Balancing Competence and Control

In recent decades the EU has witnessed a remarkable rise in the number of specialized regulatory agencies and European regulatory networks (ERNs). It is often assumed that agencies and ERNs are mutually exclusive instruments of indirect governance. As this chapter argues, however, they are often used in combination to better address competence–control tradeoffs. The chapter illustrates this argument with two case studies of regulatory policymaking in the EU. First, in the case of aviation safety, the EU and its member states created a new agency, the European Aviation Safety Agency, to overcome a control deficit which had hampered its ability to rein in existing regulatory networks. Second, in the field of food safety, the EU as collective governor sought to overcome the competence deficit of its intermediary, the European Food Safety Agency, by enlisting a second intermediary: the “Focal Point Network” (an ERN).

Competence over Control

The UN Security Council increasingly authorizes weapons inspections to enforce nonproliferation. These are cases of indirect governance, where the Council (the governor) relies on separate bodies (intermediaries) to conduct inspections in states of concern (targets). Despite the risks, the Council often seems willing to forego control in return for gaining the benefits of a competent intermediary that can address its ambitious policy goals and capability deficits. These cases point to important differences between preexisting intermediaries (such as the IAEA and OPCW) and ad hoc intermediaries created for specific tasks (such as the inspection commissions that operated in Iraq). The latter are far more amendable to control, both ex ante and ex post. Over time, we see increasing goal divergence between the governor and intermediaries, driven mainly by the shifting interests of Security Council members, but we also see the competence of intermediaries increase as they gain on-the-ground experience, making control more difficult. The collective nature of the Security Council further complicates control efforts, creating a temptation for individual members to interfere unilaterally with intermediaries and targets. The analysis suggests that the role of sovereign, strategic targets deserves more attention in the study of indirect governance at the international level.

The Governor’s Dilemma in Colonial Empires

One of the striking features of European colonial empires was their tendency to expand despite opposition from metropolitan officials. This chapter argues that this tendency was not due to the idiosyncratic personalities or preferences of frontier agents, but derived from the very governance structure of overseas empires. Colonial governance depends on layers of intermediaries, including both imperial proconsuls and local collaborators. Competence–control tradeoffs and dynamic instabilities occur at every level. Drawing on competence–control theory, this chapter explores the tradeoffs and tensions metropolitan officials face when granting authority to these chains of subordinates, and how those tensions can generate pressures to push forward the imperial frontier.

Managing the Eurozone Crisis

In the wake of the sovereign debt crisis, some of the most advanced economies in the world turned to the IMF for financial assistance. Not only did the Eurozone countries ask for the Fund’s help; they also incorporated the IMF into the institutional architecture for handling crises in the European Monetary Union. This chapter uses competence–control theory to shed light on the puzzles raised by the decision to enlist the IMF in Eurozone crisis management. Firstly, the chapter argues that the Eurozone’s motivation for enlisting the IMF can be found in the competence deficit its governors confronted in managing the crisis. In particular, Eurozone countries lacked sufficient competence (including expertise, money, and credibility) to formulate and enforce adjustment in crisis-hit countries. By enlisting the IMF, Eurozone countries acquired the necessary competence but had to share control. Secondly, the chapter shows that the tradeoff between competence and control shifted over time: even after creating their own crisis management competencies, member states continued to enlist the IMF as a way to reduce the control problems that creditor states confronted in enforcing adjustment in debtor countries.

Indirect Governance in Global Financial Regulation

The global financial crisis led G20 states to conclude that stronger regulatory standards and improved compliance were needed to ensure global financial stability. To this end, the G20, as collective governor, granted an institutional intermediary, the Financial Stability Board (FSB), authority to develop and supervise financial market regulations. However, the G20 designed the FSB in ways that stymied its regulatory competence. Why did the G20 design the FSB in ways that were inadequate to meeting its own governance goal? Competence–control theory provides a compelling answer. The G20 faces a tradeoff between a competent intermediary and control over the intermediary; this tradeoff is exacerbated by the G20’s collective nature. While the G20 has a collective long-term interest in an intermediary with the expertise and capacity to promote stability-enhancing regulations, intense short-term distributive conflicts among member states yield strong incentives to control the intermediary. These internal distributive conflicts are more easily overcome during systemic economic crisis, when a competent intermediary is urgently needed. Once the crisis has passed, however, the governor reasserts control, again compromising the intermediary’s competence. The chapter illustrates this argument with an account of reforming the Financial Stability Forum into the FSB, and three case studies of policy reforms after the financial crisis.

