7 - Regulating hybrids: structure and control

Summary

Quasi-government does not merely transfer policy responsibility from a traditional executive agency to a hybrid organization. It effectively splits responsibility between two entities: an implementer and a regulator. The “implementer” is the deliverer of goods and services. Fannie Mae and the Hungarian American Enterprise Fund are examples of implementers discussed in this book. Hybrid implementers generally utilize market-oriented mechanisms such as loan guarantees or direct investment to accomplish public policy goals. Unlike government agencies, many hybrid implementers also have explicit non-public objectives (e.g., profitability) and create financial liability for the government.

The “regulator” exists to maintain the hybrid organization as an effective substitute for a government agency. The Office of Federal Housing Enterprise Oversight and the Agency for International Development are regulators considered in this study. As seen through the cases examined in previous chapters, the regulators must ensure that implementers address the public policy needs for which they were created and guarantee that implementers do not abuse their quasi-governmental status. That is, they must see that hybrids pursue the objectives determined by policy-makers, operate in a fiscally prudent fashion and abide by procedural requirements laid out by Congress.

Note that the function of the regulator under such an arrangement is substantially different from a traditional regulatory agency. As discussed in chapter 3, regulation is traditionally justified by a feature or deformation of the market that requires intervention in the name of public interest.