International Regulatory Reform Report 2008

By Frank Frick

In recent years, there have been many programs and initiatives focusing on improving the performance, cost-effectiveness and legal quality of regulations. The International Regulatory Reform Report 2008 reviews these developments in five key countries, namely France, Italy, the Netherlands, the United Kingdom and the United States of America. The selected pool of countries shares a variety of initiatives and techniques including reduction of red-tape and economic instruments for regulatory policy-making. The report discusses "better regulation initiatives, structures and instruments of each country, informing the reader about the economic attractiveness and cost-effectiveness of key regulatory reform countries as well as the accountability and efficiency of their national governments. The study's cross-national approach and its focus on specific strategies and instruments make it relevant to practitioners and academics alike.

• Language: English
• Publisher: Verlag Bertelsmann Stiftung
• Release date: Aug 19, 2011
• ISBN: 9783867934022

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Authors

Introduction

Ragnar Löfstedt

One of the key messages that this study conveys is that regulatory reform is by no means an easily definable and universal concept but that it encompasses a number of practices and methods which, depending on national contexts, may catch the attention of policy makers. In a number of international arenas, however, regulatory reform has been conceptualized as a whole, particularly within the Organisation for Economic Co-operation and Development (OECD). The OECD (1999) has defined regulatory reform as the changes that improve regulatory quality, that is, enhance the performance, cost-effectiveness or legal quality of regulations and related government formalities. This study shows that, in practice, countries tend to pick and choose depending on political priorities and that they seldom consider the entire scope of regulatory reform simultaneously. The OECD (1999) has also established a distinction between three categories of regulations, which this study uses as an implicit typology:

–Economic regulations intervene directly in a market decision. They cover pricing, competition, market entry, and market exit. Typical reforms in this area include the removal of barriers to competition and innovation.

–Administrative regulations include paperwork and administrative formalities (red tape), through which governments collect information and intervene in individual economic decisions. Reforms typically aim at the simplification of existing rules or the elimination of regulations that are no longer needed.

–Regulations to protect health, safety, the environment and social cohesion (also called social regulations). In this area, reforms usually assess whether these regulations make a positive difference with respect to their impact (or other criteria), whether they are cost-effective, whether alternatives would deliver better results, etc.

1. Monitoring regulatory reform

Regulatory reform activities have the potential to bring about immense positive effects on the market, society and the environment. At the market level, regulatory reform is considered crucial, because it contributes to improving competition, innovation and growth (OECD 1997). Regulatory reform can also deliver very concrete benefits to society compared to alternative solutions. John Graham, one of the key proponents of the regulatory reform effort in the United States, once declared: reallocation of resources to more cost-effective programs... could save an additional 60,000 lives per year at no increased cost to taxpayer or industry. Alternatively, the country could save the same number of lives, but at an annual saving of $ 31 billion (Graham 1995). A fundamental objective of regulatory reform is to improve the efficiency of national economies and their ability to adapt to change and remain competitive (OMB 2007).

With regard to the environment, regulatory reform can help the policy maker focus in situations of market failure or where concerns about health and sustainable development call for attention. It can induce him or her to considering the full spectrum of policy alternatives in the light of the potential benefits, costs and risks (Fairman et al. 1998).

On the one hand, appropriate regulatory reform may bring about savings of up to 15 percent of budget to governments and have a beneficial impact on 1 percent to 2 percent of GDP.¹ On the other hand, wrong estimates of costs, benefits and risks might have devastating consequences on regulatory reforms, leading to a significant loss in regulatory accountability, an increase in opportunity costs and potential legal drawbacks. Unsuccessful applications of regulatory reform can also lead to additional distortion of market externalities, increased red tape for public administrations, and the importation of unnecessarily expensive models and techniques from other national public administrations.

This study reviews the development of regulatory reform in five countries: France, Italy, the Netherlands, the United Kingdom and the United States of America. Particular attention is dedicated to the so-called better-regulation initiatives and instruments, which are defined below. The exercise pursued in this study of monitoring progress on regulatory reform and better regulation allows the dual understanding of the economic effectiveness and political credibility of individual countries (Löfstedt and Vogel 2001). This study gives information about the economic attractiveness and cost-effectiveness of key regulatory-reform countries as well as a picture of the accountability and efficiency of their national governments.

2. Defining regulatory reform and ‘better regulation’

In the last ten years, regulatory reform in most Western countries has been increasingly focusing on the following issues:

–reduction of administrative burdens

–use of ex-ante techniques to assess the impacts of regulation (such as regulatory impact assessment and cost-benefit analysis)

–adoption of risk-management and risk-communication tools

–simplification of regulations and methods of stakeholder involvement in the regulatory process through consultation

This type of regulatory reform has been defined by both policy makers (European Commission 2001 and 2005; BRC 2006) and academics (Baldwin 2007; Löfstedt 2004 and 2007; Radaelli 2003; Torriti 2007; Wiener 2006a) as better-regulation initiatives.

Better-regulation initiatives find their rationale in an evidence-based approach to regulatory reform. Correspondingly, better-regulation techniques are defined as instruments for regulatory reform and policy making which are characterized by some degree of awareness as to the costs, benefits and risks of the regulatory change.

