OEDC WORK ON REGULATORY POLICY AND GOVERNANCE

Nick Malyshev

Head of the Regulatory Policy Division

OECD

Red Tape Reduction Conference - Western Cape

Government South Africa

29 September 2014

• Regulation is one of the three core levers for government to manage the economy (along with fiscal and monetary policy)

• Devising regulations is rarely straightforward – technical complexities, uncertainties, – political constraints, – unintended consequences, collateral damage, excessive cost and – not serve policy goals at all

• Governments have to be alert to the potential for things to go wrong in their regulatory endeavours. – Loss in economic performance or societal wellbeing – Adverse political consequences for governments themselves

The importance of regulation

on business and society

• Lack of evidence to inform policy development.

• Use regulation to solve problems for which regulation is not suited.

• Rent seeking behaviour on behalf of incumbents.

• Status quo bias of the administration – a reluctance to review and reform policy areas.

• Misalignment between administrative portfolios and regulatory problems.

Inherent risks to

good regulatory outcomes

The Regulatory Governance Cycle

• Regulatory policy seeks to improve public sector outcomes by changing the way governments design and deliver regulation.

• Regulatory policy focuses upstream (COG, Oversight bodies, Parliaments), downstream (regulators, inspectors, sub-national) and outside of government (civil society, private bodies)

• Regulatory policy is not a better business agenda. It’s about making markets work better

• Regulatory policy is responsible for some less tangible but equally critical public governance outcomes

Honing in on what regulatory policy

and governance means to the OECD

Strategic Approach Institutions Management Tools Governance

Policy Statement Oversight Body Regulatory Impact Assessment

Whole of Government

Designated Minister

Regulators Open Government/ Public Consultation

International Regulatory Co-operation

Parliaments Simplification and Burden Reduction

National/Sub-national interface

Ex-post Evaluation

OECD Recommendation on

Regulatory Policy and Governance

Multiple costs of regulation

Benefits foregone if

regulation is ineffective

other perverse effects

other ‘non - market’

distortions

Fees and charges a

Economic distortions

dead weight losses

lower investment

lower innovation

Substantive compliance

costs

investments in systems

training

higher cost of investment

Administrative costs to

business

paper work time

reporting time

Administration cost to

regulators

B e

n e

f i t s

n e

e d

e d

t o

j u

s t i

f y c

o s

t s

Compliance costs ‘Distortion’ costs

Costs to government Costs to business b

Costs to community

C o

s t s t

o c

o m

m u

n i t

y

7

• They can have effects on productivity through the creation of barriers to entry for new firms into markets.

• They can constrain the choice set of entrepreneurs and lead to a misallocation of resources

• They can influence the incentive to invest and innovate

What is the impact of

regulation on business?

• Small vs. large businesses

– Small business bear a disproportionate share to the burdens of regulation

• Changes in regulation

– Business perceive changes to existing regulations or new regulations as particularly burdensome

– Stability in regulatory framework important as it allows effect learning on how to comply

• Do business pass on the higher cost of regulation in the form of higher prices?

Where does the burden of

regulation really lie?

What can subnational

governments do?

• Usually, central governments have made progress on the Better Regulation agenda, which is not always paralleled at the local level.

• High-quality regulation in one level of government can be undermined by poor regulatory policies and practices at other levels.

• …and the first window citizens/entrepreneurs knock is the local one.

• How bold? Capacities and infrastructure (i.e., use of ICTs) tend to be more limited at the local level.

What can Better Regulation

deliver at sub-national level?

• Facilitating market entry ► Pro-competitive regulation.

• Reducing the costs of doing business ► Attract investment.

• Avoiding informality ► Low productivity businesses.

• Avoiding corruption (i.e, bribes, intermediaries).

• Facilitating the operations of SMEs.

• Developing synergies with other strategies (i.e, clusters, entrepreneurship, innovation).

How to implement Better Regulation:

An explicit Regulatory Policy

• Formalise regulatory policy into legislation (i.e., laws, decrees, executive orders).

• This helps to ensure continuity despite changes in political agendas.

– BC: Cabinet Directive from the Executive.

– Piemonte: Regional laws 7/2005, 13/2005, 7/2007, 15/2007, 15/2008.

– Catalonia: Decrees 324/2001, 93/2008, 106/2008, 56/2009, 1/2011, 325/2011, and Law 26/2010.

