1. The role of regulation in advanced economies
Improving the business environment
Hsin Chu – 20 August 2012
Charles-Henri Montin, Senior Regulatory Expert,
Ministère de l’économie et des finances, Paris
CH MONTIN, Hsin Chu August 2012

2. Regulation and Society
What is Regulation ?: written rules that mandate behavior, 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;
Regulation pursues social outcomes, establishes and protects rights. Benefits of regulation must not be forgotten;
Dilemma: how general/specific should regulation be
Avoid stating only principles but
Avoid over-specific regulation but cater for legitimate needs
Avoid “exemptions” and “derogations”
The flagship report of the OECD “Regulatory Policy and the road to sustainable growth”.
Specific impact on SME’s “Think Small First” principle
The SME test:
CH MONTIN, Hsin Chu August 2012

3. Regulation and the economy
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 and 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
Loayza: THE IMPACT OF REGULATION ON GROWTH AND INFORMALITY: CROSS-COUNTRY EVIDENCE *
The paper concludes that a heavier regulatory burden --particularly in product and labor markets-- reduces growth and induces informality. These effects are, however, mitigated as the overall institutional framework improves
The impact of regulation depends not only on the quantity but also its quality. Quality of regulation is closely linked to the overall governance quality.
CH MONTIN, Hsin Chu August 2012

4. From regulation to better regulation
From Jacobs & Associates
CH MONTIN, Hsin Chu August 2012

5. The battle for “Principles” of regulatory quality
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
Principles are variable and reflect the goals of the policy.
OECD: overview on
1995 recommendation:
It includes a Reference Checklist for Regulatory Decision-making which includes 10 questions such as « is the problem correctly defined », « is government intervention justified », etc
1997 report:
Includes a package of 7 recommendations to governments, starting with “
“Adopt at the political level broad programmes of regulatory reform that establish clear objectives and frameworks for implementation.” “
Review regulations systematically to ensure that they continue to meet their intended objectives efficiently and effectively.”
“Ensure that regulations and regulatory processes are transparent, non-discriminatory and efficiently applied.”
Etc
2005: see brochure
CH MONTIN, Hsin Chu August 2012

6. Challenges to Delivering High Quality Regulation
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.
This list of issues is a checklist for what regulatory policy should do
CH MONTIN, Hsin Chu August 2012

7. The three ages of regulatory quality
Regulatory management
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
GOOD
RG: integrated approach = coordination of regulatory actions from design and development of regulations to their implementation and enforcement, closing the loop with monitoring and evaluation which informs the development of new regulations and the adjustment of existing regulations
BETTER
SMART
BR ≠ Deregulation
BR = dynamic LT process acting on policies, institutions and tools
CH MONTIN, Hsin Chu August 2012

8. One concept, three approaches
OECD
Regulatory policy
Think tank
Best practice forum
Market orientation
Public management
European Union
Better/Smart Regulation
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
for the development of regulatory quality
The approaches reflect the mandate of each organisation
OECD: think tank
EU: supranational regulator
WBG: lender + developer
CH MONTIN, Hsin Chu August 2012

9. CH MONTIN, Hsin Chu August 2012
OECD
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
CH MONTIN, Hsin Chu August 2012

