Paris – 12 January 2012 The annual Doing Business Report and its contribution to Regulatory Reform worldwide Charles-Henri Montin, Senior Regulatory Expert, Ministry of economy, finance and industry, Paris, France

Contents The Doing Business economic ranking The controversy in France (in brief) The underlying issue: how necessary is regulatory policy/ regulatory reform? Where you stand depends on where you sit (attr. N. Mandela)

Part one: The IFC Doing Business Index Main features Limits Contents of the reports

Category Frances Rank Source Ease of Doing Business29 World Bank, Ease of Doing Business Report Worlds Most Competitive Economy 18 World Economic Forum, Global Competitiveness Report Worlds Most Competitive Economy 29IMD, World Competitiveness Yearbook Ease of Paying Taxes55 PWC, IFC, World Banks Paying Taxes Survey Worlds Freest Economy64 Heritage Foundations Index of Economic Freedom Country with Least Corruption Perception 25 Transparency Internationals Corruption Perceptions Index Worlds Best Labor Force14 BERIs Labor Force Evaluation Measure Most Desirable Immigration Destination 9Gallup Potential Net Migration Index Worlds Best Country for Business 21 Forbes Best Countries for Business Index

Main features Based on published academic research No professed ideology but enabling growth ensuring that poor people can participate Assumption: economic activity requires good rules transparent and accessible Attuned to the needs of the WBG (development) and the reduction of informal economy A rare case of naming & shaming in an IO Constant enrichment of indicators (9th report contains twice the number of data series, (11), now analysing long term trends Focused on outcome of regulation; not perceptions

Summary description Measuring and benchmarking regulations affecting 10 areas in the life-cycle of business 183 economies 2 sets of data –Strength of property rights and investor protection as measured by the treatment of a case scenario –Time and motion indicators to measure cost and efficiency of regulatory processes Consolidation into a published ranking

8 The time and motion indicators The Doing Business index –Starting a business- Construction permits –Getting electricity- Registering property –Getting credit- Protecting investors –Paying taxes- Trading across borders –Enforcing contracts - Resolving insolvency Employing workers : studied but not included in report 117 countries carried out 216 reg reforms

DB limitations Indicated in the report itself Not all factors influencing business climate: macroeconomic conditions, market size, workforce skills, security Based on standardized case scenarios (ex: limited liability small company) Focused on the formal sector / major city Assumption that companies have full information

The use of DB Widely published and commented ranking By Case studies promote best practices to inspire policy. In 2012: Korea, FYROM, UK IFC and donors support business RR Regional champions (Mauritius, Colombia) 25 Governments set up RR committees to coordinate regulatory changes, using DB data APEC uses DB to identify potential areas for RR: Ease of DB Action Plan with -25% target by 2015

Main chapters of the annual report Methodological updates Ranking from Singapore (1) to Chad (183) RRs (245 in 2012) their nature, significance and their influence Messages: a global trend (163 economies do RR); importance of transparency Sharing Best practices to inspire reformers List of the years best reformers (Morocco, Moldova, FYROM, Burundi….) Detailed country fiches

How France ranks on DB topics Overall ranking: 29 (2012)

18 The Global Competitiveness index

Part 2 The controversy in France around DB

The official position of the French government on DB mentions a lack of scientific backing to the indicators.

Main critical arguments Academics highlight a bias in favour of common law implicit in the DB index. Statisticians take issue with the quality of the underlying data and the capacity of the sub-indicators as they are defined to monitor and assess the general quality of regulation that they are supposed to represent (see Blanchet 2006). Lawyers in France dislike the World Banks attempt to classify legal traditions according to their efficiency, which according to them would be ideologically-driven and designed to prove that common law is superior to continental law.

Part 3 Issues underlying Doing Business How can measuring the regulatory environment reflect the quality of the business climate How can regulatory reform support growth and competitiveness

23 Regulation and society Regulation: written rules that mandate behaviour, in pursuit of policy objectives Regulation, one of three key levers of state power, with fiscal and monetary policy (OECD) One of the two outputs of administration, with public services, hence need for quality and value approach (impacts); Regulation pursues social outcomes, establishes and protects rights. Benefits of reg. must balanced against costs;

Regulation in economic theory –Value of open free markets (Chicago school) –Market failures, asymmetric information, externalities not covered (Stiglitz) –Limits of the informal sector, the need for good regulation (Loayza) –The BR answer: CBA, AB, RIA (quantify) Regulation after the crisis Regulatory gaps – clear market failures Regulations as preferred policy instrument in era of fiscal constraint Low public trust requires more, not less, regulation Regulation and the econonomy

Drivers or competitiveness NC Stable environment Quality infrastructure Efficient competition Cluster development Corporate sophistication 25

National Competitiveness policy clusters External competitiveness Openness to international trade Regulatory competitiveness Attractiveness of the domestic business environment Regulation supportive of efficient markets Public sector competitiveness Investment in infrastructure Security Education 26 Source: Weymouth and Feinberg

The main areas of regulation in support of competitiveness Reduce costs of doing business Provide well- run public services Provide stable background Preserve efficient market operation Market rulesInstitutions Business environment infrastructure 27

How regulation can hamper competitiveness Costs –direct /indirect; compliance /admin costs –SMEs and the economies of scale Unintended microeconomic choices: interfering with optimal allocation of resources within the company to different business processes. Regulatory uncertainty causes risk of deferral of investment Barriers to efficient market functioning 28

