SCM Experiences in OECD Countries

1. SCM Experiences in OECD Countries SCM Steering Group Warsaw March 5, 2010 Dr. André Nijsen Adviser Regulatory Reform

2. Issues • Background of benchmark • Methodology of benchmark • Short history of SCM • Implementation of SCM in selected OECD countries • Managing SCM projects • Special methodological topics • New directions and related initiatives • SCM and related reform initiatives • Conclusion Dr. André Nijsen Adviser Regulatory Reform

3. Background of Benchmark • Origin: World Bank/FIAS idea to implement SCM in developing countries • Necessary input: lessons learned from SCM implementation in OECD-countries • Selected countries: Denmark, UK, Czech Republik, Germany, Australia/Victoria, The Netherlands • Additional countries: Poland and Italy Dr. André Nijsen Adviser Regulatory Reform

4. Methodology of benchmark • Deskresearch (manuals and evaluation reports) and consultation SCM Network • First step: comparison SCM Network Manuals 2004 and 2005 • Second step: comparison countries • Reference point: Dutch baseline measurement 2002 • Reference period: 2002-2009 • Perspective: institutional en methodological aspects Dr. André Nijsen Adviser Regulatory Reform

5. Short History of SCM • SCM: method for determining costs of businesses of complying with information obligations • Forerunner Mistral developed in the Netherlands: 1992-1994 • 2002: Dutch Cabinet declared SCM being best practice • 2007/8: World Bank, OECD and EU declared SCM being best practice • Nowadays SCM implementations in over 20 countries Dr. André Nijsen Adviser Regulatory Reform

6. Seven institutional aspects • Ex-ante and ex-post • Scope (coverage laws and sectors) • Reduction targets • Organizational patterns and project management • Ensuring policymakers understand and accept results • Training • Central data base Dr. André Nijsen Adviser Regulatory Reform

7. Eighteen methodological aspects (1) • Definition IO • One-off costs • ‘Voluntary’ obligations bases on law • Codes of conduct, covenants • Business as usual costs • Overhead • Demarcation between departments • Segmentation business target group • P-parameter: Standard list of IOs available? Dr. André Nijsen Adviser Regulatory Reform

8. Eighteen methodological aspects (2) • P-parameter: standard list of DRs available? • P-parameter: standard list of AAs available? • P-parameter: standard list of tariffs available? • P-parameter: standard profile AAs/time per type IO available? • P-parameter: clear demarcation line between BUA and marginal costs available? • P-parameter: clear demarcation between IO and SO available? • Proposition to measure perception entrepreneur available? • Q-parameter: clear concepts like population, rate and frequency available? • Labelling of IOs available? Dr. André Nijsen Adviser Regulatory Reform

9. First Implementation of SCM in The Netherlands (1) • 1st base line measurement in 2003 (year of reference 2002) • Device: let flower as many flowers as possible • Leading philosophy: to stimulate the implementation of SCM by as many ministries and consultants as possible • IPAL (the then RRG) had a coordinating function only • Every ministry (9) was in the lead of its own measurement • Actually there were nine base line measurements • The first manual available in December 2003, almost one year after the completion of the 1st base line measurement • As a consequence the original Mistral was implemented in various ways Dr. André Nijsen Adviser Regulatory Reform

10. Implementation of SCM in selected countries: lessons learned (2) • Dutch climate was very innovative and stimulating for Denmark and UK, who implemented the SCM in 2003 • Main lessons they learned from NL: importance of centralization of ownership/leadership, availability of good manual and central database at the beginning • Germany followed and even boosted the tendency of centralization: organization and methodology • Czech Republic: decentralization because of recent EU-membership and lack of funding • Australia: Treasury and Finance in the lead. No base line measurement. Assessment of base line by external consultants • Finally, The Netherlands again. Second base line measurement (2008). Leapfrog effect. Strong centralization etc. • The Dutch SCM implementation 2007 far closer to the original Mistral then the Dutch SCM implementation of 2002 Dr. André Nijsen Adviser Regulatory Reform

11. Implementation of SCM in additional countries: lessons learned (3) • Poland and Italy are new countries from the perspective of SCM implementation • They seem to encounter some difficulties with understanding concepts like: * typical firm * compliance in a normally efficient way Dr. André Nijsen Adviser Regulatory Reform

