Some laws and regulations can result in considerable regulatory costs for businesses and citizens; a conclusion reached by the Organisation for Cooperation and Development (OECD) in a recent report on competitiveness. It used Regulatory Impact Assessment to undertake its research work. The report is called “How do Laws and Regulations affect Competitiveness – the Role for Regulatory Impact Assessment”
Does competitiveness matter?
Competitiveness is a term that is much used, but not always clearly defined. Many of the definitions that are available are often quite narrow. An exception is the definition published by the Department of the Taoiseach in 2009 – “The ability to achieve success in international markets leading to better standards of living for all. It stems from a number of factors, notably firm level strategies and a business environment that supports innovation and investment, which combined lead to strong productivity growth, real income gains and sustainable development”. As a small open economy, it is very important that Ireland trades competitively in international markets.
Where does RIA come in?
The OECD uses Regulatory Impact Assessment (RIA) to examine this question. It should be recalled that RIAs are needed to ensure that laws and regulations are drafted in such a way as to protect citizens’ rights, to promote a safer society and to generate confidence in goods and services. But before drafting such laws and regulations, there is need to establish what the best course of action is. And so, RIAs assess alternative solutions; measure the costs and benefits of different options, undertake consultation with interested parties and recommend a “best option”. Competitiveness is one of the factors taken into account in such assessments. Of course, it should be noted that competitiveness is only one of seven impacts that officials have to examine when they are carrying out RIAs in Ireland. The full list is set-out in Table 1.
| Table 1: Impacts requiring Examination under RIA
1. National competitiveness
2. The socially excluded and vulnerable groups
3. The environment
4. Whether there is a significant policy change in an economic market*
5. The rights of citizens
6. Compliance Burden
7. North-South and East-West Relations
* including consumer and competition impacts
Source: Revised RIA Guideline, Department of the Taoiseach, July 2009
The OECD’s examination of the impact of competitiveness concludes that very few, out of its 37 member states, require or promote a regulatory competitiveness assessment process or attempt to embed the consideration of competitiveness impacts in rulemaking. Specifically, it concludes that – “OECD members generally do not assess the impacts of a regulation on competitiveness, with only few jurisdictions having a requirement to analyse these effects. This includes mainly the OECD members listed in Table… Where members do provide guidelines for assessing regulatory impacts on competitiveness, they mostly provide a definition but not necessarily a full methodology. Most members have a partial approach to competitiveness, by focusing on some of its components such as competition, innovation or trade…”
How is Competitiveness handled?
Ireland is one of the specific jurisdictions included in the OECD analysis of how competitiveness is handled. The OECD acknowledges that the RIA guidelines in Ireland state that all regulations must be examined to establish whether they affect competitiveness by impacting the business environment, economic or technological infrastructure, education and skills, entrepreneurship and enterprise development, or innovation and creativity. However, it points out that – “The Irish guidelines do not…provide further indices on what particular data should be collected to examine the above impacts on competitiveness”.
Table 2 below summarises the results of the methodologies used by selected OECD members to assess competitiveness impacts of regulation. Ireland only tests positive in the case of two of the three questions.
European Commission provides sound advice
The OECD cites tools that have been developed by the European Commission (EC) to undertake “competitiveness proofing” of regulatory policy. The EC provides a framework to consider competitiveness impacts along three main pillars:
- Cost and price competitiveness: a regulation could impact the costs of inputs or other factors of production as well as the capacity of a sector to produce at a lower cost and/or offer products at a more competitive price;
- Capacity to innovate: the quality or originality of a sector’s supply of goods or services (including technological development and innovation which highly affect the cost of inputs and value of outputs) could be affected by a regulation, and
- International competitiveness: the impact of a regulation on a sector’s international market shares should be considered and comparative advantage taken into account. The analysis of impacts on costs and capacity to innovate should also be addressed in an international comparative perspective.
By adding the last two pillars to the analysis of competitiveness, the EC has created a strong basis to explore additional facets of competitiveness that are of particular relevance to policy makers. The EC guidance on “competitiveness proofing” can be accessed from the web-link
Productivity and Competitiveness
In its concluding chapter, the OECD admits that competitiveness includes a wide array of elements depending on the specific context at hand. It goes on to state that competitiveness – “…is often used as a catchall term used to refer to productivity…” The importance of examining productivity and competitiveness together has been recognised for some time by the European Commission. In September 2016, the European Council recommended the establishment of National Productivity Boards in each euro-area country. This decision was put on a formal footing in Ireland in November 2020 with the Government decision to transform the National Competitiveness Council into the National Competitiveness and Productivity Council. As part of its Mission Statement, the new Council is now required to promote sustainable economic growth and quality employment so that living standards and quality of life improve for all of society. The Council will do this – “… by diagnosing and analysing productivity and competitiveness issues facing the Irish economy in order to advise and make recommendations to inform national policy making” .
In going forward, the Council can avail of very relevant support from the OECD and from the European Commission. In particular, the most recent OECD Report provides good policy guidance, up-to-date tools, and support and oversight to help regulators successfully embed and promote competitiveness.
Tom Ferris is a Consultant Economist specialising in Better Regulation. He lectures on a number of PAI courses and blogs regularly for PAI. He was formerly the Senior Economist at the Department of Transport.