Militias and the Iraqi State

According to conventional wisdom, states have a monopoly on the legitimate use of force within their territories, and delegate its operation to closely held state agents such as the military and police. Yet when faced with insurgencies, states often enlist the support of paramilitary organizations or militias. The competence–control tradeoff is especially stark in these cases, as states depend on capable militias to fight insurgents, but also risk losing control over them. This chapter examines the tradeoff in light of the relationship between militia groups and the Iraqi government. To bring a semblance of security to Iraq, both the United States and the Iraqi government used paramilitary groups such as the Sons of Iraq and the Kurdish Peshmerga. Following the withdrawal of US troops, the government has become increasingly beholden to Shia militias, yet the case defies a simple, sectarian logic. This chapter examines the choice of governance strategy vis-à-vis militias in Iraq, and changes in that strategy over time, providing insights into the governor’s dilemma, counterinsurgency strategy, and state formation.

The Authoritarian Governor’s Dilemma

Even authoritarian leaders cannot rule alone. This chapter explores the politics of indirect authoritarian governance through coercive institutions in socialist Poland and East Germany. It explains why the Polish Bezpieka’s staff and secret informant network shrank after 1956 despite significant mass opposition to the regime, while the East German Stasi grew to become a much larger agency. Authoritarian governors face a problematic tradeoff between the competence of the secret police and their ability to control it. When goal divergence with the police leads a regime to exert more control, agency competence suffers and the regime must turn to violent ex post repression, rather than ex ante deterrence and subversion of threats. In Poland, replacement of the Stalinist party leader in 1956 created significant goal divergence between the upper ranks of the secret police and the new elites the police had previously victimized. Elites shrank the coercive agency to exert control over it, despite significant mass opposition to the regime. In East Germany, in contrast, continuity of Stalinist leadership led to less goal divergence between elites and the secret police, enabling its continued growth.

Governing Capital Markets

This chapter applies competence–control theory to capital market governance. For much of the twentieth century, centralized market intermediaries such as the New York Stock Exchange and London Metal Exchange served as efficient platforms for capital formation and risk management. However, this pattern of good self-regulatory governance was displaced by socially unproductive rent-seeking and widespread distortions following the introduction of increased competition between fragmented exchange platforms and external statutory controls. The governor’s dilemma provides an elegant framework for explaining this deterioration in the quality of capital market governance, which confounds standard expectations about the salutary effects of competition and the presumed vices of self-regulation. Unpacking the changing modalities of governor control (cooptation versus delegation) and the impact of differences in market structure (centralization versus fragmentation), this chapter shows that good market governance was supported by soft control mechanisms and a radical attenuation of the competence–control tradeoff in centralized markets. This efficient equilibrium unraveled as growing goal divergence—induced by market fragmentation—encouraged harder governor controls that inadvertently eroded the competence of market intermediaries.

The Invader’s Dilemma

Military invasions are typically considered illegitimate both by local populations and by the international community. How do invaders mitigate this legitimacy deficit? This chapter argues that invading states enlist local rebel groups not only for the expertise and operational capacity they provide but also to gain some degree of legitimacy vis-à-vis local and international audiences. Gaining legitimacy in this way, however, comes at a cost: to avoid the perception that rebel intermediaries are mere puppets, the invading state must refrain from exercising hard controls over them. The chapter illustrates this legitimacy–control tradeoff by contrasting the Rwandan and Ugandan invasions during the Second Congo War (1998–2003). Drawing on interviews with key protagonists, the chapter shows that the different levels of control exerted by Rwanda and Uganda help account for the vast difference in the popularity of their rebel intermediaries. While Rwanda continuously maintained hard controls, eroding its intermediary’s local legitimacy, Uganda initially limited itself to soft inducements, thereby enabling its intermediary to garner legitimacy. In developing these arguments, this chapter engages with the literatures on rebel governance, intervention in civil war, state-building, and military occupation.

Competence–Control Theory

Virtually all governance is indirect, carried out through intermediaries. Governors prefer both to engage intermediaries that are competent and to control intermediary behavior. But governors face a pervasive tradeoff between competence and control. Competent intermediaries are difficult to control, even with complete information, because their capacity to advance or threaten the governor’s policy goals gives them power over it. At the same time, governor control can weaken important intermediary competencies, constraining their development or exercise. The governor thus faces a dilemma: if it emphasizes control, it limits intermediary competence and risks policy failure; if it emphasizes competence, it empowers potentially opportunistic intermediaries and risks control failure. Competence–control theory explains many features of governor–intermediary relationships that other theories of indirect governance cannot: why such relationships are not limited to principal–agent delegation, but take multiple forms including trusteeship, orchestration, and cooptation; why governors choose forms of indirect governance that appear counter-productive in other theoretical perspectives; and why indirect governance relationships are frequently unstable and subject to repeated tinkering and changes of form over time.