their own needs, and it is very naïve to assume that they will have any reasons to sacrifice some of their interests for the welfare of others (Rowley & Schneider, 2008; Libby 1998).
Overall, this framework is helpful for understanding the factors that drive regulatory process in Australia as well as other countries. Moreover, it can explain the inconsistencies of other model such as public interest or capture theories. For instance, this model can explain why Australian regulators introduced the auditing reform that contradicted their previous policies.
To some degree, their conflicting strategies can be explained by the need to secure the loyalty of various groups like businesses, investors, or mass media, rather than the orientation toward public interest. This is one of the reasons why this model is often used for discussing the actions of regulators.
Moreover, it can throw light on the argument that various interest groups can put forward in order to demonstrate that a certain regulation or reform is needed.
Certainly, some people may not accept this model because it does not refer to such a concept as social responsibility of businesses and regulators. Nevertheless, with the help of this model, one can make more realistic predictions regarding the decisions of political leaders and various interest groups. This is main benefit of this theory.
References
Arnold, R 2008, Economics, Cengage Learning, New York.
Belkaoui, A 2004, Accounting Theory, Cengage Learning EMEA, New York.
Bozeman, B 2007, Public Values and Public Interest: Counterbalancing Economic Individualism, Washington, Georgetown University Press.
Deegan, C 2012, Australian Financial Accounting, McGraw-Hill, Sydney.
Dewar, D 2009, Essentials of health economics, Jones & Bartlett Learning, London.
Fiorino, D 2006, The New Environmental Regulation, Cambridge: MIT Press.
Gilardi, F 2008, Delegation in the Regulatory State: Independent Regulatory Agencies in Western Europe, Edward Elgar Publishing, Boston.
Levi-Faur, D 2011, Handbook on the Politics of Regulation, Edward Elgar Publishing, New York.
Libby, R 1998, Eco-wars: Political Campaigns and Social Movements, Columbia University Press, New York.
McEachem, W 2011, Economics: A Contemporary Introduction, Cengage Learning, New York.
Morgan, B 2007, An introduction to law and regulation: text and materials, Cambridge University Press, Cambridge.
Phillips, R 2011, Stakeholder theory, Edward Elgar Publishing, Boston, 2011.
Posner, R 2002, The problematics of moral and legal theory, Harvard University Press, Boston.
Roediger-Schluga, T 2004, The Porter hypothesis and the economic consequences of environmental regulation, Edward Elgar Publishing, New York.
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