Regulatory accumulation is still damming business progress
The best analogy I’ve heard to describe the problem of regulatory accumulation is throwing pebbles in a river. The first pebble doesn’t make much more than a ripple. Hundreds of thousands of pebbles later, you have dammed the river. If the river is the entrepreneurial energy and the activity that fuels economic growth, incomes and standards of living, that’s not a good outcome.
This is why, nine years ago, the Canadian Federation of Independent Business started Red Tape Awareness Week — a week dedicated to highlighting the cost of excessive regulation and encouraging governments to do something about it. The pebbles were starting to cause too much damage to be ignored.
A lot has changed since then. Governments across Canada now better understand that too much of a good thing (necessary regulation) can lead to a bad thing (red tape). Red tape awareness has improved. Action to reduce red tape is harder — but it too is beginning to be on the right track.
Canada recently became the first country in the world to make it a law that for every new regulation introduced, one must be eliminated. At the provincial level, British Columbia’s leadership is notable for its longevity and results. The province has reduced regulatory requirements by an impressive 48 per cent since 2001, unleashing more entrepreneurship while maintaining high levels of safety and environmental protection. Its model has become a beacon of hope for leaders inside and outside Canada who are interested in making progress in this challenging policy area.
None of this means Canadians can afford to be complacent. New research released by the Canadian Federation of Independent Business finds the cost of regulation to Canadian business is $36 billion a year. Red tape — the pebbles damming the river — make up $10 billion a year of these costs.
It’s hard to argue that this hasn’t become a serious issue for our economic future when half of Canadian small business owners would not advise their kids to go into business because of the high financial and emotional costs of excessive regulation. Canada’s larger businesses, a less vocal group by nature, are also starting to squawk. Last year the Business Council of Canada conducted a poll of business leaders on their priority issues and found 61 per cent disagreed with the statement: “The regulatory environment is efficient and does not impose substantial additional costs on my company.” Only 13 per cent agreed. Of the 10 priority areas examined, regulation performed worst.
Sometimes red tape manifests itself in the form of small pebbles such as incomprehensible tax rules, excessively long mandatory Statistics Canada surveys, and government “service” agents who can’t answer compliance questions. Other times red tape takes the form of boulders in the river that can threaten the very existence of a business — inspections at the border holding up a retailer’s goods for weeks in the crucial pre-Christmas sales period; years of nebulous, expensive process to get to yes or no on a proposed project; and auditors issuing heavy-handed fines for trivial infractions such as the wrong font size.
None of this makes us safer, happier or wealthier.
A recent report by the Federal Finance Minister’s Advisory Council on Economic Growth rightly puts a lot of emphasis on the need for regulatory reform. To drive the point home, it includes data such as this gem: It takes 249 days to permit a new general construction project in Canada, which is 168 days longer than in the United States. The only country that did worse than Canada out of the 35 looked at was the Slovak Republic. And policy makers still wonder why our productivity lags our southern neighbours.
The Council calls for an independent, expert panel “to oversee a wide-ranging review of existing regulations.” That would be a good next step as long as the panel is willing to make bold recommendations and the government is willing to act on them.
Canada needs is to get its river flowing again. The best way to do this is to get rid of the pebbles and boulders damming the river — and then put limits in place to stop excessive regulatory accumulation from happening again.