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)
18
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
23
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
28
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
36
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’
39
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
40
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
41
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
42
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
47
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