1st Conference on smart regulation

Summary:

On 6 May 2021, the Rafael del Pino Foundation and the Smart Regulation Forum organised the I Jornada sobre Regulación Inteligente (1st Conference on Smart Regulation), in which Juan S. Mora Sanguinetti, qualified economist at the Bank of Spain; Marta Cantero, Professor of Law at CUNEF; Alicia Coronil, Chief Economist at Singular Bank; Grant Hunter, Assistant Minister for Red Tape Reduction Strategy in the Government of the Province of Alberta, Canada; Gregorio Izquierdo, Director of the Institute of Economic Studies; Miguel Garrido, President of CEIM and Antonio Barderas, Director of the Madrid Association of Family Businesses (Asociación Madrileña de la Empresa Familiar).

The first speaker was Juan Mora Sanguinetti, who recalled that market regulation is necessary for the economy because it helps to mitigate market failures and reduces transaction costs. It is a guide to the behaviour of economic agents, but, if it is not well designed, it could generate negative effects.
One source of inefficiency is overly complex regulation. It may be complex because the number of rules is too large. Also, because the rules have too many links between them, or are too complicated, or are difficult to understand because they make references to other rules. Finally, it may be linguistically complex, with language that is difficult to understand.

Another cause of regulatory inefficiency is the volume of regulation. Between 1979 and 2020, almost 400,000 regulations have been approved in Spain. Approval has quadrupled since 1978. Spain has been approving around 12,000 regulations every year. Moreover, regulation is highly disaggregated: more than 75% comes from the regional administrations.

On average, the standards make eleven links to other standards. Within the autonomous regions there is great diversity in this respect. In Aragon, the average number of links is 18, while in Navarre it is only three. And, at the linguistic level, current regulations are at a level that is considered difficult to read.

During the dictatorship, Spain approved some 2,000 regulations per year, now it approves 12,000, most of which are by the Autonomous Communities. All the autonomous regions increase their regulatory production over time, but there are also differences. Catalonia tends to produce the most regulations, with 12% of total regional regulations, while Andalusia and Castile and Leon each produce 8%. Extremadura, on the other hand, only produces 5% and Cantabria only 3%. However, these percentages should be qualified because Catalonia and Andalusia are also the most populated regions and are among those with the highest GDP, which may require greater regulation.

In terms of relational complexity, Asturias and Navarre have the least complex regulations, while Aragon and the Valencian Community have the most complex ones.

A higher volume of regulation is negatively related to the number of firms in Spain. More regulation expected by firms is negatively related to expected business capitalisation. Relational and linguistic complexity generates negative impacts on productivity and judicial efficiency.

For Alicia Coronil, regulatory inefficiencies were already weighing down competitiveness before the coronavirus crisis and continue to do so now in the face of the recovery from the crisis and in order for it to be sustainable and inclusive. The indicators pointed out that, in addition to the education model and the labour market, bureaucratic barriers were among the elements explaining inefficiencies, with a regulatory framework that obtained a very negative rating, far removed from Germany, which has a territorial model very similar to Spain's. It is a drag on the creation of new jobs and the creation of new jobs. It is a burden for the creation of companies and for them to grow in size.

Part of the framework was designed in the 1990s and is outdated for the needs of business in terms of growth and access to finance. The company does not have the capacity to cope with the regulatory costs associated with its increased size. These costs also reduce its financing capacity to continue to drive growth and generate new business models.

Autonomous community regulation creates more entry barriers for companies to place their business models in other autonomous communities. It goes against market unity, legal certainty and affects a lack of common vision, which is key for countries to overcome decisive moments.

Regulation must be very much based on public-private collaboration so that there is no inefficient regulation due to the lack of business and civil society as interlocutors. Regulation has to be more focused on encouraging new companies to appear, to grow.

Marta Cantero points out that regulation is an issue that impacts on companies' decisions about where to locate. It has a very strong long-term impact. What is the point of so much regulation if it is not efficient?

In the technology sector, to which he referred throughout his speech, there are a number of regulatory challenges. The first of these is specific to this sector. Existing rules were not designed for today's needs due to the development of technology. This makes the application of the rules more difficult. For companies, this translates into legal uncertainty, which generates costs of adapting to the regulatory system.

The technological concepts themselves are unclear, which presents a problem when translating them into legislation. This makes it difficult to define and apply new rules if the technology to be regulated is not known. This also leads to conceptual incompatibilities because it is not possible to determine which type of rules should be applied.

This leads to defining what types of concept we should apply, because the terminology is not adequate, which has an impact on the way it is regulated. In turn, new technologies are altering existing legal elements, such as ownership, liability, function and the role of contracts themselves.
The fifth challenge is a lack of consensus in defining the values that will govern the regulation of technology. A multitude of values exist and may be incompatible with each other, for example, creativity versus safe use of technology. The most obvious conflict with the most ramifications is technology neutrality versus legal certainty.

These problems are not unique to the Spanish legislator.

