Regulatory Reform, or………Wreck you Sooner than Later Reform?

Regulatory Reform, or………Wreck you Sooner than Later Reform?

Ganga Prasad Rao
Energy, Environmental and Mineral Economist
gprasadrao@hotmail.com
gangaprasad.rao@gmail.com





Disclaimer: The author makes no claims to factuality of the contents, or the outcomes of designs elaborated in this column.

Regulatory Reform is an oft-heard cliche in political circles, and among economists, investors and bankers. (One almost immediately suspects a conspiracy amongst them...or, is that being too intrusive?) Textbook regulatory reform is all about enhancing the efficiency of regulations - existing, under revision, proposed, and prospective, of maximizing net benefits, ie, incremental benefits net of incremental costs, about internalizing externalities - non-pecuniary and pecuniary, and reducing policy uncertainty. But reality is as much distanced from theory as politics is from truth. Regulatory reform has turned in to a catch-phrase, even a catch-all for unholy intentions of PV-capitalists, whether within the nation, or without.

Before unraveling the intrigue around it, lets first put regulatory reform in perspective. Regulations are necessitated for a myriad reasons: from defining the legal framework for initiating business, and the boundaries for conducting business with the Government, competitors and the general public, delineating the rules by which business in multi-lateral trade contexts, to oversee, monitor and enforce ethics in financial commons, and in such contentious areas as IPRs, or, to assert property rights, particularly concerning the environment and the safety & health of the public. Other motivators of regulatory reform include revisions and amendments to international multi-lateral agreements, streamlining with international practices and standard, especially if that is accompanied with enhanced access to international resources, advances in technology and concomitant changes in public risk, political and policy advances, new discoveries, changing social preferences, catastrophic-events -whether natural or anthropogenic, as reactions to court fiats and interpretations, regulatory rulings, and even opportunistic contexts such as bilateral (hedge) funding. Paradoxically, regulations are a two-edged sword; they are deemed onerous with repetitive amendments and revisions that increase the burden of compliance on both sides of the Government-Business divide, and thus the cost of administering regulations and doing business, but they are also sought by businesses for varied reasons, extending from protection of markets and prices from internal- and trade- competition, to avoid business and policy/unforeseen risks in the present and of the future, to the exploitation of real and strategic opportunities presented by macro-economic, political, technological, or transitory events. From this angle, regulatory reform serves as a channel, a medium, a bridge that permits businesses to be in continuous touch with the Government, and seek reforms/amendments that, both, insure them from costly risks and positions them to exploit profit opportunities.

Stakeholders in reform negotiations are buffeted by various pressures - some that would induce them to cooperate, others compete, and yet others, strategically accommodate either in bilateral, or multi-lateral contexts. Cooperative reforms are often 'patriotic' and concern domestic businesses seeking trade-protective and non-competitive advantages. Strategic rulemaking is the norm, and is exploited by governments of different leanings and foreign entities who may leverage their  antipodal niches across the Nation:ROW divide as polar hedges in financial markets to their advantage. Such reform is guided by strengths and weaknesses, opportunities and threats, anticipatory strategic moves, and literally, a 'give-end-take' attitude. In an adversarial context - whether real or stage-managed, both sides predictably stone-wall each other, and resort to legal challenges that delay reforms, potentially delaying the introduction of superior technology, and extending the life of an inefficient and privately-enriching obsolete technology, regulation or rule. Unlike the adversarial context in which partisan interests sub-optimize the social pie, cooperative and strategic regulatory reforms have the potential to maximize social FV gain, albeit if participants negotiate ethically, without corrupt intents.

