Paris – 12 January 2012

The annual

Doing Business Reportand its contribution to Regulatory Reform

worldwide

Charles-Henri Montin, Senior Regulatory Expert,

Ministry of economy, finance and industry, Paris, France

http://smartregulation.net

Contents

The Doing Business economic ranking

The controversy in France (in brief)

The underlying issue: how necessary is regulatory policy/ regulatory reform?

“Where you stand depends on where you sit” (attr. N. Mandela)

Part one: The IFC Doing Business Index

Main featuresLimits

Contents of the reports

CategoryFrance’s Rank

Source

Ease of Doing Business 29World Bank,

Ease of Doing Business Report

World’s Most Competitive Economy

18World Economic Forum,

Global Competitiveness Report

World’s Most Competitive Economy

29IMD, World Competitiveness

Yearbook

Ease of Paying Taxes 55PWC, IFC, World Bank’s

Paying Taxes Survey

World’s Freest Economy 64Heritage Foundation’s

Index of Economic Freedom

Country with Least Corruption Perception

25Transparency International’s Corruption Perceptions Index

World’s Best Labor Force 14BERI’s Labor Force Evaluation Measure

Most Desirable Immigration Destination

9Gallup Potential Net Migration

Index

World’s Best Country for Business

21Forbes’ Best Countries for

Business Index

Main features

Based on published academic research No professed ideology but “enabling growth”

“ensuring that poor people can participate” Assumption: “economic activity requires

good rules transparent and accessible “ Attuned to the needs of the WBG

(development) and the reduction of informal economy

A rare case of “naming & shaming” in an IO Constant enrichment of indicators (9th report

contains twice the number of data series, (11), now analysing long term trends

Focused on outcome of regulation; not perceptions

Summary description

Measuring and benchmarking regulations affecting 10 areas in the life-cycle of business

183 “economies” 2 sets of data

– Strength of property rights and investor protection as measured by the treatment of a case scenario

– Time and motion indicators to measure cost and efficiency of regulatory processes

Consolidation into a published ranking

8

The time and motion indicators

The Doing Business index

– Starting a business - Construction permits– Getting electricity - Registering property – Getting credit - Protecting investors– Paying taxes - Trading across borders– Enforcing contracts - Resolving insolvencyEmploying workers : studied but not included in report

117 countries carried out 216 reg reforms

DB limitations

Indicated in the report itself Not all factors influencing business

climate: macroeconomic conditions, market size, workforce skills, security

Based on standardized case scenarios (ex: limited liability small company)

Focused on the formal sector / major city Assumption that companies have full

information

The use of DB

Widely published and commented ranking By Case studies promote best practices to

inspire policy. In 2012: Korea, FYROM, UK IFC and donors support business RR Regional champions (Mauritius, Colombia) 25 Governments set up RR committees to

coordinate regulatory changes, using DB data

APEC uses DB to identify potential areas for RR: “Ease of DB Action Plan” with -25% target by 2015

Main chapters of the annual report

Methodological updates Ranking from Singapore (1) to Chad (183) RRs (245 in 2012) their nature,

significance and their influence Messages: a global trend (163 economies

do RR); importance of transparency Sharing Best practices to inspire

reformers List of the years best reformers

(Morocco, Moldova, FYROM, Burundi….) Detailed country fiches

How France ranks on DB topics

Overall ranking: 29 (2012)

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The Global Competitiveness index

Part 2The controversy in France around DB

The official position of the French government on DB mentions “a lack of scientific backing to the indicators”.

Main critical arguments

Academics highlight a bias in favour of common law implicit in the DB index.

Statisticians take issue with the quality of the underlying data and the capacity of the sub-indicators as they are defined to monitor and assess the general quality of regulation that they are supposed to represent (see Blanchet 2006).

Lawyers in France dislike the World Bank’s “attempt to classify legal traditions according to their efficiency”, which according to them would be ideologically-driven and designed to prove that common law is superior to continental law.

Part 3Issues underlying Doing Business

How can measuring the regulatory environment reflect the quality of

the business climateHow can regulatory reform support

growth and competitiveness

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Regulation and society

Regulation: written rules that mandate behaviour, in pursuit of policy objectives

Regulation, “one of three key levers of state power, with fiscal and monetary policy” (OECD)

One of the two ‘outputs’ of administration, with public services, hence need for quality and value approach (impacts);

Regulation pursues social outcomes, establishes and protects rights. Benefits of reg. must balanced against costs;

Regulation in economic theory– Value of open free markets (Chicago school)– Market failures, asymmetric information,

externalities not covered (Stiglitz) – Limits of the informal sector, the need for good

regulation (Loayza)– The BR answer: CBA, AB, RIA (quantify)

Regulation after the crisisRegulatory gaps – clear market failuresRegulations as preferred policy instrument in era of fiscal

constraintLow public trust requires more, not less, regulation

Regulation and the econonomy

Drivers or competitiveness

25

National Competitiveness “policy clusters”

26

Source: Weymouth and Feinberg

The main areas of regulation in support of competitiveness

27

How regulation can hamper competitiveness

Costs– direct /indirect; compliance /admin costs– SMEs and the economies of scale

Unintended microeconomic choices: interfering with optimal allocation of resources within the company to different business processes. Regulatory uncertainty causes risk of deferral of investment

Barriers to efficient market functioning

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How regulation can support competitiveness (UK approach)

Reduce regulation that raises the cost of doing business

Assure basic legal guarantees (land law, contracts, dispute resolution, etc) and corporate governance FW

Preserve level playing field for markets: competition policy and law, financial markets supervision, – remove impediments to entry to markets and discriminations (regs or taxes)

or protecting incumbents against competitors

– Seek out anticompetitive behavior, to avoid rents, for lower prices

Enforce standards to disseminate major technologies

29

Regulatory reform goes beyond C.

