The 'R' Files

Article excerpt

Wanted: A New Strategy to Attack Regulatory Growth

The quantity and intrusiveness of business regulations have been accelerating in recent years. This threatens economic growth. Sustained upsurges in economic growth have, in fact, always been accompanied by a determined assault on the restrictions to commerce that build up over time.

The most notable of these regulatory reforms facilitated England's economic take-off. The 200 years to the 1870s were marked by a systematic culling of laws and regulations. Of the 18,110 Acts passed since the Thirteenth Century, over four-fifths were repealed. Commerce was freed up, resulting in the remarkable outcome we now call the Industrial Revolution. England achieved living standards many-fold those of most other countries, and other nations followed suit.

A further such development was the freeing up of world trade with tariff level cuts made within the multi-lateral World Trade Organisation framework. From the end of World War II to the present, developed nations have reduced their tariffs on manufactures from an average level of around 40 per cent to the present level of about 3 per cent. Stemming from this development, the post-1945 era saw an explosive expansion in international trade. This has fuelled a growth in global income levels unprecedented in world history, including, over the past 20 years, a vast improvement in living standards in those previously backward nations that adopted market-based economic policies.

More recently, an assault on the build-up of regulatory restrictions began in the US in the 1970s and intensified with the Reagan revolution. President Reagan re-inforced the Office of Management and Budget (the equivalent of Australia's Finance Department) with an arm dedicated to blocking new regulations and to winding back existing ones. The outcome was remarkably successful in progressively eliminating 'economic regulation'-restraints on airlines, telecoms, gas and electricity, rail and so on.

US success was emulated elsewhere, including in Australia. The outcome in Australia has been the economic liberalization that has been especially important in propelling a relatively high level of sustained growth over the past dozen years. Australia's liberalization process has seen the ending of government monopolies or controls on air travel, rail lines, the electricity and gas distribution industries, ports and airports, and telecommunications. In addition, governments have exited from a host of activities-from defence supplies to pharmaceuticals and banking-that were badly under-performing.

The most recent US-inspired onslaught on regulation, like previous ones, has been far from comprehensive. Alongside the success in eradicating or de-fanging 'economic regulations' there has been an accelerating growth in 'social regulations' governing such matters as environment, health and safety. And in Australia, and some other countries, there has been the inexorable growth of tax legislation.

New Acts of Parliament are added annually, augmenting the current body of legislation by almost 10 per cent. According to Productivity Commission Chairman, Gary Banks, there were twice as many new pages of Commonwealth Acts in the 1990s as in the 1980s and three times as many as in the 1970s.

The Productivity Commission put the cost of Commonwealth regulatory staff at $4.6 billion per annum. Added to this are the counter-regulatory staffs employed by businesses. A recent IPA report (Paperburden Costs of Economic Regulation of the Gas and Electricity Industry) put firms' spending on regulatory liaison at about one-half of the costs incurred directly by government, a proportion that is consistent with extensive US research on the issue.

Those paperburden expenditures are, however, small beer compared with the distortions that regulation brings to economies. These include requirements for unwanted expenditures, such as extra sound-proofing of houses. …