Table of Contents
Title Page
Copyright Page
Foreword
Introduction
France
1. Background and initiatives
2. Administrative burdens
3. Regulatory impact analysis and other better-regulation initiatives
4. Findings
References
Italy
1. Background: the structural problem of red tape and recent government initiatives
2. The plan to reduce administrative burdens
3. The regulatory-impact assessment system in Italy
4. Findings
References
The Netherlands
1. Background: The focus on red tape in Dutch regulatory reform
2. The standard cost model to reduce administrative burdens: The Dutch ...
3. The Dutch impact-assessment system
4. Findings
References
United Kingdom
1. Background: The institutionalization of ‘better regulation’
2. The plan to reduce administrative burdens
3. The 2007 impact-assessment guidelines
4. Findings
References
The United States of America
1. Background and initiatives: the building of a central oversight system
2. Administrative burdens
3. Regulatory-impact analysis and other better-regulation initiatives
4. Findings
References
Key Lessons and Recommendations
1. Recommendations from individual countries
2. What will future regulatory reform look like?
References
The Authors
Foreword
Regulatory reform is gaining more and more political and academic attention. But what is ‘regulatory reform’? First of all, it is a brand, primarily shaped and promoted by the OECD and the World Bank. The more or less official definition focuses on the question of how to strengthen regulatory management to improve regulatory environments for delivering, in the end, better outcomes.
But below this very abstract level, looking at different world regions where national strategies change over time, things become quite diverse. For example, the British brand is ‘better regulation,’ which has to be seen in contrast to ‘deregulation’ and focused for a long time on elaborated impact assessments. Meanwhile, if you talk about ‘regulatory reform’ in the US, people will answer with ‘risk analysis’ and ‘proportionality.’ Looking at Germany or France, you will find a lot about better enforcement and less about better regulation. Just to complete this short list of examples, there is no ‘better regulation’ in Canada; they have ‘smart regulation.’
Where are the differences between these approaches? What can we learn from each other? What is better, when and why? These questions are very difficult to answer, but we think it is worth the effort to try. This is why we asked Ragnar Löfstedt, Frédéric Bouder and Jacopo Torriti to conduct the study published in this book. We imposed a big challenge on them: to identify, describe and compare better regulation strategies. And, even more gruelling, we wanted to know how these strategies—and their development over time—must be seen as essentially part of the national regulatory and political culture. The reason for this, from our point of view, is that we cannot compare the concrete use of instruments (e.g., impact assessment, measuring administrative burden, consultation) without understanding its environment and the interests of its stakeholders.
The reports on the United States, the Netherlands, the United Kingdom, France and Italy, written in the second half of 2007, provide a lot of answers—but maybe even more new questions. Perhaps we shall get some additional answers during the next and second International Regulatory Reform Conference, which will take place from November 17th till November 18th, again in Berlin.
Looking forward to meeting you there!
Frank Frick & Tobias Ernst
Introduction
Ragnar Löfstedt
One of the key messages that this study conveys is that regulatory reform is by no means an easily definable and universal concept but that it encompasses a number of practices and methods which, depending on national contexts, may catch the attention of policy makers. In a number of international arenas, however, regulatory reform has been conceptualized as a whole, particularly within the Organisation for Economic Co-operation and Development (OECD). The OECD (1999) has defined regulatory reform as “the changes that improve regulatory quality, that is, enhance the performance, cost-effectiveness or legal quality of regulations and related government formalities.” This study shows that, in practice, countries tend to pick and choose depending on political priorities and that they seldom consider the entire scope of regulatory reform simultaneously. The OECD (1999) has also established a distinction between three categories of regulations, which this study uses as an implicit typology:
–Economic regulations intervene directly in a market decision. They cover pricing, competition, market entry, and market exit. Typical reforms in this area include the removal of barriers to competition and innovation.
–Administrative regulations include paperwork and administrative formalities (“red tape”), through which governments collect information and intervene in individual economic decisions. Reforms typically aim at the simplification of existing rules or the elimination of regulations that are no longer needed.
–Regulations to protect health, safety, the environment and social cohesion (also called “social regulations”). In this area, reforms usually assess whether these regulations make a positive difference with respect to their impact (or other criteria), whether they are cost-effective, whether alternatives would deliver better results, etc.
1. Monitoring regulatory reform
Regulatory reform activities have the potential to bring about immense positive effects on the market, society and the environment. At the market level, regulatory reform is considered crucial, because it contributes to improving competition, innovation and growth (OECD 1997). Regulatory reform can also deliver very concrete benefits to society compared to alternative solutions. John Graham, one of the key proponents of the regulatory reform effort in the United States, once declared: “reallocation of resources to more cost-effective programs... could save an additional 60,000 lives per year at no increased cost to taxpayer or industry. Alternatively, the country could save the same number of lives, but at an annual saving of $ 31 billion” (Graham 1995). A fundamental objective of regulatory reform is to improve the efficiency of national economies and their ability to adapt to change and remain competitive (OMB 2007).