Regulations are measured in various dimensions - efficiency: static and dynamic, social-, environmental-, economic cost and benefits, transactions costs, but less overtly, their impact on political fortunes and indeed, the capital markets. Every regulation, every amendment, every revision has its winners and losers among stakeholders who are hedged politically and financially. In fact, much of the lobbying budget owes to attempts by business stakeholders - small, groups, and large, and who sponsor elections, joint government-business initiatives, public events and leverage social media, to seek amendments, inclusions and exclusions, the opening or closing of loopholes that either pre-empt a private risk, or open an opportunity for concentrated private gain. Despite strategic cooperation, the Government and Business have long been at odds with each other in matters regulatory. This owes its origin to the competitive nature of businesses that induce firms to perpetually cut costs, whether by holding wages down, skimping on ESH-expenditures, or ignoring their CSR obligations, and in their opposite, the Government's efforts to 'left' the ship by seeking employment growth, wages and lifestyle enhancements and social security. Hostility between the Government and Industry, predictably, exacerbates in Left-leaning and Centrist regimes that pursue a path of compromise, accommodate sensitivities on both sides of the issue and seek to sustain economic growth, protect the livelihood and the lifestyles of people, tighten ESH standards, and safeguard the environment. On the other hand, Mercantilist and right-leaning governments (beyond Majoritarian multi-party democracy, weak coalition governments, and 'competitive federalism'), abet an unbalanced, populist, nominal, PV-hastening regulatory regime, the gains from which are disproportionately usurped by empowered party men, 'in-the-know' corrupt bureaucrats, businesses and investor community. Thus, and far from the economist's ideal of a vehicle to enhance efficiency incrementally, regulatory reform sub-serves a strategy pursued by the two sides that either obtain them the approval of the masses as consistent with electoral mandates, the nature of the government, and indeed, the macro economic hedges, and/or, profits at the bourses. Such strategic regulatory reform is likely deeply mired in conflicts of interest on both sides – conflicts that impinge on democratic representation, cross-sectional and inter temporal efficiency, trade fair play, financial prudence, legal  diligence on one hand, and upon competition, ESH/labor-relations and Corporate social responsibilities on the other.

To better comprehend the context within which regulatory strategies evolve, let us  examine the impact of CC-Trade and the consequent globalization of economic activity. Globalization and trade that took off with the frenetic pace of synergistic developments in Finance and IT, brought the bourgeoisie, even the proletariat in every corner of the world face-to-face with the realities of global competition, opportunities and risks. Changes in risks, opportunities and incentives associated with existing or new technologies, inventions and discoveries are magnified by the global reach of the CC-economy, the global, multilateral competition for CC-capital and -technology, and the domestic opportunities offered by friendly or strategic political parties. In this context of globally-magnified stakes, regulatory reform induces anticipatory strategic moves by the CC-Industry (and political parties) to secure prospective rents and avert anticipated losses. Political contributions and the funding of electoral candidates is one such strategy that pays off handsomely. Such contributions facilitate access to legislators (and bureaucrats) and ensures the Government is receptive to their interpretations, claims and proposals (regardless of actual election outcomes). Given PV-incentives that face businesses are mirrored in political parties and the Government - the electoral competition for votes in majoritarian elections only heightening those tendencies, regulatory reform, whether cooperative or strategic, is often a thinly-veiled camouflage for mutually PV-aggrandizing policy reform. Whether induced by competitive threat or opportunism, regulatory reform has turned in to an overtly public, yet obfuscated and camouflaged strategy to PV-aggrandize regulatory stakeholders by leveraging financial markets to monetize opportunities that the markets would otherwise not offer. This extends from introducing unsustainable and non-competitive technologies, regulatory policies with loopholes, options and alternatives that would normally not be permitted or considered, modifying terms of trade to favor FV-reducing options for the PV-gains that accrue private parties, delaying or denying discoveries and innovations, permitting unsustainable subsidies, politically-motivated interventions in such matters as competition, the timing of approvals, issue and renewal of licenses, even IPOs, tariff-setting and revisions, and litigation, to name a few. These strategies typically reduce a societal future by hastening it, motivate instruments that concentrate 'capital market-alpha gains' in political hands and corporate entities, and distribute costs amongst a large group across space and time in a manner that makes them invisible, imperceptible and seemingly of little consequence, if not incognizable (thus engendering an inter-temporal private-public externality in the sense that stakeholders who would benefit are pro-actively induced to seek such design, and the affected public largely unaware or unable to respond effectively. NGOs, claiming to represent the public, are oftentimes party to the design). Examples abound: from arms purchases, pricing 'subsidized' pharmaceuticals, auctioning of property rights and their cancellation, doctored PPAs and exploration-contracts to alter sectoral fuel-choice and trade competition that unbalance the playing-field, to land acquisition, permitting foreign investment & competition, and regulations governing infrastructure investments. Despite their potential impact upon global environmental and labor market impacts, each has the potential to rake in a PV 100% in the capital markets, and together they represent a very real and perpetual challenge to long-term sustainability of the nation, even the society. Thus, in Populist-PV-Nominal regimes, the incentives and motivations that underlie regulatory reform are quite often to the opposite of the long-run social good.