12. Implementation of SCM for new countries: lessons learned (4) • Succesful SCM implementation needs a learning proces • Advise: don’t start with measuring the whole stock of existing laws • Start with measuring the AB of just one simple law or one event • Stakeholders (government, businesses and consultants) should be prepared to invest budget and expertise in the learning process on a permanent base • Take time to run SCM projects • General conclusion: towards more centralization regarding institutional aspects and more standardization regarding methodological aspects Dr. André Nijsen Adviser Regulatory Reform

13. Managing SCM Projects • How to manage depends on size and complexity of involved laws • Two possibilities: * ex-ante implementations (flow) * ex-post implementations (stock) • Ex-ante implementations: 95% of all cases should be carried out by the civil servant who holds the dossier. The remainder cases (5%) with assistance of external consultants because of complexity/size • Ex-post implementations: there is no standard situation. All laws, a selection of laws or one law. One event or one or more branches of industry. Mostly two teams: civil servants and external consultants Dr. André Nijsen Adviser Regulatory Reform

14. Methodological issues: public policy perspective (1) • SCM looks from a public policy perspective and not from a business perspective • Because SCM reckons only that part of compliance costs which can be influenced by the public sector • That’s why the businesses are assumed to comply in ‘a normally efficient way’ • IO is measuring unit and not the business • The functionality of a legal obligation is decisive of categorizing as IO, substantive obligation or financial obligation Dr. André Nijsen Adviser Regulatory Reform

15. Methodological issues: typical firm (2) • A typical firm according to SCM is not a synonym of a firm which complies in ‘a normally efficient way’ • A typical firm is the starting point for segmentation of the group of regulated firms under scrutiny • Only if the legal specification of an IO differs between categories of firms there is an argument to distinguish two or more categories of typical firms • The strategy for segmentation to select businesses for interviews should reckon with the number of categories of typical firms only Dr. André Nijsen Adviser Regulatory Reform

16. Methodological issues: compliance in a normally efficient way (3) • The concept ‘compliance in a normally efficient way’ starts with defining for every single category of typical firm, per IO: * the data requirements (DRs), and * associated administrative activities (AAs) • This blue print of IO/DRs/AAs is the questionaire to gather data about time consumption for every single AA • Finally, outliers in time consumption should be removed if they are not plausible Dr. André Nijsen Adviser Regulatory Reform

17. New directions and related initiatives • New directions of SCM in NL, SW, DE and Australia • Extension of SCM with other compliance costs like substantive and financial costs (separate modules or one integrated instrument like in NL-transaction costs theory and in Germany-Regulierungs-kostenmodel (DE) • Also initiatives to extend the SCM to civilians and enforcing institutes • Related but quite different initiative in Belgium and NL: Kafka-instrument, the permanent instalment of a complaint office for civilians and entrepreneurs Dr. André Nijsen Adviser Regulatory Reform

18. SCM and related reform initiatives • The SCM does not stand alone • It’s an integral part of already existing regulatory reform programs • The question is not to implement the SCM or a RIA, BIA, or to introduce a staged repeal of licences etc. • At the end, all these instruments have the same objective: to increase welfare • In most OECD countries, SCM is integrated within the RIA-system related to new laws • The more massive SCM implementation of base line measurements seems to stand alone by just facilitating reduction programs • Be aware, most RIA just tell you what to do. SCM tells you how to do this. Dr. André Nijsen Adviser Regulatory Reform

19. Conclusion (1) • Measuring compliance costs is hot stuff, from scientific perspective as well as from policy praxis • The number of persons involved has increased considerable • Almost by consequence, the debate about concepts etc. starts again, every time new participants are joining the debate • Two key questions * should we introduce the public goals coming into the measurements? * which methodology is most appropriate to measure B/C of regulations? Dr. André Nijsen Adviser Regulatory Reform

20. Conclusion (2) • It’s important to bring more transparancy in order to stimulate a more impartial discussion about deregulation and its consequences • Important elements of this transparancy are: * an adequate categorization of the separate cost and benefit effects * a systematic evaluation of these cost and benefit effects, and * finally, an evaluation of the available techniques and methodologies • Such a transparancy could be a guidance for all who are involved in the law making process and the measurement of compliance effects Dr. André Nijsen Adviser Regulatory Reform

21. Closure • I thank you for your invitation • I thank you for your attention • It will be my pleasure to answer your questions Dr. André Nijsen Adviser Regulatory Reform