Red Tape in OECD countries: Challenges and Responses

1. Red Tape in OECD countries: Challenges and Responses Cesar Cordova-Novion Deputy Head Regulatory Reform Programme Beijing, China September 2001

2. What is red tape?

3. 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)

4. 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

5. 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

6. The cost of red tape (2) • On average, each SME spent US$27 500 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 US$4 100 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.

7. A dramatic “regressive effect” Annual administrative costs per employee by company size, average all countries

8. 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

9. 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

10. 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

11. 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

12. 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

13. 5. Special SME initiatives • Institutional support • Special flexibility measures (supply model) • Exemptions from requirements • ‘Vouchers’ to compensate administrative costs

14. 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