Reforming Regulations: Reforming Regulations: Opportunities and ExperiencesOpportunities and Experiences

Importance of Good RegulationImportance of Good Regulation

• Good regulation and institutions help markets Good regulation and institutions help markets function and economies to grow. function and economies to grow.

• A good legal and regulatory system strengthens A good legal and regulatory system strengthens incentives for formal participation in the incentives for formal participation in the economy, and reduces the costs. economy, and reduces the costs.

Who Regulates More?Who Regulates More?

3030

2727 2727

1818

6666

6363

5656

4343

1111

1212

1010

77

53535555

5353

4343

Low incomeLow income Lower middle incomeLower middle income Upper middle incomeUpper middle income High incomeHigh income(benchmark)(benchmark)

Contract ProceduresContract Procedures Court-Powers in Bankruptcy IndexCourt-Powers in Bankruptcy Index Entry ProceduresEntry Procedures Employment Laws IndexEmployment Laws Index

less less regulationregulation

more more regulationregulation

Result: Lower Productivity, Higher informality Result: Lower Productivity, Higher informality and Corruption, Less Employment Growthand Corruption, Less Employment Growth

Source: World Bank Group, Doing Business 2004Source: World Bank Group, Doing Business 2004

Impact of Poor Regulation on Impact of Poor Regulation on DevelopmentDevelopment

• Lack of efficient regulation (esp. tax and customs Lack of efficient regulation (esp. tax and customs administration, registration, customs, licensing, labor administration, registration, customs, licensing, labor regulation) and arbitrary or complex enforcement practices regulation) and arbitrary or complex enforcement practices elevates business costs and uncertainty, discouraging elevates business costs and uncertainty, discouraging investment. investment.

• Businesses realize these costs through direct payments Businesses realize these costs through direct payments (official and unofficial), facilitation fees; but also in (official and unofficial), facilitation fees; but also in management and worker time devoted to compliance rather management and worker time devoted to compliance rather than core business functions. than core business functions.

• Efforts to “protect” workers often reduces formal employment.Efforts to “protect” workers often reduces formal employment.

Towards Good RegulationTowards Good Regulation

• Good regulation does not mean no regulation. Good regulation does not mean no regulation. Essential regulation is criticalEssential regulation is critical

• to raise tax revenuesto raise tax revenues

• to protect public health, safety, environmentto protect public health, safety, environment

• to protect the vulnerable. to protect the vulnerable.

• Regulation needs to be essential, effective and Regulation needs to be essential, effective and enforceable enforceable

• Regulatory reform affords big benefits for economy & Regulatory reform affords big benefits for economy & society society

Benefits to Regulatory ReformBenefits to Regulatory Reform

• Reduced entry barriers (e.g. licensing, registration) encourage Reduced entry barriers (e.g. licensing, registration) encourage growth & diversification via start-ups and new investments.growth & diversification via start-ups and new investments.

• Reduced costs & rigidities cut share of informal enterprises and Reduced costs & rigidities cut share of informal enterprises and workersworkers

• Simplified tax system can increase tax base, allow lower rates. Simplified tax system can increase tax base, allow lower rates.

• Strengthened property rights encourages investment, lendingStrengthened property rights encourages investment, lending

• Streamlining trade regulations can increase exports & benefit Streamlining trade regulations can increase exports & benefit consumers.consumers.

• Tends to disproportionately benefit small enterprises.Tends to disproportionately benefit small enterprises.

• Allows switching civil servants to more useful tasks.Allows switching civil servants to more useful tasks.

• Shrinks bureaucratic discretion, corruption.Shrinks bureaucratic discretion, corruption.

• Reduces need for offsetting investment incentives, supportReduces need for offsetting investment incentives, supportSources: Doing Business 2004, ICAs, Zambia Administrative Barriers Study (2004) Sources: Doing Business 2004, ICAs, Zambia Administrative Barriers Study (2004)

In many instances and dimensions, In many instances and dimensions, countries are reforming regulationscountries are reforming regulations

• Many examples including:Many examples including:– Tariff and trade regulatory reformsTariff and trade regulatory reforms– Reform of business registrationReform of business registration– E-GovernanceE-Governance– Reforming or repealing ineffective, Reforming or repealing ineffective,

burdensome laws, regulationsburdensome laws, regulations

• The Challenge is to Approach this The Challenge is to Approach this SystematicallySystematically

Source: OECD 1995Source: OECD 1995

2. Regulatory Reform2. Regulatory Reform•Produce high quality regulationsProduce high quality regulations•Improve regulatory processes: Improve regulatory processes:

RIA, Consultation, PlanningRIA, Consultation, Planning•Update and review existing Update and review existing

regulationsregulations1. Deregulation:

•Eliminate regulations that impede competition, trade•Reduce number of regulations

•Reduce burden and cost of regulations•Simplify procedures

•Streamline administration

3. Regulatory management3. Regulatory management•long-term systemic long-term systemic perspective concerned with perspective concerned with institutions and performanceinstitutions and performance

3 Phases of Regulatory Reform3 Phases of Regulatory Reform

In spite of many individual reforms in South Asia, In spite of many individual reforms in South Asia, systematic reform programs generally not seen.systematic reform programs generally not seen.

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.

