MOEA Training Course 2011 Competitiveness and regulation Charles-Henri MONTIN Senior Regulatory expert Ministry of economy and finance France French representative to OECD/RPC

Starting point Price variations across countries for the same goods How important a factor is regulation in a country’s competitiveness What is the economic basis of regulatory quality 2

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 3 Dangers: ideological bias (“liberalisation”) lack of economic analysis Source: Weymouth and Feinberg

NC Stable environment Quality infrastructure Efficient competition Cluster development Corporate Sophistication 4 How to nurture competitiveness

The economic basis Economic studies (Nicoletti and Scarpetta 2003) show that product market reform are positively correlated to total factor productivity growth, with the strongest cause is reducing admin burden; Gelauff (2006): a 25% cut of administrative burdens would lead to +0.9% GDP by 2005 Distinguish between: – Other factor market regulations (labour, H&S) – Product market regulation 5

How regulation can support competitiveness 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 6

Use regulation to support competitiveness Reduce costs of doing business Provide well- run public services Provide stable background Preserve efficient market operation Market rulesInstitutions Business environment infrastructure 7

Quality of the business environment Regulatory policy Rules and incentives to foster investment and innovation Rules that do not unduly skew allocation of corporate resources Quality sectoral legislation (land law, contracts, etc) Competition policy Rules and policies that favour efficient functioning of markets No undue barrier to entry Anti-trust legislation Openness to foreign competition 8

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 9

Qualities of regulation supporting competitiveness Necessary Clear/ accepted Light (costs) Well targeted Stable Proportional Well applied Professional assessment on the basis of international best practice 10

Regulatory quality (RQ) supports NC Not to be confused with regulatory competition Does not equate with deregulation RQ aims at making the best use of regulation in support of the full range of public policies RQ pursues several objectives (growth, social cohesion, risk management, protection), NC is one of the aims, not the only objective. RQ can be more, or less, geared towards NC 11

Dimensions of regulatory quality PoliciesToolsInstitutions 12

Competitiveness a main concern in RIA The best tool is RIA: regulatory impact assessment: “competition” and “competitiveness” are the 2 first listed economic impacts to be studied European Commission has made this even clearer by introducing the “competitiveness test” for all new EU law (Oct 2010) with public announcement 13