– Mexico: 25 out of 32 federal entities have a state law on regulatory reform. 5 others have laws on economic development with a section on regulatory reform.

How to implement Better Regulation: An institutions responsible for regulatory quality

• Establish the institutional setting for better regulation (i.e., a body responsible of overseeing its implementation).

• Functions: Co-ordinating, challenging, facilitating, and advocating.

• Illustrates and materialises political leadership.

– BC: Straightforward BC (Ministry of Small Business, Technology,

and Economic Development).

– Piemonte: Ministry for Federalism, Decentralisation, Relations with Local Authorities, Legal Affairs, and Relations with the Regional Council.

– Catalonia: Department for Better Regulation (Ministry of Government).

– Mexico: 23 states have assigned the Better Regulation agenda to a ministry, 7 to a commission, and 2 to an alternative form.

– Victoria: Victorian Competition and Efficiency Commission.

How to implement Better Regulation:

Engage citizens and business

• Create institutional mechanisms to allow business and citizen participation in the guidance, management, and evaluation of regulatory reform policies.

– BC: Red Tape Task Force, BC Competition

Council.

– Piemonte: Administrative Reform Observatory.

– Catalonia: Labour, Economic, and Social Council.

– Mexico: 22 federal states have established a citizen council on regulatory reform.

How to implement Better Regulation:

Which regulatory management tools?

• Simplification strategies are usually a good way to start (i.e., One-stop shops).

• Leverage ICTs (i.e., data-sharing, electronic transactions).

• Advance regulatory transparency (i.e., centralized registries).

• Adopt a “regulatory governance” approach ► Consultation, RIA, ex post evaluation, etc.

• Adapt tools to capacities (i.e., Regulatory Criteria Checklist instead of a full-fledged RIA).

16

Regulatory Impact Analysis –

Broad international trends

RIA is seen as a useful tool in support of more efficient, effective, transparent and accountable policymaking

Well understood methodology (sponsored by OECD and others) and currently adopted nearly all OECD countries and at EU level, within broader regulatory reform programmes

The focus and depth of analysis change remarkably from country to country

RIA has been broadly more successful in Common Law jurisdictions but less successful in many Civil Law countries.

Some very good examples of RIA at the subnational level – Australia, Canada, Mexico

But there have been some notable failures!

– Many jurisdictions enacted laws to oblige officials to prepare impact assessments for all new legislation.

– These laws were rarely underpinned by adequate methodologies or institutional arrangements to oversee the quality of assessments.

– As a result, the potential benefits from the use of this tool were lost. 16 16

RIA: governance might maters

more than methodology

• Line ministries are generally responsible for RIA…but the late timing of impact assessments is a widespread issue.

• Many countries are pondering issue of proportionality.

• Most RIA processes are not integrated (to give an overall picture of the cost and benefits) but fragmented covering a range of issues.

• The systematic quantification or monetisation of cost and benefits is not widespread.

• Requirement to consult on RIA is widespread but, in practice, ministries go their own way.

• Requirements to publish full RIA are rare.

• The framework of central oversight varies considerably. Setting up central oversight is the central challenge

RIA: governance maters more

than methodology

• Line ministries are generally responsible for RIA (as they should.) A minority have set up dedicated RIA unit.

• The framework of central oversight varies considerably. Setting up central oversight unit has been a challenge in many countries.

• Overall central challenge function remains weak.

• Emergence of a “ networked approach” to BR and independent watchdog is very positive.

• Independent agencies – especially economic regulators – have their own (superior?) arrangements.

• Parliaments are taking an increasing interest in impact assessment

How to implement Better Regulation: The links to national regulation and institutions

• Establish institutional mechanisms for multi-level co-ordination and dialogue.

• Agree on an agenda to be pursued by all levels of government (if possible, provide incentives/benchmarks and, above all, evaluation).

• Entities facilitating co-ordination, covenants/agreements, laws, etc.

– Australia: Council of Australian Governments (COAG).

– Canada: Federal-Provincial-Territorial Committee + Mutually recognised licenses.

– Italy: Conference system.

– Spain: Sectorial conferences.

– Mexico: Governors’ Conference + Multi-level agreements.

THANK YOU!

Nick Malyshev, Head of the Regulatory Policy Division nikolai.malyshev@oecd.org