Tangled: The rich world needs to cut red tape to encourage business

Economist
February 22, 2014

The World Economic Forum, which held its annual gathering of the great and the good in Davos last month, takes advantage of its privileged mailing list to quiz its members on a whole range of issues, including the burden of government regulation. Singapore has come out on top as the least burdensome for the past eight years (see chart 3), whereas many EU countries are bumping along near the bottom. Of the 148 countries surveyed in 2013, Spain was ranked 125th, France 130th, Portugal 132nd, Greece 144th and Italy 146th.

Americans who complain about the Obama administration’s unhelpfulness towards business will also note ruefully that over the past seven years their country has slipped from 23rd to 80th place. In a separate survey conducted by America’s National Federation of Independent Business, the proportion of those who thought regulation was their biggest problem rose from under 10% in 2009 to 20% late last year.

Broadly speaking, in recent years emerging markets seem to have been cutting their red tape whereas the rich world has been strengthening its regulatory regime. This is problematic at a time when developed countries are struggling to generate growth and when prominent economists are talking about “secular stagnation”, a long-term slowdown in the growth rate.

Martin Baily of the Brookings Institution conducted a series of studies to find out why productivity in specific industries was higher in some countries than in others. He found that regulation was an important factor, often holding back competition so that inefficient companies survived for longer than they deserved.

BusinessEurope, a lobby group, calculates that the administrative burden on business in Europe amounts to 3.5% of GDP. Around half of this is due to individual member states implementing EU regulations too zealously, a peculiar habit known as gold-plating.

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Internalizing Cost-Benefit Analysis

by Jennifer Nou

RegBlog
February 18, 2014

Before an agency completes a cost-benefit analysis (CBA) subject to oversight by the White House Office of Information and Regulatory Affairs (OIRA), or by the courts if an agency decision is litigated, what forms of internal review of that analysis should the agency undertake on its own?

Old Executive Office Building - WinterOne increasingly common practice is for agencies to establish a centralized review office or officer charged with examining the internal cost-benefit figures developed by the agency’s rule-writing staff. Examples of such offices include the Environmental Protection Agency’s (EPA) Office of Policy or the Bureau of Economic Analysis within the Federal Trade Commission (FTC). These internal agency CBA reviewers are often trained economists who work closely with agency policymaking officials to evaluate internal CBAs before they ever face external review.

Such forms of pre-judicial and even pre-presidential review can help agencies insulate themselves from potential reversal. These mechanisms are gaining increasing significance amidst growing calls for independent regulatory agencies like the Securities and Exchange Commission (SEC) to conduct cost-benefit analysis and to institutionalize more rigorous regulatory analysis practices.

Executive orders currently require executive branch agencies, for their part, to submit “significant” regulatory actions to a further stage of external review by OIRA. Once an agency submits a draft regulatory action to OIRA, OIRA then coordinates a review process with other agencies and White House offices to help ensure, among other things, the regulatory action’s consistency with presidential priorities, as well as to prevent interagency conflicts and generally to promote the careful consideration of regulatory costs and benefits.

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