Regulatory Reform: Some Lessons from International Experience

1
Regulatory Reform Some Lessons from
International Experience

• Regional Conference on Investment Climate
  Competitiveness in East Asia
• Russell Muir, FIAS
• Kuala Lumpur, November 22, 2005

2
Why have regulatory reform?

• Benchmark data shows that good regulations help
  markets function and economies grow e.g.Doing
  Business, ICA data
• Good regulation includes both
• Sensible deregulation e.g. creating a transparent
  business-friendly environment and allowing the
  private sector to operate responsibly and
• Regulation and re-regulation where it is
  essential, effective and enforceable e.g. raising
  taxes, protecting health and safety, the
  environment and the vulnerable

3
Business deregulation as part of broader reforms

• Regulatory reforms at the micro level have worked
  best where countries have also pursued
• Macro-economic stability
• Improvements in institutions
• Governance reforms
• e.g. UK, USA, Australia, Scandanavia, Singapore
• BUT
• The absence of all three is not an excuse for
  delaying the micro economic regulatory reform
  agenda

4
What has worked international experience - a
range of models

• Three key drivers
• reactions to crisis (transition economies
  Korea)
• legislative opportunity (EU Accesion, NAFTA) and
• recognition of need to catch up (UK Australia
  Italy)
• There are a range of ways to go including
• Big Bang/Institutionalized Reform (e.g. Mexico)
• Guillotine (e.g. Hungary Korea Kenya)
• Gradualist/Systemic (e.g. UK Australia)

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International Experience different drivers,
different models
Country Hungary Mexico
Context Significant economic decline EU accession Financial crisis NAFTA
Goal Eliminate unjustified regulations Move from deregulation to good regulation
Means Privatization and deregulation Regulatory reform RIA Trade liberalization Privatization Regulatory reform RIA
Champion Regulatory Committee reporting to PM Dedicated reform team reporting to President then MoT
Challenges Initial reform efforts dissipated due to weak institutional design Economic benefits of reform not immediately visible
6
International Experience different drivers,
different models
Country Australia Korea
Context Economic decline Low productivity Dismantling govt. interventionism Financial crisis
Goal Improve competition by better regulation Market discipline as tool for economic growth
Means National Competition Policy Massive deregulation Institutional reform
Champion Competitiveness Council, PM and State Ministers Presidential Commission, Reg. Reform Commission
Challenges Reform fatigue Sustaining incentives for state/federal reform Lack of incentives to implement regulatory reform tools
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Hungary The Guillotine

• Strategy key initiatives
• First Wave (1988-1990) Market liberalization
  and privatization
• Implementation (1990-1994) Building
  institutions and ownership first wave of
  deregulation (guillotine)review of laws
• Second Wave (1994-1998) Privatization,
  attracting FDI, (guillotine)

Background From being one of the strongest
economies in Soviet block, by 1988 Hungarys
economic situation deteriorated drastically.

• Success factors
• Reforms undertaken by dedicated
• Deregulation Commissioners supported at
• highest level of government
• - Appointment of institution with mandate to
• drive implementation was key to
• better success of Second Wave
• over First Wave

• Outcome
• Highly improved regulatory quality eliminated
  or reformed 150 laws and regulations
• By 1997, trade was diversified to 70 with EU,
  80 with OECD countries
• Dramatic FDI increase attracts 33 of all
  investment in E. and Central Europe

Source FIAS Regulatory Reform Notes
8
MEXICO Institutionalized reform

• Strategy key initiatives
• Goal to eliminate regulatory barriers to
  economic growth through trade and investment
  liberalization anchored in NAFTA
• Far-reaching privatization programme
• Government-wide regulatory reform programme
  (RIA) from 1995

Background Economic crisis caused by collapse
of oil prices and 1982 debt default triggered
recognition of need for macro-economic reforms.
Replaced import substitution model and looked to
opportunites under NAFTA in 1989

• Success factors
• Reforms implemented by
• (Economic Deregulation Unit) assembled
• outside of bureaucratic structures
• reporting to President through Trade Minister. By
• 2000 UDE became autonomous body.
• Lack of immediate economic results
• did not hamper commitment
• to reform agenda

• Outcome
• Reforms linked to Mexicos ability to recover
  after external shocks
• Significant increase in Private participation in
  GDP
• Exports share in GDP up from 12b in 1983 to
  150b in 2000
• FDI 4.3 of GDP (1989-1999)

Source FIAS Regulatory Reform Notes
9
AUSTRALIA Broad based gradualist approach
Strategy key initiatives National Competition
Policy (NCP) reform (begun in 1994 and on-going),
a broad-based agenda aimed at strengthening
competition throughout the domestic economy by
changing the regulatory and monopoly roles of the
federal and state governments. Used RIA.
Background Significant economic decline in
1960s and 1970 spurred Government to address
micro- and macro level issues contributing to
lagging GDP and productivity by implementing
reforms in 1980s

• Success factors
• Clear, comprehensive, well-designed plan
• High level of political/bipartisan support
• and strong, supportive institutions
• Adoption of bold, explicit targets
• Relatively early results created new allies
• Monitoring evaluation built in

Outcome It is estimated that full
implementation of the NCP has significantly
improved GDP groth. Strong performance over past
decade with much of the gain coming from the
reforms to be implemented by state governments.
Source FIAS Regulatory Reform Notes
10
KOREA The Big Bang approach

• Strategy key initiatives
• Massive deregulation in which Government ordered
  to eliminate 50 percent of regulations
• Reform, incl. establishment of Presidential
  Commission, Regulatory Reform Commission, and
  other mechanisms to promote/monitor reform

Background First attempt at reform started in
1980s, aiming to dismantle regulatory structure
favouring Govt. intervention from 1960s-1970s.
Reform agenda given sense of urgency following
financial crisis

• Success factors
• Govt. public accepted market discipline
• as tool for achieving growth, not threat
• - Opportunistic approach, building on
• financial crisis to gain reform support
• - Reforms embedded in strong institutions
• Used good practices (e.g. RIA)
• to design/impl. reforms

• Outcome
• Add 8.6 in GDP growth over 10 years
• Reduced consumer prices by 7.2
• Between 1992 and 2001, percentage of industries
  subject to foreign entry barriers dropped from
  45 to 35
• In Global Competitiveness report, Korea ranked
  26th of 75 countries in reg. burden (2002), vs.
  48th of 53 in 1997

Source FIAS Regulatory Reform Notes
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Lessons learned from international experience

• Take advantage of external circumstances to
  gather stakeholders
• Draw on solid benchmark data to build consensus
  for reform
• Consult stakeholders early and transparentlydo
  not rely on narrow political base to drive reform
• Build institutions to sustain reform i.e.
  address the flow as well as stock of regulations
• Ensure incentives for staying the course,
  especially if results take time to materialise
• Think about implementation and monitoring
  earlier rather than later