I learned a new word today, although it describes a phenomenon as old as bureaucracy. “Vetocracy” in Britain is a combination of ordinary government bureausclerosis with wider regulatory powers that can (and are) used to “veto” otherwise legal and beneficial activities:
A public company in the UK was building a high-speed railway when it suddenly faced a regulation that few could have predicted: a £100 million ($132 million) bat tunnel. The railway passed through Sheephouse Wood, an area inhabited by rare Bechstein’s bats. To comply with environmental regulations that protect the bats from colliding with high-speed trains, the company had to build a roughly one-kilometer covered structure alongside the railway. This structure has since become widely known in the UK as the “bat tunnel.”
If you think this is just one case, let me tell you about the fish disco. EDF Energy was developing a new nuclear power station in Somerset, which draws cooling water from the Severn Estuary. The project faced regulatory requirements to reduce the number of fish being drawn into and killed by its cooling-water intake pipes. EDF agreed to three measures: specially designed low-velocity intake heads, a fish recovery-and-return system, and an acoustic fish deterrent—underwater speakers that make noise to steer fish away, nicknamed the “fish disco.” The acoustic deterrent alone reportedly costs about $66 million, while EDF says the full fish-protection package costs more than $926 million.
The problem with the UK is that it has become a vetocracy. Francis Fukuyama, the famous author of The End of History, explored this problem in his often-overlooked book Political Order and Political Decay. The concept helps explain part of the productivity puzzle in the Western world. Vetocracy means “rule by veto”: a political system with so many points at which organized minorities, courts, agencies, legislators, or interest groups can block action that the majority struggles to govern.
At first glance, this might seem necessary to protect democracy from majority rule and dictatorship. The separation of powers, independent courts, and an independent judiciary are essential safeguards. As Montesquieu famously wrote, “When the legislative and executive powers are united in the same person, or in the same body of magistrates, there can be no liberty.” But vetocracy is not simply about separating powers and protecting minority rights from the majority; it is about paralyzing democratic institutions and preventing the government from functioning.
Giving any bureaucracy the power to say “no” almost always means that organization will say “no” far more often than it says “yes”, because there’s no risk to the bureaucrat or their bosses for blocking something, but there’s a tangible risk if they approve something that later proves dangerous or even just controversial. Bureaucracies generally prefer to operate largely out of sight — and therefore out of public scrutiny — and danger to the public or controversy in the media brings public attention to the organization or, worse, to the individual bureaucrat who said “yes”.
… the more serious costs are the ones unseen: the products that fail to come to fruition as a result of regulation. As the Austrian school economist Per Bylund has argued in his book The Seen, the Unseen, and the Unrealized: How Regulations Affect Our Everyday Lives, the problem with regulation is that it limits the possibilities of what could happen. It is not just about the direct financial cost of compliance. It is about the choices that disappear, the investments that never happen, and the economic freedom that is gradually eroded. The real cost of regulation is not only what we can see, but also what we never get to see because it was never built in the first place.
Vetocracy is a product of an overextended state: one that wants to be the dominant actor in the economy and micromanage every aspect of economic life. Sooner or later, it discovers that governing is not as easy as it looks. The barriers originally created by the state in the name of better governance can make effective governance almost impossible. A vetocracy is a democracy that has accumulated so many opportunities to say no that it has lost the practical ability to say yes.
