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DEREGULATION 46: Set the people free Deregulation and licensing reform If you have Ten Thousand Regulations, you destroy all Respect for the Law Winston Churchill The Lord's Prayer is 66 words, the Gettysburg Address is 286 words, there are 1,322 words in the Declaration of Independence, but government regulations on the sale of cabbage total 26,911 words. National Review The problem: the regulation industry Regulation is the boom sector of the twenty-first century. Governments have been encouraged by political lobby groups and media pressure to regulate nearly every of human life, from health and safety at work to pollution. Any one regulation may seem sensible enough: but together they grow into a forest of paperwork that stands in the way of business and enterprise. Innovative techniques are needed to reduce them. The idea: focus on risks and costs There are several possible approaches to this. One is to adopt a risk management approach: acknowledging that companies working in collaboration with their insurers are better at reducing risks because they have a direct incentive to keep their insurance costs down. Where regulation is inevitable, concentrate on keeping the ratio of costs to benefits as low as possible. Scrutinize new legislation and regulation for its likely effect on competition and enterprise. Take a macro approach to deregulation, recognising that every regulation will have its defenders, but mountains of regulation have none. Or pass regulation down to the lowest apprpriate level of government, so that different districts will compete to have a regulatory environment that is effective but which does not drive business away. Examples: structured approaches Even the most determined effort to reduce regulation can meet with limited success, such is the sticking power of regulations once they are adopted. In the United Kingdom, the 'bonfire of controls' promised by John Major's government in the 1990s failed to catch light. Four years after he launched the initiative, only 21 regulations had been considered, and a mere three were abolished. The 'Better Regulation Task Force' set up by his successor, Tony Blair, fared little better. Its chairman, the entrepreneurial businessman Lord Haskins, resigned after a few years, clearly disappointed at its progress. The growing burden of regulation in the United States - as indicated by the number of pages they were occupying in the Federal Register publication which lists them - caused the Bush administration to establish the Council on Competitiveness in 1989. This followed the earlier Reagan administration's Presidential Task Force on Regulatory Relief. The aim of the Council on Competitiveness was to review government regulations to ensure their cost-effectiveness, and develop strategies to ease the burdens on business. Comprising senior government officials, it published reports on regulatory reform, the pharmaceutical approval process, civil justice reform, and much else. It reviewed up to 60 regulations a year, on subjects such as automotive regulation, anti-trust policy, agricultural marketing, capital markets, and the oil industry. The Council endured much criticism, both for being too powerful and for not being powerful enough. Despite its wide remit, it had a small staff and thus became more reactive than pro-active. While it may have prevented some tens of regulations coming into force, it did little to roll back the many thousands of regulations that linger in the pages of the Federal Register. Forced by economic necessity, New Zealand's regulatory reforms were much more systematic. New Zealand succeeded not by attempting to scrap individual regulations, but by abandoning complete classes of regulation. Starting in 1984, a determined liberalization of international trade opened New Zealand's job markets to world competition. Subsidies to industry and agriculture were eliminated. Domestic markets were deregulated, further increasing the competitive pressures on production. A new monetary constitution was adopted to bring in price stability (see the chapter Cash Controls). However, the country's highly unionized workforce still left it with high costs and inflexibility. So in 1991 the Employment Contracts Act was introduced to bring the deregulatory approach into labour law itself. The Act deregulated industrial bargaining, leaving contracts to the workers and bosses themselves, and made union membership voluntary. The dire predictions from lobbyists, academics, churchmen and union officials that the Act would create a 'sweatshop economy' were all proved wrong. Average real wages rose. Strikes dropped to near zero. Wage contracts were settled more quickly. Industrial relations improved. Employment rose. Three-quarters of the new jobs were full-time. Unemployment fell, and fell fastest among Maori, immigrants, and other poorer or disadvantaged groups. New Zealand is now one of the world's most free and most competitive countries. Other countries have specific measures that help stem the tide of certain regulations. Much building control in France, for example, rests on the requirement of builders and owners to have adequate insurance. By requiring businesses to insure themselves for risks such as public or employee liability, the United Kingdom forces firms to manage these risks without needing onerous regulation. Another option is to create a new regulatory category - the unlicensed operator. This exists by default in many countries such as Italy, with its sizeable 'submerged economy' (see the chapter Economic sommersa), but some small businesses in several countries are exempted from many of the rules demanded of larger ones. As long as workers and customers know this and are free to choose, they can assess their own risks and there is no need for over-costly regulation. Licensing powers that exist in only one industry, or in only one part of a country, are also candidates for the axe, as their impact can be compared against the non-regulated sector or region. As Douglas Mason points out in an ASI study, pointing out the inconsistencies of regulation in England and Scotland: "If hairdressers and barbers do not need to be licensed in Glasgow, there is no reason why they should need to be licensed in London." It is also possible to shift some of the risk-management burden onto the private market where it belongs. Thus buildings regulation in France is light, but it is compulsory to insure your house against public liability, which forces builders to adopt high standards of design and safety. Assessment Politicians are highly risk-averse. They feel safer to have a regulation - at whatever cost - than an accident for which they are blamed. But regulators live to regulate: if they are not enforcing regulations and devising new ones, they are out of a job. Regulation is also great business for lawyers, accountants, lobbyists, and conference companies, who have an equally strong interest, not only in making sure it survives, but in making sure it is complicated. One way out of this is to adopt a broad strategy of deregulation, starting with a purge of the regulators themselves. Every regulation will be defended, so tackling them one by one does not work. Umbrella legislation is needed, covering whole clutches of regulations. And where possible, especially in the utilities and other quasi-monopoly concerns, competition should be introduced wherever possible. "Competition," said Sir Bryan Carsberg, the first regulator of the United Kingdom's privatized telecoms monopoly, "is the best regulator." An alternative strategy might be to think local. Arguably, much regulation should be a matter for local people to decide, rather than national or supra-national governments - since they are most directly affected by their beneficial and harmful effects. And if local people decide their own rules, then at least there is the prospect of some escape from them, simply by moving or setting up in business elsewhere. Different US states, for example, have different rules on the setting-up and conduct of business, which encourages business and employment into some states, perhaps at the expense of others. For further information:
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Copyright 2002: Adam Smith Institute
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