Governments should do more to improve the design and delivery of new laws, as even small efforts to fix regulatory shortcomings can have a tangible positive impact on economic activity and well-being, explains the OECD’s Rolf Alter

Regulation is a much-maligned animal. When we hear about it in the papers it is either not doing enough or doing too much.

In the ongoing debate on whether we need more regulation or less regulation, it turns out the answer is: yes. Yes, we need more quality regulations and yes, we need fewer poorly conceived, irrelevant or marginally effective laws that presently bloat the stock of regulations in every country. But are countries ready to get their regulatory houses in order?

The rules of regulations

The OECD Regulatory Policy Outlook, just published, is the first effort to track how OECD countries develop, implement and review their laws and regulations. It finds that governments have come a long way in ensuring that law-making is accountable and evidence-based. Yet it also reveals that much more could be done to improve the way governments actually regulate.

In fact, it’s surprising just how much of regulation is done “in the dark”, that is, without sufficient checks and balances to ensure that regulations are both fit-for-purpose and accomplishing what they set out to do. Surprisingly, a full third of OECD countries have no policy at all on regulatory compliance and enforcement, and two-thirds have no system for evaluating laws once they’re implemented. This results in unnecessary costs for businesses and society and a missed opportunity to stimulate economic growth.

Luckily, countries recognise that there is a problem and have taken steps to remedy it. The report finds that 33 of the 34 OECD countries have adopted an explicit regulatory policy and require regulatory impact assessments and public consultation for all new regulations, while 29 have a designated minister to promote regulatory reform. But for many, moving beyond statutory requirements remains challenging, as evidenced by the fact that only one country in four has a requirement to systematically evaluate their primary laws once they are in use.

Implementation insights

What can be done? The impact of regulation could be improved by addressing shortcomings in implementation and enforcement and by evaluating systematically whether the objectives of regulation have been achieved. When it comes to improving regulatory quality, the executive branch shouldn’t work in isolation. It must work together with parliaments, sub-national levels of government and regulatory agencies.

At a time when economic recovery is particularly fragile, underperforming regulations pose an unnecessary and detrimental burden. They can be a disincentive for entrepreneurs and investors. Governments must address shortcomings and ensure that laws work as well in practice as they do on paper. Laws need to be well designed, well implemented, properly evaluated and consistently applied.

There are very real incentives for doing this. The Outlook shows that a crackdown on red tape in the United Kingdom saved businesses GBP 10 billion over four years, with the UK set for another round of regulatory simplification. Simplifying regulation in Belgium delivered savings of EUR 1.25 billion for citizens and businesses. And in Australia, reforms to reduce regulatory costs increased GDP by 1.3%. Across the EU, the REFIT programme for reducing regulatory burdens has achieved 41 billion euros of savings since 2006. Clearly, this should qualify regulatory policy for a place along with other policy levers such as tax and spending.

Mapping the next steps

But getting one’s national regulatory house in order isn’t just about national accounts. It’s also a step towards tackling the broader challenge of integrating the globalised economy. As demonstrated by the recent signature of the Trans-Pacific Partnership and the discussions under way in the TTIP and the Pacific Alliance, the world is eager to address the trade and investment frictions inflicted by poorly conceived regulation and unnecessary non-tariff barriers that exist behind the borders more than at the borders. The upcoming COP21 climate change talks constitute another global rendezvous in which the ability to achieve meaningful regulatory cooperation will be decisive.

What must countries do to make regulatory policy an effective lever for growth? Some of the conclusions of the Outlook include using the tools of regulatory policy strategically and effectively. For example, regulations are developed, enforced and evaluated by specific institutions – they should have the means and adequate mandate to carry out their role.

Stakeholders also need to be engaged early in the policy cycle. Governments should seek to use their inputs and give them feedback. Similarly, policymakers should assess the expected impact of regulation before it is adopted and consider alternative options if the costs outweigh the benefits. At the same time, they should not focus solely on the design of new laws and regulations but also on enforcement.

And after laws and regulations have been implemented, they should evaluate whether they have achieved their objectives and what revisions are needed to make them even more relevant. Ultimately, policymakers need to regulate with their eyes wide open.

Rolf Alter is Director for Public Governance and Territorial Development of the Organisation for Economic Co-operation and Development (OECD) in Paris.