On a more sedate note, most CC-Technology is Capital-intensive, involving plant and equipment that  necessitate large, upfront investment, that can only be recovered across decades. Given governments last only a few years, and both, political parties and voters, have short memory and are notoriously fickle, businesses must devise a means to ensure their profitability beyond mere survival. It is in this context that regulatory reform turns significant; in fact  reforms take on strategic hues that seem more like 'BizAssurance'. 'BizAssurance' addresses uncertainty in input, output and factor markets, a key objective of reform initiatives and government-business negotiations, by seeking deals with institutions, organizations and entities that obtain those ends. To start with, the CC-Business identifies significant political- and 'cause-enemies', approaches the former to take a position opposite the latter, and further ensures they will react in a predictable and strategic manner in certain contexts and contingencies. Next, it makes fiduciary monetary deals with 'permanent' government institutions, such as the RBI, with whom it registers its budgetary support lines and FDI keys in return for 'Taxassurance' (AMT) and 'FXAssurance-FX Bands' (the latter as determined by the bounds of FX-interpretation on the multi-decadal compacts around IPN-exchanges between friendly nations. IPNs represent macro-prudential, fiduciary instruments deposited with a friendly nation meant to serve as an inter-temporal counterweight that stabilizes the nation's PV economy from international currency market-, trade- and economic- perturberances). Beyond these assurances, the CC-Business  leverages its access to the Lower House to ensure certain favorable legislative outcomes on the floor of the House; it exploits the Parliamentary Opposition to communicate with regulators and obtains their tacit agreement concerning competition, prices/terms of trade and such regulatory issues as exit, labor compensations, etc; it  anticipates judicial and regulatory challenges triggered by (nominally) 'unpatriotic (cause-)enemies', by leveraging the access the Upper House has to the Supreme Court, to pre-negotiate 'sector-sustainable administrative compacts' with the school of Judges (that implicitly enforces a 'Dionysus I Pareto') in return for supporting their EO-Causes. Together, these strategies, that account for a significant share of 'transactions costs' borne by the group of firms, sector or the mercantilist nation, obtain a degree of market- and inter-temporal certainty for CC-Business that permit it to commit to, and undertake massive and multi-decadal investments in a foreign nation.

The dominance of extant technology over the yet-unborn future technology by such means as subsidies, and the delay or suppression of superior technologies, is evident in PV-Capital markets, that, ever in search of expanded profits, incentivize the intensive exploitation of existing, low private-cost technologies that reduce the futures of a dispersed group. To relate an example,  dam-building and hydro-power generation capability is being exploited along the Mekong river to secure profits for owners of conventional technology while reducing natural assets, and undercutting the support provided to its people by intergenerational natural resources of the region. (Unsustainable PV-hastening, by reducing the future of a large group, breaks into the personal intergenerational wealth spheres of members belonging to future generations, especially if that hastening involves the Commons and Natural resources. Incidentally, one would expect that the nature of capital employed by the firm PV-hastening its profits at the bourses, or via an IPO, would also matter. Firms with EO/Social capital, whose revenues and gains are distributed broadly in the public, likely cause less damage to the Social-FV than firms with ZS-Competition capital that would rather enrich themselves albeit for the price of a smaller and unbalanced societal future. One could further assert that should an unsustainable hastening enrich the EO-capital endowed Government, it triggers vice and slavery obligations to restore social sustainability; else if that hastening is enriching to ZS-capitalists, it enforces an FV-reducing zero-sum on the society, even its customers, in a time-horizon not uncorrelated with the unattained EPS growth projected for the PV-hastening. Thus, IPOs for CC-ZS capital are best priced at lower than market PE multiples for the same EPS-growth, else limited to the low-growth, low-margin, sub-aural sectors of the economy).