With regard to the environment, regulatory reform can help the policy maker focus in situations of market failure or where concerns about health and sustainable development call for attention. It can induce him or her to considering the full spectrum of policy alternatives in the light of the potential benefits, costs and risks (Fairman et al. 1998).
On the one hand, appropriate regulatory reform may bring about savings of up to 15 percent of budget to governments and have a beneficial impact on 1 percent to 2 percent of GDP.1 On the other hand, wrong estimates of costs, benefits and risks might have devastating consequences on regulatory reforms, leading to a significant loss in regulatory accountability, an increase in opportunity costs and potential legal drawbacks. Unsuccessful applications of regulatory reform can also lead to additional distortion of market externalities, increased red tape for public administrations, and the importation of unnecessarily expensive models and techniques from other national public administrations.
This study reviews the development of regulatory reform in five countries: France, Italy, the Netherlands, the United Kingdom and the United States of America. Particular attention is dedicated to the so-called better-regulation initiatives and instruments, which are defined below. The exercise pursued in this study of monitoring progress on regulatory reform and better regulation allows the dual understanding of the economic effectiveness and political credibility of individual countries (Löfstedt and Vogel 2001). This study gives information about the economic attractiveness and cost-effectiveness of key regulatory-reform countries as well as a picture of the accountability and efficiency of their national governments.
2. Defining regulatory reform and ‘better regulation’
In the last ten years, regulatory reform in most Western countries has been increasingly focusing on the following issues:
–reduction of administrative burdens
–use of ex-ante techniques to assess the impacts of regulation (such as regulatory impact assessment and cost-benefit analysis)
–adoption of risk-management and risk-communication tools
–simplification of regulations and methods of stakeholder involvement in the regulatory process through consultation
This type of regulatory reform has been defined by both policy makers (European Commission 2001 and 2005; BRC 2006) and academics (Baldwin 2007; Löfstedt 2004 and 2007; Radaelli 2003; Torriti 2007; Wiener 2006a) as better-regulation initiatives.
Better-regulation initiatives find their rationale in an evidence-based approach to regulatory reform. Correspondingly, better-regulation techniques are defined as instruments for regulatory reform and policy making which are characterized by some degree of awareness as to the costs, benefits and risks of the regulatory change.
One may notice that this study follows a rather stern approach in reviewing better-regulation initiatives by individual countries. Such severity arises from the authors’ conviction that much more can be done in certain areas of better regulation and does not make a dent in the importance of regulatory reform in crucial areas of regulatory decision making. Indeed, unregulated market economies may bring about both pollution and unsustainable disadvantages to society. Hence, the purpose of regulatory reform is not to deregulate at any cost, by leaving the market unregulated, but to ensure that the policy objectives that have been fixed can be efficiently met while reducing the administrative compliance costs on businesses. In a regulatory environment characterized by strong uncertainties, keeping unnecessary burdens and distortions to a minimum and weighing the costs and benefits of each piece of new regulation carefully are not simple tasks. But they are the only foreseeable way of producing advantages for the market, society and the environment.
3. Objectives and scope of this study
Many decision makers find standard academic studies rather frustrating. Unlike policy decisions, academic research is usually anchored in narrowly defined disciplines and, although it provides key conceptual frameworks and technical evidence, it often makes little practical sense for specific decisions. This frustration has contributed to raising the status of nonacademic studies in areas of high policy relevance, e.g., regulatory reform. Policy reviews, for example the OECD reviews on regulatory reform, have helped move the regulatory debate forward. However, they generate another sort of frustration. Governmental and think tank research suffers from a major analytical weakness: it can be well-informed, but it often fails to move beyond governments’ rhetoric. Nonacademic reviews may provide a detailed account of background developments, policy initiatives and sectoral efforts. But they are not designed to provide the necessary critical assessment backed by scientific methods that allow policy analysis to take place in the best conditions.
The overall aim of the project is to fill this gap by remaining relevant to both academic and policy audiences. In developing this study, a set of strategic objectives was taken into account:
–to understand and compare the sequencing, context and enforcement of regulatory reforms in a number of countries of key relevance
–to identify innovative techniques and instruments that have the potential to add value to regulatory reform and to explain the mechanisms that underpin them
–to convey a significant amount of qualitative and quantitative information in a policy-relevant fashion by translating empirical findings into practical recommendations for policy makers
The scope of this study covers the broad spectrum of regulatory-reform issues, with a specific focus on better regulation initiatives and instruments, which were investigated by addressing the following key questions:
–Which better regulation initiatives characterize different countries and why are these predominant?
–Why do public administrations make great efforts to reduce administrative burdens?