Latvia: Inspection ReformLatvia: Inspection Reform

•After administrative barriers (FIAS) and corruption (WB) findings, Latvian After administrative barriers (FIAS) and corruption (WB) findings, Latvian Development Authority and Ministry of Economy championed inspection reform. Key Development Authority and Ministry of Economy championed inspection reform. Key components:components:

• Cabinet issued ‘instruction’ for inspectorates specifying rights, responsibilities Cabinet issued ‘instruction’ for inspectorates specifying rights, responsibilities

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

2001 2003

Sanitary Inspectorate Labor Inspectorate Construction Inspectorate Environmental Inspectorate Fire and Rescue Service

• Clear inspection information to businessesClear inspection information to businesses

• Inspection Coordination CouncilInspection Coordination Council

• Annual regional meetings with client groupsAnnual regional meetings with client groups

• Written reports after all inspectionsWritten reports after all inspections

• Publicized annual performance reportsPublicized annual performance reports

• Trained inspectors: focus, client orientationTrained inspectors: focus, client orientation

Reforms implemented 2000, 2001 yielding Reforms implemented 2000, 2001 yielding reduced frequency, duration, cost of reduced frequency, duration, cost of inspections.inspections.

Inspection Duration, Hours

Assets included pressure from EU Accession and WB,Assets included pressure from EU Accession and WB, a new government, pro-reform a new government, pro-reform technocrats & an active business community.technocrats & an active business community.

Reforming Regulation: A spectrum of Reforming Regulation: A spectrum of approachesapproaches

Short-termShort-term Medium-Term Medium-Term Long-Term Long-Term

CountryCountry KoreaKorea HungaryHungary MexicoMexico

DescriptionDescription ““Big Bang”Big Bang” ““Guillotine”Guillotine” ““Institutionalized”Institutionalized”

ChampionChampion Big push by Big push by PresidentPresident

Cabinet of MinistersCabinet of Ministers Initially President, Initially President, then Min. of Tradethen Min. of Trade

GoalGoal Reduce regulations Reduce regulations by halfby half

Eliminate unjustified Eliminate unjustified regulationsregulations

From deregulation From deregulation to good regulationto good regulation

ContextContext Financial crisisFinancial crisis EU AccessionEU Accession NAFTANAFTA

MeansMeans Cross-cutting Cross-cutting Regulatory Reform Regulatory Reform Committee chaired Committee chaired by Prime Ministerby Prime Minister

Deregulation Deregulation Commission, Justice Commission, Justice Ministry reviewMinistry review

Specialized unit in Specialized unit in powerful Ministry, powerful Ministry, later autonomous later autonomous agencyagency

Hungary’s Approach to Regulatory Hungary’s Approach to Regulatory Reform: La Guillotine!Reform: La Guillotine!

• Systematic reviews to remove poor laws and regulations, Systematic reviews to remove poor laws and regulations, improve public administration, efficiency and effectiveness.improve public administration, efficiency and effectiveness.

• Guillotine scheme: Guillotine scheme: authorized by omnibus Deregulation Act, authorized by omnibus Deregulation Act, automatic repeal after prescribed date of all measures (or automatic repeal after prescribed date of all measures (or parts) whose justification had not been approved by parts) whose justification had not been approved by Deregulation Commissioners, through the following steps: Deregulation Commissioners, through the following steps:

• Min. Justice prepared full inventory of existing Min. Justice prepared full inventory of existing formalities.formalities.

• Line ministries presented a 3-year schedule for Line ministries presented a 3-year schedule for assessment of older and newer formalities.assessment of older and newer formalities.

• Ministries then submitted justifications of formalities to be Ministries then submitted justifications of formalities to be retained, repealed or amended (with draft text).retained, repealed or amended (with draft text).

• Commissioners evaluated this based on established criteria.Commissioners evaluated this based on established criteria.

• Ministry of Justice issued a deregulation instrument to enact.Ministry of Justice issued a deregulation instrument to enact.

• Government also applied specific sectoral and policy reviews Government also applied specific sectoral and policy reviews

Other tools for reducing regulatory Other tools for reducing regulatory burden…burden…

• Mandatory time limits – if no action, approvedMandatory time limits – if no action, approved

• Sunset provisions – rules expire unless Sunset provisions – rules expire unless reauthorized within a time limitreauthorized within a time limit

• Sunshine lawsSunshine laws

• Meetings, decisions in the open unless Meetings, decisions in the open unless justifiedjustified

• Publication of all laws and regulationsPublication of all laws and regulations

• Consultation of affected partiesConsultation of affected parties

• Greater reliance on industry self-regulationGreater reliance on industry self-regulation

In conclusion…In conclusion…

• Regulatory reform carries strong economic benefits, Regulatory reform carries strong economic benefits, especially for the poor, and can improve especially for the poor, and can improve compliance.compliance.

• Regional economies have a number of problems Regional economies have a number of problems from poorly designed or implemented regulations.from poorly designed or implemented regulations.

• Many countries have introduced a number of Many countries have introduced a number of regulatory reforms, with positive effects, but have regulatory reforms, with positive effects, but have not institutionalized reform.not institutionalized reform.

• International experience suggests approaches to International experience suggests approaches to systematic reform of regulations and inspections.systematic reform of regulations and inspections.