How regulation can support competitiveness (UK approach) Reduce regulation that raises the cost of doing business Assure basic legal guarantees (land law, contracts, dispute resolution, etc) and corporate governance FW Preserve level playing field for markets: competition policy and law, financial markets supervision, –remove impediments to entry to markets and discriminations (regs or taxes) or protecting incumbents against competitors –Seek out anticompetitive behavior, to avoid rents, for lower prices Enforce standards to disseminate major technologies 29

Regulatory reform goes beyond C. Not to be confused with regulatory competition RR pursues multiple objectives (growth, social cohesion, risk management, protection), competitiveness not the only objective. RR aims at making the best use of regulation in support of the full range of public policies, including non-business reforms Competitiveness requires more than RR, but RR may be the most elusive but also the most cost- efficient policy 30

Part 3 Varieties of regulatory reform The emergence of regulatory policy Principles of quality regulation Three ages, three approaches

32 From regulation to regulatory policy From Jacobs & Associates

33 Early sets of principles –OECD : 7 recommendations to governments –UK 1998: 5 principles transparency, accountability, targeting, consistency, proportionality Maturity –Mandelkern report (EU) (2001): six dimensions –OECD performance 2005 : Broad programmes, impacts, transparency, competitiveness test, liberalisation, policy linkages Current trends –National sets: Australia (2007) best practice regulation, Ireland, Finland… –OECD review of 2005 principles (2011): post-crisis adaptations The battle for Principles of regulatory quality

34 Lack of coordination and planning capacities Vested interests may block reform; political incentives favour short term interests over long term societal policy goals Rapidly changing environments (obsolescence) Too many levels of government: duplicative or excessive reg. (e.g. gold-plating of EU law) Over-reliance on regulation, regardless of cost and alternatives Risk aversion, poor risk management in reg. Challenges to Delivering High Quality Regulation

35 Regulatory management Command & Control Due process Consistent legally Accessible Inform stakeholders Regulatory Reform (1995) Effective Efficient Competitive Consult stakeholders Regulatory governance (2010) Integrated objectives Cycle approach Incl. M&E Involve stakeholders BR Deregulation BR = dynamic LT process acting on policies, institutions and tools The three ages of regulatory quality GOODBETTERSMART

36 One objective, three approaches OECD Regulatory policy Think tank Best practice forum Market orientation Public management European Union Better/Smart Regulation Supranational Manage Acquis communautaire Subsidiarity Transposition Process-oriented Inter-institutional World Bank Group Business climate Doing Business (outcomes) Development technical assistance One stop shops Licensing Reg. guillotine

Thematic work Institutions for regulatory oversight Building capacities and introducing tools Preventing regulatory capture Ensuring policy sustainability Contributing to green growth Addressing risk in regulation making Coordinating multi-level regulation International regulatory co-operation

38 Policy issues for government action Develop policy roadmap - choose the policy instrument(s) Develop policy roadmap - choose the policy instrument(s) Design new regulation Check current regulation Design new regulation Check current regulation Enforce regulation Monitor and evaluate performance of regulation REGULATION OTHER POLICY TOOLS The 4 Cs Consultation Co-ordination Co-operation Communication Regulatory Governance Cycle

39 European Better Regulation Mandelkern (2000) Predominantly legal Simplification Consultation standards 2002 Barroso I (2005) VP Verheugen Competitiveness test Admin Burden Reduction Progr SME test Stoiber Group Barroso II (2010) Smart Regulation Fitness checks Cycle approach Integration of evaluation, infringements, complaints

40 Better Regulatory Design (Mandelkern) Consultation Access Alternatives RIA Admin burdens Simplification STOCK Stakeholders The Economy The Administration + Tools for ensure efficient implementation (including information, government forms, BPR, OSS, inspections) FLOW The economy

41 Increase social welfare through more effective social and economic policies Boost economic development by encouraging market entry and competitiveness Control regulatory costs and improve productive efficiency, particularly for SMEs Improve the rule of law, transparency and participative democracy Goals of Regulatory Reform

42 Dimensions of the business environment AdministrativeOne stop shop, single window, inspections, licensing, standardized forms and corporate documents LegalCommercial code, company law, collateral law, bankruptcy, labor law, infrastructure laws, PPP JudicialCourt procedure, case management, performance of judges Electronic services (eGov) Company/collateral registry, Credit bureau, Electronic signature, single ID, Paying taxes, Legal portal Tax and Subsidies Corporate tax, VAT, social contribution, registration duties, selective interventions

The many guises of regulatory reform Deregulation, Reducing regulation Korea, Taiwan, UK (2011), NZ Improving business climate, reducing administrative burdens Australia, Netherlands, Belgium, Singapore Better Regulation UK, European Union, Ireland Fighting bureaucracy Germany Administrative simplification France, Italy, Portugal, Viet Nam Regulatory reform OECD, World Bank, US, ¨PR China, Poland, Netherlands, Thailand

Country best practices Transparency and open government Denmark, Finland, Norway, US Quantifying regulatory costs Australia, NL, UK, US Multilevel governance Italy, Mexico Simplification, one-stop-shop Austria, Belgium, Mexico Independent advisory bodies Germany, NL, UK, Sweden

A menu for regulatory reform Review domestic/ foreign policies Adopt government policy Appetizers Set up/ strengthen institutions Develop capacities (RIA) Starters Launch review of existing law Implement tools: RIA, etc Mains Monitor and report progress Communicate to sustain reform Desserts

Conclusion: DB in the overall picture A precious tool to track changes all over the world; good interaction between bureaucrats and academe No serious theoretical challenge Good illustration of benefits of RR Friendly emulation; frame for donors RR = a quality/ efficiency approach that respects each economys specific policies, no ideological assumptions

47 To continue the study… This presentation is online Updates on current events and trends: Contact: smartregulation.net finances.gouv.fr