Not to be confused with regulatory competition

RR pursues multiple objectives (growth, social cohesion, risk management, protection), competitiveness not the only objective.

RR aims at making the best use of regulation in support of the full range of public policies, including non-business reforms

Competitiveness requires more than RR, but RR may be the most elusive but also the most cost-efficient policy

30

Part 3Varieties of regulatory

reform

The emergence of regulatory policy

Principles of quality regulation

Three ages, three approaches

32

From regulation to regulatory policy

From Jacobs & Associates

33

Early sets of principles– OECD 1995-97: 7 recommendations to governments– UK 1998: 5 principles transparency, accountability,

targeting, consistency, proportionality Maturity

– Mandelkern report (EU) (2001): six dimensions– OECD “performance” 2005 : Broad programmes,

impacts, transparency, competitiveness test, liberalisation, policy linkages

Current trends– National sets: Australia (2007) “best practice

regulation,” Ireland, Finland…– OECD review of 2005 principles (2011): post-crisis

adaptations

The battle for “Principles” of regulatory quality

34

Lack of coordination and planning capacities Vested interests may block reform; political

incentives favour short term interests over long term societal policy goals

Rapidly changing environments (obsolescence) Too many levels of government: duplicative or

excessive reg. (e.g. gold-plating of EU law) Over-reliance on regulation, regardless of cost

and alternatives Risk aversion, poor risk management in reg.

Challenges to Delivering High Quality Regulation

35

Regulatory managementCommand &

ControlDue process

Consistent legallyAccessible

Inform stakeholders

RegulatoryReform (1995)

EffectiveEfficient

Competitive

Consult stakeholders

Regulatory governance

(2010)

Integrated objectives

Cycle approachIncl. M&E

Involve stakeholders

BR ≠ DeregulationBR = dynamic LT process acting on policies, institutions

and tools

The three ages of regulatory quality

GOOD BETTER SMART

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One objective, three approaches

OECD

Regulatory policy

Think tankBest practice

forum

Market orientation

Public management

European Union

Better/Smart Regulation

SupranationalManage ‘Acquis communautaire’

SubsidiarityTransposition

Process-oriented

Inter-institutional

World Bank Group

Business climateDoing Business

(outcomes)

Development technical

assistance One stop shops

LicensingReg. guillotine

Thematic work

Institutions for regulatory oversight Building capacities and introducing tools Preventing regulatory capture Ensuring policy sustainability Contributing to green growth Addressing risk in regulation making Coordinating multi-level regulation International regulatory co-operation

38

Policy issues for government

action

Policy issues for government

actionDevelop policy

roadmap- choose the

policy instrument(s)

Develop policy roadmap

- choose the policy

instrument(s)

• Design new regulation • Check current regulation

• Design new regulation • Check current regulation

Enforce regulationEnforce

regulation

Monitor and evaluate

performance of regulation

Monitor and evaluate

performance of regulation

REGULATION

OTHERPOLICYTOOLS

The 4 Cs

Consultation

Co-ordination

Co-operation

Communication

‘Regulatory Governance Cycle’

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European Better Regulation

Mandelkern (2000)

Predominantly legal

SimplificationConsultation

standards 2002

Barroso I (2005)

VP VerheugenCompetitiveness

test

Admin Burden Reduction Progr.

2007-12

SME test

Stoiber Group

Barroso II (2010)

Smart Regulation

Fitness checks

Cycle approach

Integration of evaluation,

infringements, complaints

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Better Regulatory Design (Mandelkern)

Consultation

Access

AlternativesRIA

Admin burdens

SimplificationSTOCK

Stakeholders

The E

conomy

The Administration

+ Tools for ensure efficient implementation (including information, government forms, BPR,

OSS, inspections)

FLOW The econom

y

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Increase social welfare through more effective social and economic policies

Boost economic development by encouraging market entry and competitiveness

Control regulatory costs and improve productive efficiency, particularly for SMEs

Improve the rule of law , transparency and participative democracy

Goals of Regulatory Reform

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Dimensions of the business environment

Administrative “One stop shop”, single window, inspections, licensing, standardized forms and corporate documents

Legal Commercial code, company law, collateral law, bankruptcy, labor law, infrastructure laws, PPP

Judicial Court procedure, case management, performance of judges

Electronic services (eGov)

Company/collateral registry, Credit bureau, Electronic signature, single ID, Paying taxes, Legal portal

Tax and Subsidies

Corporate tax, VAT, social contribution, registration duties, selective interventions

The many guises of regulatory reform

Country best practices

A menu for regulatory reform

Conclusion: DB in the overall picture

A precious tool to track changes all over the world; good interaction between bureaucrats and academe

No serious theoretical challenge Good illustration of benefits of RR Friendly emulation; frame for donors RR = a quality/ efficiency approach that

respects each economy’s specific policies, no ideological assumptions

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To continue the study…

This presentation is online• http://montin.com/documents/bercy.pps

Updates on current events and trends:• http://smartregulation.net

Contact:• montin @ smartregulation.net• charles-henri.montin @ finances.gouv.fr