One may notice that this study follows a rather stern approach in reviewing better-regulation initiatives by individual countries. Such severity arises from the authors’ conviction that much more can be done in certain areas of better regulation and does not make a dent in the importance of regulatory reform in crucial areas of regulatory decision making. Indeed, unregulated market economies may bring about both pollution and unsustainable disadvantages to society. Hence, the purpose of regulatory reform is not to deregulate at any cost, by leaving the market unregulated, but to ensure that the policy objectives that have been fixed can be efficiently met while reducing the administrative compliance costs on businesses. In a regulatory environment characterized by strong uncertainties, keeping unnecessary burdens and distortions to a minimum and weighing the costs and benefits of each piece of new regulation carefully are not simple tasks. But they are the only foreseeable way of producing advantages for the market, society and the environment.

3. Objectives and scope of this study

Many decision makers find standard academic studies rather frustrating. Unlike policy decisions, academic research is usually anchored in narrowly defined disciplines and, although it provides key conceptual frameworks and technical evidence, it often makes little practical sense for specific decisions. This frustration has contributed to raising the status of nonacademic studies in areas of high policy relevance, e.g., regulatory reform. Policy reviews, for example the OECD reviews on regulatory reform, have helped move the regulatory debate forward. However, they generate another sort of frustration. Governmental and think tank research suffers from a major analytical weakness: it can be well-informed, but it often fails to move beyond governments’ rhetoric. Nonacademic reviews may provide a detailed account of background developments, policy initiatives and sectoral efforts. But they are not designed to provide the necessary critical assessment backed by scientific methods that allow policy analysis to take place in the best conditions.

The overall aim of the project is to fill this gap by remaining relevant to both academic and policy audiences. In developing this study, a set of strategic objectives was taken into account:

–to understand and compare the sequencing, context and enforcement of regulatory reforms in a number of countries of key relevance

–to identify innovative techniques and instruments that have the potential to add value to regulatory reform and to explain the mechanisms that underpin them

–to convey a significant amount of qualitative and quantitative information in a policy-relevant fashion by translating empirical findings into practical recommendations for policy makers

The scope of this study covers the broad spectrum of regulatory-reform issues, with a specific focus on better regulation initiatives and instruments, which were investigated by addressing the following key questions:

–Which better regulation initiatives characterize different countries and why are these predominant?

–Why do public administrations make great efforts to reduce administrative burdens?

–How does the use of ex-ante techniques to assess the impacts of regulation change in different countries?

4. Methodology

4.1 Research methods and data collection

The aforementioned questions were addressed taking into account the existing literature, which identified a number of strategic elements against which the effectiveness of regulatory-reform initiatives can be evaluated (Harrington and Morgenstern 2004; Radaelli and De Francesco 2004; Morral 2001). These comprise: transparency, in terms of involvement of stakeholder opinions in regulatory reforms (Majone 1993; Baldwin 2004); openness, in terms of consideration of all regulatory-reform alternatives, including the no-reform option (Pelkmans et al. 2000; Renda 2006); and the appropriate level of quantification of costs, benefits and risks within regulatory-impact assessment and cost-benefit analysis (Viscusi 2006; Sunstein 1996; Hahn and Litan 2003 and 2004). These criteria are applied per each country review.

In order to best address the questions mentioned above, the analysis was carried out on the basis of the following methods:

–analysis of official documents (including regulatory-reform bills, regulatory-impact assessment and cost-benefit analysis guidelines)

–review of academic literature (per country)

–elite interviews with leading government officials, think tanks, academics and expert practitioners on regulatory reform

–archival records (including simplification reports, codes of consultation, memos, press releases, etc.)

Figure 1: Flow chart illustrating study design

Triangulation between these methods was guaranteed to (i) establish the accuracy of information by comparing three or more independent points of view about data sources and (ii) corroborate the correctness of the available data.

The extensive network developed in recent years by the authors of this study facilitated information gathering and access to gatekeepers. The depth and consistency of the data generated gave us the opportunity to focus on specific issues which characterize each country, while maintaining the same analytical framework for all cases. Qualitative data were collected from semistructured interviews with a population of experts in regulatory reform. Most interviews were carried out by phone. However, when possible, face-to-face interviews also took place. Although the same protocol was followed in all interviews, in many cases discretion was left to the interviewer, also depending on his or her area of expertise and time for the interview.

The selected pool of countries features a variety of initiatives and techniques, varying from reduction of red tape and economic instruments for regulatory policy making. In addition, the selected sample of five countries (France, Italy, the Netherlands, the United Kingdom and the United States of America) presents a balanced picture of economic, constitutional, legal and cultural traditions (see Figure 1).

4.2 Which systematic approach should be used to compare regulatory-reform instruments?

Finding a systematic approach to compare national public administrations tools is not as straightforward as one may at first assume. Let us focus on evaluating impact-assessment (IA) systems. According to Harrington and Morgenstern (2004), there are three types of approaches for evaluating IAs: content tests, function tests and outcome tests. Content tests compare individual IAs mainly to see how they comply with national guidelines. According to this definition: Content tests are ex-ante tests of the material contained in the RIA—i.e., they are assessments that only examine material that was available to the RIA authors at the time the RIA was prepared, even if the assessment itself was prepared long afterwards. Typically, such assessments ask whether the RIA meets the applicable guidelines for the preparation of RIAs (Harrington and Morgenstern 2004: 5).

Normally, content tests are carried out ex-ante on the data available at the time the IA was produced. For this reason, some of the content studies are a sort of autopsy.

Quantitative analysis is suitable for testing the outcome of regulation, where outcome tests could be used in order to compare expected results with actual results ex-post. However, a strongly quantitative approach for evaluating different national IAs presents a series of difficulties:

–Evaluating the numbers provided by the regulator as such is not as relevant as analyzing the accuracy of the data (e.g., where the data are taken from).

–A thorough quantitative