The European Conservative is showing the way. People listen to us.
On August 23rd, I explained:
There is one way to mitigate a recession that does not inflict any costs on taxpayers, present or future: deregulation. Europe is a heavily regulated economy, even more so than the American one. A campaign to reduce red tape across the economy, from the labor market to business start-ups to the environment, could tip the economic outlook in a favorable direction.
A mere week later, German Chancellor Olaf Scholtz and two of his cabinet members released a ten-point plan for boosting the German economy. Euractiv reports on the list of policy reform ideas:
Germany needs impulses to strengthen the economy and growth … Over the decades, a veritable thicket of bureaucracy has developed in Germany that is difficult to navigate. This has become a real obstacle to investment, especially for small and medium-sized enterprises.
Euractiv also quotes a spokesperson for Robert Habeck, Germany’s economy minister, who points out that
lean rules that unleash a dynamic for innovation and progress in Europe are a basic prerequisite for sustainable growth
We at The European Conservative always appreciate the opportunity to inform policy makers, and we like turning conservative ideas into practice. It is just a little surprising that when the German government adopts our idea and wants to deregulate their economy, they defer to Brussels to get the job done.
Again according to Euractiv, Minister Habeck’s spokesperson wants the German and French governments to
jointly call on the EU Commission to draw up an ambitious action plan for acceleration and relief measures that can be implemented in the short term
Apparently, Berlin and Paris plan for “detailed coordination” on this matter.
Let me reiterate: we at The European Conservative welcome any and all policy makers who want our advice on any policy issue. We would just hope that when advice is well taken, the policy efforts are aimed where they need to be aimed, namely at achieving the biggest results possible in the shortest possible period of time. That is unfortunately not the case with the German deregulation initiative. The Paris-Berlin coordination sought by the German government is not about synchronized deregulation of the French and German economies. It is about
- Drawing up a proposal
- To be sent to the EU Commission
- Which is asked to write “an ambitious action plan”
- To simplify regulations in the “short term.”
Rather than seeking to maximize results, this approach to deregulation seems to aim for maximum inefficiency.
It is not clear how much bureaucracy would be involved in the development of the joint Franco-German plan, nor how influential it would be on the EU Commission’s drafting of its “ambitious action plan.” However, given the several steps and multiple government agencies that would be involved here, there is a chance that bureaucracy gets in the way of deregulation.
Red tape hampers red tape removal.
With that in mind, though, the German government has achieved something important: it has started a conversation about burdensome and onerous business regulations. Every conversation about reducing the government footprint in the economy is welcome.
The European Conservative is happy to participate in that conversation. Let us make a contribution right away, in the form of a brief overview of what types of regulations businesses face. This is important, as it helps us understand how to maximize the outcome of our deregulatory effort.
There are three types of regulations. The first type is the mandatory fee, which government forces both businesses and individuals to pay. The fee often—but far from always—comes in combination with the second type of regulation, namely the forced acquisition of a permit. One of the most banal types of mandatory permit is a driver’s license. It is so established, and so universal, that we hardly ever think of it as a regulation. It is, though: without a driver’s license, we are usually not allowed to drive.
The third type of regulation forces businesses or households to buy a certain type of good or service. It is often the matter of forcing businesses to buy a service from government, but it can also be about mandating purchases of private providers of goods and services. A business can be forced to buy and keep a certain type of fire extinguisher on its premises (a fire extinguisher is a good), or government can force it to buy health insurance for its employees (which is a service).
These three types of regulations can be imposed at four different points in the life of a business.
1. Startup
Here is where the permit-and-fee frenzy often kicks in. Without going into specific regulations in individual countries—it easily becomes a boring read-aloud of legal prose—two common types of permits are certificates of trade skills and of environmental compliance.
Plumbers, painters, electricians, and carpenters are often forced to certify that they have the appropriate trade skills. Even hairdressers and tattoo artists can be forced to apply for similar certificates.
As for environmental regulations—green red tape—on business startups, they are often focused on environmental certification of the facilities that a business plans on using.
As mentioned, permits cost money, and the cost can vary enormously depending on where the permit is required, by what type of business, and for what purpose. However, an often costlier aspect of the permit process is the time it takes to obtain a permit; when permit processing holds up the very opening of a business, the owners are barred from making money.
