Red Tape in OECD countries: Challenges and Responses

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Red Tape in OECD countries Challenges and
Responses

• Cesar Cordova-Novion
• Deputy Head
• Regulatory Reform Programme
• Beijing, China
• September 2001

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What is red tape?
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Formalities are an integral part of modern
economies

• Formalities are the main link between authorities
  and businesses and citizens
• Governments require standard information to
  implement regulations and provide public services
  and products
• As policies become more targeted to specific
  issues and populations, the need for information
  increases
• But many regulations abuse of ex ante paper
  controls (command and controls) rather than
  controlling actual compliance and change of
  behaviors (performance-oriented)

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Main impacts of red tape

• On businesses
• Reduces economic efficiency
• impose unnecessary costs (time money)
• divert resources away from productive investments
• hamper entry into markets
• Cumulative effects
• Impedes innovation and business responsiveness
• Discourages entrepreneurship
• On government
• Hinders achieving policy goals
• Encourages informality and growth of the grey
  sector
• Fosters corruption and discretionary abuses

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The cost of red tape (1)
Represents around 4 of the Business Sector GDP
OECD (2001) Businesses' Views on Red Tape
Administrative and Regulatory Burdens on Small
and Medium-sized Enterprises, Paris
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The cost of red tape (2)

• On average, each SME spent US27 500 per year
  complying with tax, employment, and environmental
  formalities.
• Total costs split into tax (46),employment
  (35) and environmental (19) formalities
• Though the latter is growing rapidly.
• An average cost of US4 100 per employee, or
  around 4 of the annual turnover of companies.
• The majority of companies (around 60) reported
  that administrative compliance costs increased
  over the period 1998-1999.

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A dramatic regressive effect
Annual administrative costs per employee by
company size, average all countries
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Administrative simplification Best practices

• 1. One-Stop Shops
• 2. Time-limits on administrative decision making
• 3. Licences reduction programmes
• 4. Technological means of reducing transaction
  costs
• 5. Special SME activities

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1. One Stop Shops

• Reduce search costs
• Improve awareness of requirements
• Variety of delivery mechanisms
• One-stop shops as licensing clearing-house
• From single level access to inter-governmental
  co-operation
• Though this raises delegation and overlap issues

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2. Time limits on administrative decision-making

• Statutory time limits enforces accountability
• Consequences of failing time limits vary
• Silence is Consent
• Change the burden of prove
• But, can lead to disproportional harm from
  non-conforming activities without an enforcement
  and compliance upgrade

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3. Licensing procedures

• Rationalisation/reduction
• Simplification
• Information requirements
• Attachments
• From ex ante licensing to ex post control
• Single identification number
• Amalgamation of formalities
• Central registry of all formalities with positive
  security
• Quality certification of formalities

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4. Technological means to reduce transaction
costs (e-formalities)

• Forms on-line (dematerialisation)
• On-line on-way transactions (electronic
  signatures)
• On-line two-way interchange (EDI)
• Security dimensions

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5. Special SME initiatives

• Institutional support
• Special flexibility measures (supply model)
• Exemptions from requirements
• Vouchers to compensate administrative costs

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Red tape reduction is a powerful leverage for
regulatory reform

• Main beneficiaries are SMEs
• Visible gains
• Early gains
• Easier than complex reforms of economic and
  social regulations
• Linked to improvements of public administration
  and bureaucracy