10. OECD ‘Regulatory Governance Cycle’ Policy issues for government action
Develop policy roadmap
- choose the policy instrument(s)
The 4 Cs
Consultation
Co-ordination
Co-operation
Communication
Monitor and evaluate performance of regulation
REGULATION
OTHER
POLICY
TOOLS
OECD work on Regulatory reform
OECD Ministers requested in 1995 that the OECD examine the significance, direction and means of reform in regulatory regimes in member countries.  The 1995 Recommendations for Improving the Quality of Government Regulation were the first-ever international statement of regulatory principles common to member countries. Building on this fundamental text, and broadening it to embrace market openness, competition policy and microeconomic principles in a multidisciplinary framework, in 1997, the OECD produced a Report to Ministers on Regulatory Reform. Its Recommendations for Regulatory Reform provided the basis for review of reform efforts in member countries carried out both in sectoral and policy areas. To date, 23 reviews of member countries have been completed as well as 3 reviews of non-members: Russia (2005), Brazil (2008), China (2009). The 1997 Principles, which have often been the basis for the design of national policies, stood the test of time.  But as countries make progress, their goals are set higher, and their working methods adjust to changes in the policy environment. Based on the lessons learned from this body of reviews and taking account of the developments in specific sectors such as network utilities as well as in competition policy, policies for market openness, and policies and tools for regulatory quality, the OECD updated the 1997 Recommendations. Following an intensive process conducted in policy committees and in the Group on Regulatory Policy, the Guiding Principles for Regulatory Quality and Performance which gave greater attention to political support and policy coherence, were adopted by the OECD Council in April 2005.
The 2005 principles remain a relevant global point of reference. However, the Regulatory Policy Committee has determined that in the light of more recent experience, additional reviews, and the broader mandate of the RPC, the coverage of the OECD instruments on Regulatory Policy should be expanded. This includes providing further guidance to countries on the effective consideration of risk in regulatory policy, multi-level regulatory coherence, and managing the breadth and diversity of stakeholders.
Design new regulation
Check current regulation
Enforce regulation
CH MONTIN, Hsin Chu August 2012

11. European Better Regulation
Mandelkern
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
CH MONTIN, Hsin Chu August 2012

12. E.U. Better Regulatory Design (Mandelkern) FLOW STOCK Stakeholders
Alternatives
Consultation
RIA
FLOW
Stakeholders
The economy
The Administration
The Economy
Admin burdens
STOCK
Access
Simplification
Regulatory Impact Analysis (RIA) to improve the evidence basis for regulatory decisions
Public consultation strategies to promote transparency, accountability and improve regulatory design
The evaluation of alternatives to regulation to best address the policy problem
Red tape reduction programs to reduce administrative and compliance costs
+ Tools for ensure efficient implementation (including information, government forms, BPR, OSS, inspections)
CH MONTIN, Hsin Chu August 2012

13. Goals of Regulatory Reform
world bank
Goals of Regulatory Reform
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
CH MONTIN, Hsin Chu August 2012

14. Dimensions of the business environment
world bank
Dimensions of the business environment
Administrative
“One stop shop”, single window, inspections, licensing, standardized forms and corporate documents
Legal
Commercial code, company law, collateral law, bankruptcy, labor law, infrastructure laws, PPP
Judicial
Court 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
CH MONTIN, Hsin Chu August 2012

15. Doing Business indicators & ranking
world bank
Doing Business indicators & ranking
Annual report ranks 183 “economies” on key aspects of business regulation (outcomes)
Starting a business - Dealing with construction permits
Registering property - Protecting investors
Paying taxes - Trading across borders
Enforcing contracts - Closing a business
117 countries carried out 216 reg reforms
WBG advises countries on RR on raising ranking
CH MONTIN, Hsin Chu August 2012

16. CH MONTIN, Hsin Chu August 2012
Stakeholder issues
How can stakeholder organisations take up the challenge of regulatory governance?
Can they contribute to higher evidence content in policy making?
Should they mobilise political support or users support to reform, how?
How can they contribute without appearing “captured”?
“Top down” or a “bottom-up” approach?
Can better regulation lead to loss of business?
CH MONTIN, Hsin Chu August 2012

17. Stakeholders’ new rôle
Support/ contribute to defining better regulation
It is (supposed to be) a business-friendly policy
It expressly valorises consultation / partnership
It would like to roll back bureaucracy
Contribute to stock and flow management
Anticipate stock reviews & make case for repeal/review
Assist RIA with relevant information incl. legal analysis
Support legal review of texts and present drafts
Take over regulating
Obtain mandate from regulator for Self-regulation
Publish generally agreed standards
Avoid two dangers
Regulation = « bête noire » of business
Regulation as a tool to preserve private interests
CH MONTIN, Hsin Chu August 2012

18. CH MONTIN, Hsin Chu August 2012
To continue the study…
This presentation is online
Updates on current events and trends:
Contact:
smartregulation.net
finances.gouv.fr
CH MONTIN, Hsin Chu August 2012