By Belgian economist Ivan Van de Cloot, affiliated with think tank Merito
Like any other government intervention, we need to evaluate EU (over)regulation in terms of benefits and costs. Unfortunately, this is not common practice.
Where does entrepreneurship begin? In Europe today, by necessity, it does not happen with a design on a drawing board, but with thick files on the materials used, on who will make them and what their impact is on the planet. Matter of contributing to the European Commission’s green agenda.
We may think this is normal, but it means that entrepreneurship will encounter more bureaucracy from day one than ever before.
No fewer than 70 separate legislative packages were launched at EU level between 2019 and 2024. Naturally, the same business will also face heaps of new regulations around data, digital technologies and corporate finance.
According to former ECB governor Mario Draghi’s report, a total of 13,000 new laws are passed per year in the European Union. In the United States, the figure is 3,000.
Mario Draghi
It is evident that all these regulations make life for companies very complex. Especially since the European Union has also created an endless series of reporting requirements in recent years.
The question is whether Mario Draghi, as Italy’s former prime minister, is best placed to put competitiveness reforms on the agenda. Italy’s economy has barely grown for 20 years. Reports blaming that on legal complexity and overregulation are numerous.
This may make Draghi an expert by experience, but on the other hand, there have been few successful reforms in Italy to address this. Nor were the necessary reforms in place when Draghi was prime minister. As a banker at Goldman Sachs, he did manage to take commercial advantage of legal complexity in his career, though.
Competition
Draghi’s report includes the proposal to subject every new law to a regulatory burden test. Whether that will do much good remains to be seen. Because what happens to all that reported data is anything but clear. A medium-sized company will soon have to collect 1,000 new data points. That means a new team of data collectors – a cost – that does not add value.
Not to mention all the resources that go into interacting with the controllers, and the cost of the control apparatus itself. Will it ever be evaluated whether the benefits outweigh the costs? Does it need to be said that players in other continents are absolutely not saddled with similar costs?
Hundreds of new provisions
Many say that until the year 2000, the European Union could be seen as an engine that net made life easier for businesses and families. Since then, things have clearly gone the other way. There would now even be a Eurocommissioner for ‘implementation, simplification and interinstitutional relations’….
Experience shows that attempts to reduce regulatory burden are rarely successful. The European system seems to have even more difficulty in distinguishing main issues from side issues than local governments. In the context of the Green Deal, we know that hundreds more new provisions are coming our way.
COMMENT: The EU’s challenges are massive. Mario Draghi’s response, however, amounts to calling for more of the same, writes @PieterCleppe. https://t.co/4N170P8x1L
— Brussels Signal (@brusselssignal) September 13, 2024
Not at risk
Of course, it rarely stops with the European rules. For instance, there are many areas where other governments seize EU regulation as a starting point, only to pile local rules on top of it. For example, the Brussels Region imposes standards for radiation standards for telecom applications that are more than 20 times tougher than those of the European Union.
Running no risk is rarely optimal, but many apparently have a hard time with that. Everything is a matter of measure, of proportionality. If we spend the entire national income on fighting cancer, there is nothing left for everything else. So we have to assess how much we are willing to spend to prevent risks.
Aviation
The European Aviation Agency imposed a standard for the air traffic control computer system with a reliability of 99.99999 per cent – which is allowed to ‘fail’ for an average of three seconds per year.
Quite a few physicists argued that this is impossible in reality. As a result, this standard delayed the introduction of new and (even) better air traffic control systems. Indeed, the standard (and its cost) ensured that the old system, with a higher failure rate, would then have to remain operational for longer.
Politicians must also understand that it is not valid to decide on the basis of risk alone, but that the cost of regulation also matters.
Critical researchers
Critical researchers have also repeatedly shown that the results of regulation in practice sometimes dare to deviate from what is officially proclaimed.
If, because of excessive regulation of protectants, the price of vegetables rises, this can result in fewer people eating enough vegetables. In practice, the result often turns out to be a much higher price for the regulated activity.
Undesirable side effects and counterproductive practices are therefore too frequent. Regulation also often ensures the common interest of some players to the detriment of less well politically connected groups.
Like any other government intervention, regulation must therefore be evaluated in terms of benefits and costs. This is obvious, but unfortunately not common practice.
Over de ontsporende (EU) regeldruk: Ook politici moeten begrijpen dat het niet opgaat om te beslissen op basis van risico’s alleen, maar dat ook de kostprijs van de regulering van belang is. https://t.co/C9a7FYgXGl
— Ivan Van de Cloot (@IvanVandeCloot) September 19, 2024
Originally published in Dutch by Doorbraak
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