Rules to do Business: Heavier, Not More Effective
|March 4, 2014||Posted by Staff under Editorials|
The rich world needs to cut red tape to encourage business
In the list of nations by burden of government regulation, Singapore is the least burdensome for the past eight years. Singapore has a low tax rate [except for a relatively high tax on land], a light regulatory regime, and an enviable location at the heart of Asia.
Many EU countries are bumping along near the bottom. Of the 148 countries surveyed in 2013, Spain was ranked 125th, France 130th, Portugal 132nd, Greece 144th, and Italy 146th.
Over the past seven years, the US has slipped from 23rd to 80th. The proportion of America’s independent businesses who thought regulation was their biggest problem rose from under 10% in 2009 to 20% late last year.
In recent years, emerging markets have been cutting their red tape whereas the rich world has been strengthening its regulatory regime.
Regulation holds back competition so that inefficient companies survive for longer than they deserve.
The administrative burden on business in Europe amounts to 3.5% of GDP. Around half of this is due to EU regulations, known as gold-plating.
For business, the worry is that the rules may change and a big investment may not be profitable in 10-15 years’ time.
Few would argue against laws on pollution, workplace safety, or child labour. But they can backfire. Regulations designed to protect existing workers from unfair dismissal often make employers reluctant to take on new ones. Workers with tenure will hold on to their jobs at all costs, whereas young people will be able to get only precarious jobs or none at all.
The social “wedge” (labour taxes and other social-security contributions) makes up more than 40% of total labour costs in nine EU countries and more than 50% in Belgium. In America and Japan, reckons BusinessEurope, the wedge amounts to only 27%. Angela Merkel, Germany’s chancellor, is fond of saying that Europe has 7% of the world’s population, 25% of its GDP and 50% of its social costs.
Rules either miss the problem or make things worse. Civil servants are poorly equipped to assess the business climate. People who go into government are risk-averse; they are intelligent but want to keep the status quo.
Ed. Notes: We might be able to get rid of most regulations if at the same time we got rid of the liability limits provided for (nearly) free by the government. Let businesses buy insurance and sign contracts with investors. And most importantly, clean up their acts.