It is pertinent to make two additional points. First, the hastening of a future stream of profits to the present engenders PV-Externalities and FV-Damages, the extent of which depends on the nature of production and consumption technology. Should technology be safe, efficient and closed-cycle, the hastening is likely to cause minimal impacts, and  the future translated to the present in about as-is condition; else, the hastening could substantially reduce the quality of life bestowed a future generation (the former represents a low-discount rate regime; the latter a high, implying that PV-hastening protects and captures most of the potential future in the case of the former, and reduces it significantly in the latter). Second, and whereas theoretically, the full costs and benefits of regulations are social, MNCs, domestic businesses and commercial interests (and political parties ahead of electoral duels) have an incentive to pursue only those opportunities associated with concentrated private profits; the same is noticeably lacking among members of the public who face a very real, if distributed regulatory impact across space and time, but are individually oblivious to it. (This incentive externality that owes its origins to under- or misperceived impacts, and to individually-insurmountable transactions costs shrinks to the extent such causes are taken up by environmental organizations and NGOs.) Further, and since private costs and benefits perceived by the industry/niche-polarized political parties do not dovetail with social costs and benefits, the same will not be internalized in their strategies and decisions, thus engendering potential externalities in various spheres of the society – ESH, social, monetary, governance, gender, even ethical and moral. This is particularly true in a Populist-PV-Nominal society with term- and regime-limited memories, responsibilities and payoffs. In such contexts, those stakeholders with access to resources, power and authority, who might benefit in a concentrated manner, have an asymmetric incentive to strategize, conspire/collude, deal or otherwise obfuscate/offer largesse and obtain their PV-hastened benefits to the detriment of the present and future society.

Beyond these externalities, the confluence of the Populist-PV-Nominal regime, and PV-centered monetary policies and financial markets dominated by '(Mars ZS) CC Competition' capital imply there exist (even for MNCs) large economic rents from policy intervention, such as legislating rules and regulations involving restraint of competition, strategic amendments to/ timing of innovation, taxes, government-protected subsidized markets, etc. One is not entirely amiss to claim that it is with these motivations that MNCs and foreign trade entities seek parleys with the government of the day, or anticipate electoral contributions with. Infact, political parties backed by electoral mandate from indiligent citizens, and opportunistic businesses with deep, globally-sourced pockets, are perversely empowered to seek loopholes, exceptions, and amendments to existing rules and proposed regulations that dovetail in to their capabilities, niche, opportunistic business plans, and that leverage their global political-, financial-, economic reach and technological prowess. Regulatory reform, at its worst, could then well be a systematic and repetitive exploitation of societal FV-wealth by the very governments and businesses supposed to sustain and grow it. It is in this context that one seeks an answer as to how political parties, the government or other regulatory stakeholders, distinguish the honest reform proposals made by (foreign) entrepreneurs leveraging  their expertise and foresight, and understandably ‘patriotic’ national trade interests, from those backed by technology newts and strategy experts conspiring with shady offshore financial entities who buy their way in to political parties and platforms, leverage their subscription to the global net of academic experts and professional consultants, exploit their political and financial influence and strategically manipulate rule-making and regulations that serve their private ends and very partisan interests? Wouldn’t these grey-entities exploit coalition politics, and competition for foreign investments across jurisdictions, to scoop-away the PV ice-cream of economic rents by their strategic introduction of unproven technology, albeit camouflaged in regulatory reform? And, more to the point, how should  public institutions anticipate such manipulative intents? Is Regulatory Reform merely the legal fig-leaf to hide behind-the-scenes consultations and negotiations – some regulatory, some political, some ostensibly patriotic and others, strategic diplomacy - that open the door to FV-compromising PV-aggrandizement by members of ruling party? If so, how would one with a long-social perspective internalize the perverse incentives that pervade in these interactions? To recognize that a problem – geographically-dispersed, politically-managed, overt, yet camouflaged and less-perceptible – exists, is but a beginning; one must persevere to find a credible and transparent solution to it.

Let us frame the issue as an outcome from the confluence of PV-enriching incentives on both sides, ie, on one side the Populist-PV-Nominal Party/Government answerable to its electoral mandate, and on the other, Businesses competing in the PV-ZS capitalist markets. On one hand, it is arguably a case of Agency problem - one in which a government ostensibly elected 'by the people, of the people, for the people' camouflages its corrupt-intentions in the impatience of the public for a fulfilling PV-lifestyle, to compartmentalize and appease them in the present albeit reducing their group-future. Simultaneously, and on the other, businesses must inevitably answer to investor- and shareholder pressures in Capital-markets (the return threshold), and that implies a preference for PV-profit maximizing strategies. Further, the Ruling realize that reform-seeking MNCs have alternative investment destinations should the nation cold-shoulder their reform initiatives (ie, the CC-Opportunity cost) and could well re-direct its not-insignificant capital to more receptive and accommodating nations. These incentives converge to induce both sides to meet half-way, albeit with strategic, if not unethical intents.