Sometimes, the entrepreneur may have to make tangible investments in order to demonstrate that his application is ‘for real.’ In the case of environmental regulations, this showing of dedication to the business can come in the form of facilities: offices, warehouses, garages, workshops, and even factories. Those require major financial commitments, which of course are net costs to the business until it can actually start selling its products.
2. Business operations
Once all permits are in place, the entrepreneur is faced with new regulations related to the very operation of his business. A favorite target of these regulations is the relation between employers and employees. Government can dictate how many hours an employee is allowed to work per day, how long time off the employee should have between shifts, for what reasons a worker can take a leave of absence, under what conditions a worker can handle hazardous materials, how workers are allowed to interact (especially with regard to statutory harassment), and so on.
In a country that shall remain unnamed, workers are forced by government to take a legally specified number of weeks of vacation every year. In another country, government forces employees to set aside a part of their paycheck for the purposes of taking a vacation. An almost universal regulation specifies how many hours of work per week shall be defined as full time employment.
Red tape around the workforce is just one type of regulations on business operations. Green red tape is just as common: two examples are emissions and the ‘carbon footprint’ of the business.
By involving themselves in actual operations, regulatory agencies force businesses to configure their operations in ways that are universally more expensive than if they were allowed to operate without them. (If regulations made business operations cheaper, there would be no need for them.) It is hardly surprising that regulations mandating how businesses operate are major reasons why businesses move from highly regulated jurisdictions to those that leave more of the operational decision-making to the businesses themselves.
3. Business expansions
In a country that, again, shall not be named, there is a school choice system often touted as providing parents with a maximum of freedom in choosing how their children will be educated. In reality, this particular country imposes many strange regulations on private schools, one of them being that they are not allowed to make any permanent changes to their operations without obtaining one permit from the local school board and one from the national education oversight agency.
It is popular to have the same environmental impact regulations from the start of the business apply to any changes made to its operations. Those who are in the business of extracting natural resources are very familiar with what this means. Needless to say, the same cost problems recur: not only does the permit to make the change cost money, but so do delays—a firm eager to invest to defend its market share can lose it as a result of lengthy permit processing—and dictates on what changes can and cannot be made.
4. Ancillary services
There is a county in a U.S. state where a landscaping business that wants to drill a well is forced to have a government expert present during the drilling. In short, the landscaper is forced to buy a service from government that he otherwise would not purchase. Likewise, a business can be forced to buy regular inspections of its facilities to secure compliance with—you guessed it—government regulations. Only certified inspectors can verify that a business is up to the whims of standards imposed by government agencies.
Bookkeeping is another area where government likes to regulate: you cannot have just any outfit do your finances.
When all regulations are taken together, it is a wonder that we even have businesses operating in our modern, industrialized economies. For every regulatory incursion into the operations of a business, government forces the regulated entity to set aside some of its revenue for compliance purposes. Human resources would not be such a big profession as it is today were it not for all the workforce and labor-relations mandates that governments impose.
How many legal experts make a good living simply by consulting businesses on regulatory compliance?
When the German department of the economy says it wants deregulations, it is definitely on the right track. Every little bit of regulatory alleviation helps. However, it is essential to keep two things in mind when it comes to deregulation.
First, it does not help very much if deregulation is concentrated to the first of our four items above. If it becomes easier to start a business, but operations, expansions, and ancillary services remain heavily regulated, chances are the deregulations are not going to have much of an impact. People who start successful businesses do the numbers beyond simply starting it; if the red tape is too confining to make operations profitable, it won’t matter if starting the business is as easy as snapping one’s fingers.
Secondly, there has to be a sense of permanence to deregulations. Many governments have earned a reputation for being whimsical, even outright unpredictable, when it comes to regulating businesses. So long as the unpredictability is concentrated to regulations that are not very costly to comply with, the lack of predictability will only have a material impact on smaller businesses. However, when the unpredictable behavior of government reaches a critical mass, even large corporations can declare that they have had enough.
The response to over-regulation is often similar to the response to over-taxation: first, businesses stop expanding; then they slowly move their operations to a place with more sensible regulations; last, they shut down their over-regulated operations.
Here is a tip to the German government: borrow a page from the Trump presidency. Ask your regulatory agencies to remove at least one regulation for every new regulation they want to impose. It will discourage more regulations and encourage creative thinking in terms of deregulation. Furthermore, it is always good to try to deregulate in a straight line, from the starting of a business through its operations, its expansions, and its ancillary-service purchases.
Best of luck to the French and German governments!