–How does the use of ex-ante techniques to assess the impacts of regulation change in different countries?
4. Methodology
4.1 Research methods and data collection
The aforementioned questions were addressed taking into account the existing literature, which identified a number of strategic elements against which the effectiveness of regulatory-reform initiatives can be evaluated (Harrington and Morgenstern 2004; Radaelli and De Francesco 2004; Morral 2001). These comprise: transparency, in terms of involvement of stakeholder opinions in regulatory reforms (Majone 1993; Baldwin 2004); openness, in terms of consideration of all regulatory-reform alternatives, including the no-reform option (Pelkmans et al. 2000; Renda 2006); and the appropriate level of quantification of costs, benefits and risks within regulatory-impact assessment and cost-benefit analysis (Viscusi 2006; Sunstein 1996; Hahn and Litan 2003 and 2004). These criteria are applied per each country review.
In order to best address the questions mentioned above, the analysis was carried out on the basis of the following methods:
–analysis of official documents (including regulatory-reform bills, regulatory-impact assessment and cost-benefit analysis guidelines)
–review of academic literature (per country)
–elite interviews with leading government officials, think tanks, academics and expert practitioners on regulatory reform
–archival records (including simplification reports, codes of consultation, memos, press releases, etc.)
Figure 1: Flow chart illustrating study design
Triangulation between these methods was guaranteed to (i) establish the accuracy of information by comparing three or more independent points of view about data sources and (ii) corroborate the correctness of the available data.
The extensive network developed in recent years by the authors of this study facilitated information gathering and access to gatekeepers. The depth and consistency of the data generated gave us the opportunity to focus on specific issues which characterize each country, while maintaining the same analytical framework for all cases. Qualitative data were collected from semistructured interviews with a population of experts in regulatory reform. Most interviews were carried out by phone. However, when possible, face-to-face interviews also took place. Although the same protocol was followed in all interviews, in many cases discretion was left to the interviewer, also depending on his or her area of expertise and time for the interview.
The selected pool of countries features a variety of initiatives and techniques, varying from reduction of red tape and economic instruments for regulatory policy making. In addition, the selected sample of five countries (France, Italy, the Netherlands, the United Kingdom and the United States of America) presents a balanced picture of economic, constitutional, legal and cultural traditions (see Figure 1).
4.2 Which systematic approach should be used to compare regulatory-reform instruments?
Finding a systematic approach to compare national public administrations tools is not as straightforward as one may at first assume. Let us focus on evaluating impact-assessment (IA) systems. According to Harrington and Morgenstern (2004), there are three types of approaches for evaluating IAs: content tests, function tests and outcome tests. Content tests compare individual IAs mainly to see how they comply with national guidelines. According to this definition: Content tests are ex-ante tests of the material contained in the RIA—i.e., they are assessments that only examine material that was available to the RIA authors at the time the RIA was prepared, even if the assessment itself was prepared long afterwards. Typically, such assessments ask whether the RIA meets the applicable guidelines for the preparation of RIAs (Harrington and Morgenstern 2004: 5).
Normally, content tests are carried out ex-ante on the data available at the time the IA was produced. For this reason, some of the content studies are a sort of autopsy.
Quantitative analysis is suitable for testing the outcome of regulation, where outcome tests could be used in order to compare expected results with actual results
ex-post. However, a strongly quantitative approach for evaluating different national IAs presents a series of difficulties:
–Evaluating the numbers provided by the regulator as such is not as relevant as analyzing the accuracy of the data (e.g., where the data are taken from).
–A thorough quantitative evaluation on the accuracy of data can be extremely costly, researching at the origin of every cost and benefit involved in a narrow sample of IAs. Moreover, gathering all the relevant data on transfer costs, efficiency costs and estimated benefits may not be sufficient.2 If all the estimated benefits are available, a thorough evaluation should also consider the notion of “opportunity costs” (i.e., benefits forgone as a result of regulation).
In this context, purely quantitative evaluation tools are unable to provide the necessary tools and analytical capacity to inform about different national IAs and the processes involved in their implementation. Furthermore, the complexity of these interventions is such that an evaluation requires not only observing and analyzing phenomena, but also careful structuring. The effects of IAs need to be prudently judged. In order to deal with what is an inherently complex evaluation scenario, evaluators have to focus on the relevant factors. Thus, qualitative methods are mainly considered in this study.