While there could potentially be many answers to the conundrum - social and political, in particular - this column seeks a solution in the very instruments that serve as the medium of PV-aggrandizement, ie, Finance and capital markets. The challenge is to devise measures that indicate the extent to which potential social FV-gains are reduced, hastened and PV-concentrated in private hands, and parallely, costs distributed amongst the masses across space and time. Within adversarial and corrupt-cooperative contexts, and given the conflicts of interests that are inherent to regulatory reform, it is best a neutral entity, with as much concern for the present as for the future, such as (in India), the 'CAG-RBI-Rajya Sabha-Niti Ayog'  (CRRSNA), anticipate such mal-incentives and impacts, and design objective and foresighted instruments to negate them, cover for residual pecuniary and non-pecuniary impacts, and improve upon reform proposals continually. Additionally, the CRRSNA would like to design appropriate hedges that, both inure the long-run future of the nation and position it strategically in subsequent rounds of regulatory reform. Toward the first objective, the CRRSNA anticipates regulatory moves by the two entities: the Government/Ruling Party representing citizens and endowed with EO capital and property rights to natural resources and the Commons, and technology-empowered Businesses, with CC- or Trade-capital. It pre-supposes the Ruling party will seek to aggrandize from PV-enriching pareto-, or perverse- regulatory reforms that are in consonance with its Populist-PV-Nominal agenda, and that it could legislate through its Government in cooperation or connivance with domestic businesses and MNCs. It also rationally expects the Ruling party to prefer reforms that attract lower capital-cost FDI, and those that are likely to aggrandize it discreetly post it's tenure. Further, it also presumes Businesses, fearing outflow of capital from other sectors into the 'reformed' sector, would only permit reforms in periods of loose monetary policy regimes and during  equity-bull runs when broad-based capital inflow pre-empts lop-sided, or zero-sum gains in sectoral equity valuation. Toward the second objective, the CRRSNA seeks a long monetary strategy that  anticipates and pre-empts significant losses to the nation's future.

Toward fulfilling these objectives, CRRSNA anticipates successful reform-hastened short-run profits, or failed reform-triggered losses in the regulated sector by recommending the Sovereign Wealth Fund, SWF, and the Ruling party, RP, simultaneously execute CRRSNA-sponsored, paired, Buy- and Sell- 'polar Half-options' in the Sectoral ETF. These paired, mirror-options permit opposite bets upon the post-reform SETF NAV, thus facilitating the SWF and RP to 'square' the option-facilitated trades post reform negotiations. This strategy forces a post-reform and post-term, CRRSNA-monitored reconciliation, enabling the 'permanent' SWF to 'compensate' the 'temporary' Government discretely for its role in the reform process (such as in the cover of 'cricket frenzy', 'border skirmishes' or various orchestrated agitations). Simultaneously, and while yet in the midst of reform negotiations, it recommends hedging potential negative FX-reactions to regulatory negotiations from the global CC-Business, such as a swift and broad-based withdrawal from capital markets of the nation, and in to other alternatives such as dollar-denominated GETFs and/or more inviting global destinations, by suggesting an internal arrangement between the SWF and the Ruling party. This arrangement pre-supposes the SWF and the Ruling party have opposite regulatory stakes: the SWF focused on the Long, specifically, the strength of the Rupee and the health of the capital market, and the Ruling party, with dual stakes as apparent in its preference for Sectoral-ETFs in the short, and on the $ in the Long.

