Dr. André Nijsen Adviser Regulatory Reform 1 Standard Cost Model 2.0 Workshop Sonnenfels Center Wien April

Issues  What is SCM 1.0?  Looking back: origin of SCM 1.0  Taking stock: lessons learned  Where does the SCM 1.0 stand?  Where to go: SCM 2.0?  Summary and Conclusions

What is SCM 1.0?  Policy instrument to measure compliance costs of legal information obligations (IOs)  Compliance costs of IOs = administrative burden (AB)  SCM is a P(rice) xQ(uantity) model  AB = P (costs per message) x Q (number of messages)

Red tape has significant impact on the economy 4 Source: SCM network and Danish Commerce and Companies Agency

Direct compliance costs Financial obligations Information obligations to government Administrative burden Retributions, taxes, premiums, legal dues, fines 100% marginal costs Business Effects of Regulations Secundairy compliance effects Social-economic effects Competition Substantive obligations Costs of investments and adaptation Partial business as usual costs and marginal costs 100% marginal costs

Looking back: origin SCM 1.0  Origin: Mistral® = Measuring InSTRument Administrative Burden (Burden = Last in Dutch)  Developed in the Netherlands:  Funded by Ministry of Economic Affairs  Focus on improving business climate  1994: AB reduction policy part of Coalition Agreement Cabinet Kok I  2000: Mistral® methodology accepted by Dutch Cabinet and renamed Standard Cost Model (SCM)  From 2003 onwards spread to Denmark, UK, Sweden, Norway, Belgium, Germany, Austria,  2006/7/8: declared best practice by OECD, World Bank, EC  2011: SCM in over 20 countries

Taking stock: lessons learned (1)  Sources: 1. My own practical experiences ( ) 2. Cutting Red Tape II: OECD (Allio, Renda, 2010) 3. SCM experiences in OECD Countries; (Nijsen, 2010) 4. The SCM: a critical appraisal (Weigel, 2008)

Taking stock: lessons learned (2)  Main issues: 1. Institutional setting reduction policies 2. Organisation/management project 3. Methodology 4. Too narrow scope? 5. Results AB reduction policies

Taking stock: lessons learned (3)  Institutional setting reduction policies: 1. Ex-ante and ex-post 2. Scope (coverage laws and sectors) 3. Reduction targets 4. Ensuring policymakers understand and accept results 5. Training 6. Central data base

Taking stock: lessons learned (4)  Organizational patterns and project management: 1. Central watch dog 2. One ministry in charge (principal) 3. One consortium as project manager 4. Relevant to invest in consortium

Taking stock: lessons learned (5)  Methodology: 1. Concept of AB: ‘real’ or standardised costs (typical firm)? 2. Focus on exogenous determinants of AB-> law 3. Measurement unit: business or IO? 4. Presumption: normally efficient firm->standardising endogenous determinants of AB 5. Full or real compliance? 6. What about business as usual costs? (sheet 5 and 12) 7. Validity, reliability and representativeness (sheet 13) 8. How to tackle the problem of AB, being hidden costs? (sheet 14-15)

Composition of substantive compliance costs Law Transport dangerous products Substantive compliance costs Law to check identity new employees Law Employees Council = Business as usual costs = Marginal costs Substiantive compliance costs Base line

Getting the right data 13

Taking stock: lessons learned (6)  Too narrow scope of the SCM? 1. Main argument for quick spread of SCM: focus on efficiency (politically neutral) and not on effectiveness (achieving public goals) 2. Possible extensions: other compliance costs, benefits, enforcing costs 3. Keep focus on exogenous determinants (law) by standardising endogenous determinants of compliance 4. Step by step approach: start with AB

Taking stock: lessons learned (7)  Lack of succes of AB reduction policies 1. Is SCM to blame for that? 2. Argument: risk of cutting down AB without C/B or C/E analysis 3. SCM is not prescriptive. To cut down AB is a political decision 4. Succes of reduction programs depends on political will 5. Main risk of every AB reduction program is neglecting business preferences

Where does SCM 1.0 stand? (1)  SCM 1.0 is part of the RIA family  SCM 1.0 is a cost-assessment  But it’s a special one because of standardising endogenous determinants of AB  SCM fits well into the main stream of theories on policy making

Where to go: SCM 2.0? (1)  There are more rationalities simultaneously involved in the process of law making: 1. Political rationality (power) 2. Legal rationality (legitimising) 3. Economic rationality (payability) 4. Technical-social rationality (feasibility and public support) Political rationality is dominant mostly

Where to go: SCM 2.0? (2)  In societies were the political rationality is dominant, there is a serious risk of bad regulation. This risk is even more serious, if regulation deteriorates to a tool to achieve and retain political power. Regulatory tools can help to warn about and prevent from this risk of political rationality. The question is: how could a next generation of the SCM - SCM help to tackle the major externalities of the modern risk society? Part of this is how to handle the predominance of political rationality during the process of policy-making?

Where to go: SCM 2.0? (2)  Possible steps for SCM 2.0: 1. Extension with modules for other compliance costs 2. Extension with modules for benefits 3. Extension with modules for enforcing costs 4. Developing a facility to repress the political rationality during the legislation process

Summary and Conclusion  I told you about mine and others experiences with SCM 1.0 and the lessons learned  Keep in mind: SCM 1.0 is an ‘if-than model’, if businesses are complying in an efficient way than the costs will be x  Possibly there will be opportunities to extend SCM 1.0 to SCM 2.0: if businesses are complying in an efficient and effective way than the costs and benefits will be x and y

Gratitude  I thank you all for your attention  Especially Professor Weigel for being so kind to invite me  It will be my pleasure to answer all your questions and to discuss my presentation