Reforming Regulations: Opportunities and Experiences

1. Reforming Regulations: Opportunities and Experiences

2. Importance of Good Regulation • Good regulation and institutions help markets function and economies to grow. • A good legal and regulatory system strengthens incentives for formal participation in the economy, and reduces the costs.

3. more regulation Who Regulates More? 30 12 66 27 27 11 63 Result: Lower Productivity, Higher informality and Corruption, Less Employment Growth 10 56 55 53 53 18 43 7 43 less regulation Low income Lower middle income Upper middle income High income (benchmark) Contract Procedures Court-Powers in Bankruptcy Index Entry Procedures Employment Laws Index Source: World Bank Group, Doing Business 2004

4. Impact of Poor Regulation on Development • Lack of efficient regulation (esp. tax and customs administration, registration, customs, licensing, labor regulation) and arbitrary or complex enforcement practices elevates business costs and uncertainty, discouraging investment. • Businesses realize these costs through direct payments (official and unofficial), facilitation fees; but also in management and worker time devoted to compliance rather than core business functions. • Efforts to “protect” workers often reduces formal employment.

5. Towards Good Regulation • Good regulation does not mean no regulation. Essential regulation is critical • to raise tax revenues • to protect public health, safety, environment • to protect the vulnerable. • Regulation needs to be essential, effective and enforceable • Regulatory reform affords big benefits for economy & society

6. Benefits to Regulatory Reform • Reduced entry barriers (e.g. licensing, registration) encourage growth & diversification via start-ups and new investments. • Reduced costs & rigidities cut share of informal enterprises and workers • Simplified tax system can increase tax base, allow lower rates. • Strengthened property rights encourages investment, lending • Streamlining trade regulations can increase exports & benefit consumers. • Tends to disproportionately benefit small enterprises. • Allows switching civil servants to more useful tasks. • Shrinks bureaucratic discretion, corruption. • Reduces need for offsetting investment incentives, support Sources: Doing Business 2004, ICAs, Zambia Administrative Barriers Study (2004)

7. In many instances and dimensions, countries are reforming regulations • Many examples including: • Tariff and trade regulatory reforms • Reform of business registration • E-Governance • Reforming or repealing ineffective, burdensome laws, regulations • The Challenge is to Approach this Systematically

8. In spite of many individual reforms in South Asia, systematic reform programs generally not seen. 3 Phases of Regulatory Reform Regulatory Impact Assessment (RIA) is a method of (i) systematically and consistently examining the positive and negative impacts arising from proposed (or existing) government rules, regulations and procedures, (ii) considering alternatives and (iii) communicating the information to decision-makers. • 3. Regulatory management • long-term systemic perspective concerned with institutions and performance • 2. Regulatory Reform • Produce high quality regulations • Improve regulatory processes: RIA, Consultation, Planning • Update and review existing regulations • 1. Deregulation: • Eliminate regulations that impede competition, trade • Reduce number of regulations • Reduce burden and cost of regulations • Simplify procedures • Streamline administration Source: OECD 1995

9. Latvia: Inspection Reform • After administrative barriers (FIAS) and corruption (WB) findings, Latvian Development Authority and Ministry of Economy championed inspection reform. Key components: • Cabinet issued ‘instruction’ for inspectorates specifying rights, responsibilities Inspection Duration, Hours • Clear inspection information to businesses • Inspection Coordination Council • Annual regional meetings with client groups • Written reports after all inspections • Publicized annual performance reports • Trained inspectors: focus, client orientation • Reforms implemented 2000, 2001 yielding reduced frequency, duration, cost of inspections. Assets included pressure from EU Accession and WB,a new government, pro-reform technocrats & an active business community.

11. Reforming Regulation: A spectrum of approaches Short-term Medium-Term Long-Term

12. Hungary’s Approach to Regulatory Reform: La Guillotine! • Systematic reviews to remove poor laws and regulations, improve public administration, efficiency and effectiveness. • Guillotine scheme: authorized by omnibus Deregulation Act, automatic repeal after prescribed date of all measures (or parts) whose justification had not been approved by Deregulation Commissioners, through the following steps: • Min. Justice prepared full inventory of existing formalities. • Line ministries presented a 3-year schedule for assessment of older and newer formalities. • Ministries then submitted justifications of formalities to be retained, repealed or amended (with draft text). • Commissioners evaluated this based on established criteria. • Ministry of Justice issued a deregulation instrument to enact. • Government also applied specific sectoral and policy reviews

13. Other tools for reducing regulatory burden… • Mandatory time limits – if no action, approved • Sunset provisions – rules expire unless reauthorized within a time limit • Sunshine laws • Meetings, decisions in the open unless justified • Publication of all laws and regulations • Consultation of affected parties • Greater reliance on industry self-regulation

14. In conclusion… • Regulatory reform carries strong economic benefits, especially for the poor, and can improve compliance. • Regional economies have a number of problems from poorly designed or implemented regulations. • Many countries have introduced a number of regulatory reforms, with positive effects, but have not institutionalized reform. • International experience suggests approaches to systematic reform of regulations and inspections.