Costs of Unsuccessful- and Benefits of Successful Regulatory Reform

COSTS	COSTS	BENEFITS	BENEFITS
SR	LR	SR	LR
Capital flight, Squandered SR reform rents	Weaker Currency, Social Inequity, Economic inefficiency	Gain in Sectoral efficiency; Stronger capital market	Stronger Currency	Government/ Ruling Party
Lobbying costs, Electoral contributions	Lost credibility	Stronger Equity market	CC Efficiency rents	CC Business

In the short-run, CRRSNA endowed with a $IPN exchanged for a RIPN, anticipates a knee-jerk reaction by a disappointed global-CC industry that takes the form of a coordinated and broad-based, if not surprise withdrawal from the nation's capital markets causing it to crash and the R to falter. It monetizes a tranche of $IPNs into two currencies R and $, and two gold-backed capital, RGETF and $GETF (the former hedges against the $, and the latter against the R), endows the SWF with R and $GETF, and the RP with an equivalent sum of $ and RGETFs, such that the internal exchange rate between the two currencies is equal the external SR FX. Pre-crisis and consistent with its anticipation and strategies, the SWF sells $-GETFs to its partner, in return for $, a Buy option on a weak $, and a Sell option on a strong R. The RP, on its part, promptly converts a part of the $GETF to R. This conversion obtains it a '$-Equal-MNC A' benchmark that it leverages to re-convert R back to $ and its CC-R equivalent, RSETF (thus, and in a sense, forcing the regulatory reform to be par-international, or limiting the re-conversion to the extent it is). Into the crisis, the SWF sells its $ to shore up the R at its weakest while the Ruling party exchanges its residual holdings of the R post the RSETF purchase. It holds on to its residual $-GETFs that appreciate both for reasons of gold being a safe haven, and the appreciating $ (The R-GETFs barely hold their own due counter movements between the currency and the asset class). Post-crisis, the SWF reverses its pre-crisis move by selling R upon the triggering of the Buy on the weak $, and/or, the Sell on the strong R, to buy into $-GETFs, while the Ruling party finds it opportune to harvest the gains in its residual holdings of $-GETFs and moves out into $ that it may, at its convenience, convert to R with its Sell and Buy options. Thus conceived, the two entities anticipate, hedge and overcome collusive regulatory strategies of the global CC Business, inure regulatory negotiations, force a global efficiency benchmark on the regulatory process, and bring stability to the Nation's capital market and currency in the short-run.

Option-based hedging to anticipate collusive regulatory strategist

CRRSNA leverages $IPN and issues SWF with (R, $GETFs) SWFR:RP$ FX at SR market equilibrium	CRRSNA leverages $IPN and issues Ruling Party with (RGETFs, $) SWFR:RP$ FX at SR market equilibrium	Endowment @t0
Convert $GETFs to $ (plus Buy option on weak $ and Sell on strong R) until SWFR:RP$ FX equilibrates with Long FX between two IPN-exchanging nations.	Sell $ for $GETFs (plus Buy option on weak R and Sell option on strong $). Convert $GETF to R (plus '$ Equal-MNC A' investment benchmark). Exploit benchmark marginally to partially convert R to $ and RSETFs.	Pre- crisis
Shore up R upon the triggering of the Sell on strong $.	Sell crisis-weakened Rupee for strong $	Into the crisis
Sell R for $ upon triggering of the Buy option on weak $; Convert $ to $GETFs until FX volatility subsides and a new SR FX equilibrium is established.	Trigger Buy on strong R from SWF for $;  Convert exchanged R to RGETFs or $ consistent with position in polar SETFs.	Post-crisis

These short-run option-hedges do not anticipate the long-run impacts of PV-ZS-FV regulatory reform that are injurious to the nation. The long hedges must cover for the expected weakening of the nation's currency due dubious reform intents, inefficient technology- and policy-environment. (When the PV-FV imbalance is caused by a large IPO entering the capital market, an 'IPO Perpetuity Line-FV Sustainability key', offered the new entrant in lieu of its IPO proceeds, might attenuate the FV-impacts of PV-hastening, as might supporting a 'Gold-opposite-House Perpetuity pyramid' flanked by Commons Bonds and Infrastructure/Safety-Health, ISH, Bonds that obtain the necessary PV-counterweight to the FV-reducing impacts of PV-hastening). But that would necessitate a simple and credible measure of long FX that reflects the impact of FV-reducing 'regulatory reform'. Toward such an instrument, consider Currency Long-Forwards (positioned opposite long Bonds?) upon CRRSNA-sponsored International Promissory Note, IPNs. The FV, nominal face-value of the IPN implies a reference FX for currency long-forwards; it must be pegged to a defensible measure of the FV-financial/economic state of the IPN-issuing nation. To avoid issuing IPNs exclusively linked to a PV-Nominal construct such as is the GDP, one could issue and calibrate them to the projected appreciation of, or decrement to an index (LGDPBND) that is a weighted average of projected annual average growth rate of nominal Long GDP and nominal annual returns to long Bonds of the same 'tenure', with expected average long-term inflation rate as the weight, such that higher the inflation rate, the more weight assigned to Bonds in the computation of the index, lower its value, lower the expected IPN worth, and weaker the currency long-forward; the presumption being that high inflation rates, despite their correlation with GDP growth, are FV-reducing (Figure). A LGDPBND-indexed IPN-validation construct would measure and benchmark the impacts of current policy/reform decisions on the future. So designed, the long-FX-forward, linked to real time IPN FV-valuation, would rise with the expectation of a sustainable expansion in the nation's future, and fall otherwise, thus offering an effective, market-anticipated, readily-observable and regularly-updated, public instrument to measure regulatory reform proposals potentially associated with irreversible, inter-temporal impacts. The CRRSNA would leverage this instrument to evaluate and calibrate competing proposals for regulatory reform and suggest to the SWF and RP, both, a cardinal ranking and inter-temporal spacing of the reform proposals, and appropriate instruments to secure gains and hedge losses.