This study seeks to comprehend how IAs have developed across different countries and why they entail certain characteristics. The research questions of this study have a rationale which is both exploratory and descriptive. They can be analyzed using function tests: what are the main characteristics of IAs? What role does cost-benefit analy-sis play in regulatory reform? In theory, econometric analysis and quantitative methods may also help deal with function tests. Farrow (2001), for instance, has used multivariate regression methods to examine a database of 69 regulations proposed by several U.S. agencies and reviewed by the OMB, of which seven were rejected (i.e., sent back to the agency for further consideration). This database, first developed by the OMB (Morrall 1986), and subsequently updated and refined by Farrow and other scholars, consists of health and safety regulations for which researchers were able to calculate the implicit value of saving a life. Cost per life saved became the cost-effectiveness standard by which these regulations were judged. Are the same methodological means in place in comparing national impact assessments? Certain national guidelines on IAs (e.g., in France and Italy) explicitly refuse to accept the idea of giving a monetary value to human life. This has severe repercussions on cost-benefit analysis, as health benefits as a rule are estimated using the value of statistical-life technique. The heterogeneity from country to country prevents us from carrying out econometric analysis, but it still allows an interesting inquiry into the economic, legal and risk-related differences between France, Italy, the Netherlands, the United Kingdom, and United States.
References
Arrow, K., et al. (1996), Benefit-Cost Analysis in Environmental, Health, and Safety Regulation: A Statement of Principles (Washington, D.C.: AEI Press).
Baldwin, R. (2004), Better Regulation: Is It Better for Business? (London: Federation of Small Businesses).
Baldwin, R. (2007), Better Regulation: Tensions aboard the Enterprise, in Weatherill, S. (ed.), Better Regulation (Oxford: Hart).
Better Regulation Commission (2006), Principles of Good Regulation (London: BRC).
European Commission (2001), European Governance. A White Paper Brussels, 428 final.
European Commission (2005), Better Regulation for Growth and Jobs in the European Union, SEC (2005) 197.
Fairman, R., M. Carl and P. Williams (1998), Environmental Risk Assessment—Approaches, Experiences and Information Sources, Environmental Issues, series no. 4 (Copenhagen: European Environment Agency).
Farrow, S. (2001), Improving Regulatory Performance: Does Executive Office Oversight Matter? Working paper, Center for the Study and Improvement of Regulation (Pittsburgh: Carnegie Mellon University).
Graham, J. D. (1995), Edging towards sanity on regulatory risk reform, Issues in Science and Technology, Summer 1995, 61–65.
Hahn, R., and R. Litan (2003), Recommendations for Improving Regulatory Accountability and Transparency (Joint Center).
Hahn, R., and R. Litan (2004), Counting Regulatory Benefits and Costs: Lessons for the U.S. and Europe (Joint Center).
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Löfstedt, R. (2007), The “Plateau-ing” of the European Better Regulation Agenda: An Analysis of Activities Carried out by the Barroso Commission, Journal of Risk Research, 10 (4), 423–447.
Löfstedt, R., and D. Vogel (2001), The Changing Character of Regulation: A Comparison of Europe and the United States, Risk Analysis, 23, 411–421.
Majone, G. (1993), Deregulation or Re-regulation? Policymaking in the European Community since the Single Act (Florence: European University Institute).
Morral, J. (1986), A Review of the Record, Regulation, 25–34.
Morral, J. (2001), Regulatory Impact Analysis: Efficiency, Accountability, and Transparency Conference Paper (Singapore: U.S. Office of Management and Budget).
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France
Frédéric Bouder
For years, a number of economic analysts, sometimes described as “declinologists,” have predicted a significant decline in the French economy (Oliviennes and Baverez 1994; Baverez 2003; Marseille 2005). The “French way” would be a disastrous mix of state-controlled services, a plethoric public workforce and uncontrolled public spending. Declinologists made clear that the unreformed state would be one of the factors contributing to low growth and high unemployment rates. According to these analysts, macroeconomic reforms (tax relief, longer working hours, more competition and a later retirement age) will need to be underpinned by a dramatic reform of the state: less spending, fewer civil servants and better interventions. In May 2007, France elected a new president, Nicolas Sarkozy, and, a few weeks later, a new Parliament. The specter of the declinologists’ arguments largely dominated the presidential campaign. The country was split between those who thought that interventions at the margins could reform France and those who advocated a break with the past. The newly elected President, Nicolas Sarkozy, was depicted as the leader of the radical-change camp. His center-right party and allies won a majority of the seats in the French National Assembly, in addition to the majority that they already held in the Senate (Sénat), the upper chamber of the French Parliament. French Prime Minister François Fillion declared on 21 September that he was heading a “bankrupted state.”3 His pre-budget for 2008 (presented to Parliament on 26 September), indeed, suggests a budget deficit of € 41.7 billion, which will make the € 1,200 billon public debt even heavier. Public-sector reforms has been made the first priority of the prime minister’s “Great Works” (Grands chantiers). Current political developments raise a major question: Is regulatory reform a key element of the reform process? Is the “big bang” taking place? And what is the prospect of success?
1. Background and initiatives
General de Gaulle once said, “France only exists by the state. France can only be maintained through it.”4