The second step is for there to be more debate about the role of law: should we facilitate the emergence of new technologies or limit their use? We need to better adapt to the needs of companies and to investment needs, which is essential because Spain is not at the forefront of technological capital. For example, the tax on certain digital services, which will not be required until July. However, why not wait for a regulatory initiative at the international level, since this transition period requires companies to adapt to these rules instead of waiting? Will the revenue-raising effect on the activities that will be taxed during this short period compensate for the chilling effect due to the application of this rule?

Another problem is the administrative duplication in Spain, which Germany does not have. In the case of the collaborative economy, the same activity cannot be regulated differently depending on whether it is Catalonia or Madrid. The platform can be the instrument that facilitates the application of the rules, it can help the legislator to monitor compliance with the rules instead of scaring the agents away from our market.

Ultimately, technical regulations impose limitations on how products are marketed in a given territory. These rules have an impact on how other companies can sell their products within our borders. It does not allow the free movement of goods and services to materialise. Regulation needs to be not only smart, but also efficient.

In his speech, Grant Hunter stressed that the Alberta government's goal was to make Alberta the freest and most developed economy in North America. To do this, bureaucracy had to be cut. Doing so is difficult, but in order to achieve this, three questions must always be kept in mind: is this regulation necessary, does the government have to do it, and can the market do it more efficiently?

In Alberta there were more than 670,000 regulations with which citizens had to comply. Of these, 80% were in policies and forms. The aim is to reduce them by a third in four years. This will save time and compliance costs. So far, savings in the first year of this strategy amount to more than $470 million and in the second year they are about to triple that figure.

This process has to be supported by those in power, in order to encourage the reduction of bureaucracy. There is a need to promote a culture change and be results-based, but governments can achieve this. In Alberta they have eliminated programmes, reduced compliance costs and paid more attention to citizens. They also have expert panels that help the government identify priorities that will generate more jobs. This is important because SMEs create two-thirds of jobs, but they are also the ones most affected by red tape.

Antonio Barderas, for his part, commented on the need to simplify the regulatory framework. It must be deregulated, making regulation simpler. Legislative production in Spain is disproportionate. There is a principle of law that says that ignorance of the law does not exempt one from complying with it. This will have to be reviewed because with such a profusion of rules it is very difficult to comply with them. The resources for these tasks are taken away from productivity, from increasing the capacities of the company, from strengthening its liquidity, from the remuneration of workers and shareholders. It is a burden for businesses and citizens and creates legal uncertainty.

In his opinion, legislative quality is achieved through public-private partnerships, because companies know their needs best. Legislators do not know how they work, how they create jobs, how they pay social security contributions at the end of the month. When legislative changes are so constant, you can't plan for the long term, you don't invest and you won't develop growth. Moreover, Spanish laws in general oscillate between useless concreteness and intentional vagueness, which affects legal certainty because similar situations are treated differently.

For Gregorio Izquierdo, there is a double problem: excessive regulation and inadequate regulation insofar as it does not respect the basic principles of good regulatory practices. That is, that it should be stable, predictable, balanced, proportional, and that economic agents should participate. When it is adequate, there is more investment, competition, productivity. Better regulation could increase GDP by up to 20 percentage points.

In his intervention, he recalled that the involvement of business associations in their own affairs is both a constitutional and a practical matter. They should be involved in the regulatory process, especially in technical matters, because they have a better understanding of the challenges, the real problems and the solutions. Regulatory quality is a problem of good practice, of whether the regulation responds to a real problem or not. It has to be considered whether it responds to the aims it sets out to achieve. Whenever a right is affected, we must always consider whether the regulation is proportional and introduce a cost-benefit analysis of the regulation. Regulatory quality in Spain is only 50% of the best regulatory practices in the world.

Finally, Miguel Garrido warned that anything that hinders economic growth is always negative. In the current times of business emergency it is particularly serious. Any administration tends to overprotect and create rules. Instead of using more and more technology to interact with the administrated, they are making it more difficult for agents to act. We must make every effort to ensure that companies survive this situation, so we must reflect on whether all these regulations are necessary. In the end, we are faced with something very serious, which is that Spain ranks 114th out of 141 countries in terms of the burden on companies to comply with these regulations, according to the World Economic Forum's competitiveness report.

There is a lack of a culture of dialogue. There is no politician who does not want to make the rules more effective. The problem is that there is no culture of listening beforehand, because many problems can be avoided.

The Rafael del Pino Foundation is not responsible for the comments, opinions or statements made by the people who participate in its activities and which are expressed as a result of their inalienable right to freedom of expression and under their sole responsibility. The contents included in the summary of this conference are the result of the debates held at the meeting held for this purpose at the Foundation and are the responsibility of their authors.

The Rafael del Pino Foundation is not responsible for any comments, opinions or statements made by third parties. In this respect, the FRP is not obliged to monitor the views expressed by such third parties who participate in its activities and which are expressed as a result of their inalienable right to freedom of expression and under their own responsibility. The contents included in the summary of this conference are the result of the discussions that took place during the conference organised for this purpose at the Foundation and are the sole responsibility of its authors.

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