Endowed with an appropriate instrument to price the long FX, consider an inter-temporal (t0-t1), half-pareto currency hedge between two friendly nations, A and B, the latter evaluating policy- and reform proposals involving entry of foreign technology. Country-B hedges its R by offering a R-IPN in exchange for a $1B IPN from Country-A. The issued terminal-value of the R-IPN, implies a significantly weaker currency than what its current FX@t0 would indicate (Country-A might interpret the  implicit FX@t1 differently from Country-B, thus causing into existence a Long FX-Band), and permits Country-A to issue bonds, if not $ currency on it. Emboldened with the $1B IPN hedge, Country-B accepts certain reform-facilitated foreign technologies. Should the technology and the reform enhance efficiency and grow the nation, the R would appreciate over the period t0 - t1, the LGDPBND index and the long FX holds its ground, and the R-IPN invalidated by the SWF for the return of $1B IPN. However, should the technology and the policy-reform fail, reduce the nation's future, and consequently, the nation's currency plunge to beyond the FX for which the R-IPN was issued, Country-B permits Country-A its rights to the R-IPN  and monetizes the $-IPN to $ (even prematurely, ie, before t1), and thus averts a dramatic loss to the nation's future.

To illustrate with an example, consider armaments offered a nation at what seems a beneficial deal with 'kickbacks' and commissions, and even a PV-aggrandizing bull-run in the market, but that might yet engender a war in a not-too-distant future period opaque to the stock markets and beyond the term of the present government. This dastardly PV-ZS-FV strategy, from beyond the shores, might not be unacceptable to political parties hedged for border disputes with neighbouring nations, and with the investor constituency in the capital market. It would seemingly bring prosperity in the short-run as measured by conventional PV-measures of economic activity and wealth, but the same would set off alarms in the upper echelons of the planners and long-investors by projecting a significantly weaker currency in the long, due the physical or financial internalization of the probability of a debilitating war reflected in lower expected IPN worth. Thus, a nation such as India, hedged in an IPN-exchange with the US for an FX of 80:1 in 2025, might default on it should an Arms deal spark a war with a neighbouring nation, due which the equity markets crash and its currency slip to 120. In such a context, the  nation, responding to a weakening of the long FX post executing the Arms deal, might well seek to pre-empt that future by hedging between peace and diplomacy. Further, the CRRSNA might anticipate and strategize around reform-engendered appreciation and depreciation to the nation's currency. Thus, it might recommend that an expected FV-gain be secured in Realty sectoral-ETFs, and that a feared loss be anticipatorily hedged and reduced in FX volatility prior to t1 – volatility that offers the opportunity to partially monetize the $-IPN, and which transitions the FX-market to a new equilibrium representing a 'permanently' weaker domestic currency.

Between the SETF-cum-GETF R-$ hedges in the short-run, and the IPN-hedge-exchange in the Long, an independent entity, such as the CRRSNA, would have sufficient data and variables to construct measures that indicate the extent to which a Government or a Ruling Party 'lurches' and/or 'stoops' - the former representing the extent it would lean to the right to aggrandize a few, and the latter the extent to which it would compromise the nation toward its private enrichment. Let us delve on those measures.

The PV-concentration of reform-rents, representing a primary objective of reform efforts, could be measured by expected gains to the regulated-sector ETF relative the gains (losses) in the broader market - an easy to measure ratio - whereas the CSTS distribution of costs associated with the reform - macro-impacts such as employment, income and FX effects, or policy-delay, pecuniary impacts, mass-, involuntary social disenfranchisement and dislocation - must  be characterized by its magnitude, the size of the domain across which it is distributed, and the length of the interval over which the costs have been spread (and gains 'hastened'). Thus, if private benefits in the form of expected sectoral gains, incremental to baseline 'no-reform' returns, were x%, incremental broader market gains or losses, Y%, so that x/Y indicated the incremental concentration of private 'benefits' from 'alpha-conducive reform' ; if inter-temporal social costs were C, the breadth of the domain, D, (as measured by the fraction of  population affected, and/or the cumulative percent/percentile impacted) and interval I, so that the CSTS-distributed costs took the form C/(D*I) - a variable that'd correlate with public perception and cognizance of that impact, then the 'Regulatory Lurch Factor', RLF, an indicator of private gain/alpha-concentration relative cost distribution and obfuscation, would, tentatively, be expressed as x/Y / C/(D*I), or x*(D*I)/Y*C. In the general case, an increase in the RLF ratio above, sought by reform-sponsors, would imply a lurch to the Right that aggrandizes a few, against the distributed, but imperceptible and hence cognizance/salience-escaping pain/loss suffered by masses across space and time.

As concerns the Regulatory Stoop Factor, RSF, the same may be obtained as the ratio of gains that accrue the Government and the Ruling party in the near term, to the losses that burden the nation in the Long. Denoting GRPGAIN as the dollar-equivalent of short-term gains accruing to the RP and the SWF post-settlement of the SETF Buy and Sell trades initiated with option-bets, the incremental weakening of the nation's long FX due inefficient PV-hastening by (-ve)DLTAFX, and the decremental loss to the nation's long GDP by (-ve)DLTAGDP, the RSF may be expressed simply as GRPGAIN/-(DLTAFX*DLTAGDP), such that the more FV-reducing the PV-hastening, the more negative would be the computed RSF ratio. Unethical Ruling Parties as well as alpha-seeking capitalists would seek their objectives and ends by maximizing RLF and minimizing the RSF. Between the Lurch factor and the  Stoop factor, independent entities, in particular the CRRSNA, would be endowed with the means to evaluate the extent of political bias in the incessant waves of regulatory reforms, and guide the nation thru a path of mutual PV-accommodation and FV-social sustainability, to bring about a more equitable and efficient innovation- and technology-conducive society.

Having outlined issues that stem from the confluence of PV-capitalism and populist paradigms, it is noteworthy that as populations rise, subsidies turn more unsustainable, the pressures to pursue a Populist-PV-Nominal paradigm become more urgent. PV-hastening, within such context, could force subsequent generations and governments to necessarily follow the Nominal-Right path, lest there be an exacerbation of social inequity and inter-temporal monetary stability, in the process, irreversibly changing the character of the society and the futures of its people. Thus, regulatory-reform engendered PV-hastening must be tempered with prudent FV-PV balancing that goes beyond financial options and hedges to the protection of social and natural support systems. Further, policies that identify and counter the  camouflaged CSTS-distribution of costs associated with perverse reforms, and incentivize institutions that take pro-active cognizance of such CSTS-cost obfuscation are indicated, as are financing mechanisms for their public activities. A final thought: Democracy is ostensibly the rule of the people by representatives elected to further the interests of the society. And while it does obtain a quasi-stable society for households to grow, and businesses to expand in, it is fraught with significant risks of economic and financial exploitation by concentrated political, financial and technological interests - some friendly, others not - that transcend the understanding of the financially-constrained common man deceived into accepting a nominal-PV-populist government for his survival and livelihood, thus potentially subverting a  fundamental goal of democracy. It is in the interest of the regulatory community, political leaders and representatives of the civic society to take cognizance of the perverse incentives  arising from the interaction of 'democratic', Populist-PV-Nominal politics, and the ZS-capital-endowed global CC-business, and pro-actively & publicly confront them, nip the larger social irreversibilities while yet incipient, and assure the society of a sustainable future.