MOEA Training Course 2011

Competitiveness and regulation

Charles-Henri MONTINSenior Regulatory expertMinistry of economy and financeFranceFrench representative to OECD/RPCmontin@smartregulation.net

Starting point

Price variations across countries for the same goods

How important a factor is regulation in a country’s competitiveness

What is the economic basis of regulatory quality

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National Competitiveness “policy clusters”External

competitiveness

• Openness to international trade

Regulatory competitiveness

• Attractiveness of the domestic business environment

• Regulation supportive of efficient markets

Public sector competitiveness

• Investment in infrastructure

• Security• Education

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Dangers: ideological bias (“liberalisation”) lack of economic analysis

Source: Weymouth and Feinberg

NCStable environment

Quality infrastructure

Efficient competition

Cluster development

Corporate Sophistication

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How to nurture competitiveness

The economic basis

Economic studies (Nicoletti and Scarpetta 2003) show that product market reform are positively correlated to total factor productivity growth, with the strongest cause is reducing admin burden;

Gelauff (2006): a 25% cut of administrative burdens would lead to +0.9% GDP by 2005

Distinguish between:– Other factor market regulations (labour, H&S)– Product market regulation

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How regulation can support competitiveness

Reduce regulation that raises the cost of doing business Assure basic legal guarantees (land law, contracts,

dispute resolution, etc) and corporate governance FW Preserve level playing field for markets: competition

policy and law, financial markets supervision, – remove impediments to entry to markets and discriminations (regs or taxes) or

protecting incumbents against competitors

– Seek out anticompetitive behavior, to avoid rents, for lower prices

Enforce standards to disseminate major technologies

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Use regulation to support competitiveness

• Reduce costs of doing business

• Provide well-run public services

• Provide stable background

• Preserve efficient market operation

Market rules Institutions

Business environmentinfrastructure

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Quality of the business environment

Regulatory policy Rules and incentives to

foster investment and innovation

Rules that do not unduly skew allocation of corporate resources

Quality sectoral legislation (land law, contracts, etc)

Competition policy Rules and policies that

favour efficient functioning of markets

No undue barrier to entry Anti-trust legislation Openness to foreign

competition

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How regulation can hamper competitiveness

Costs– direct /indirect; compliance /admin costs– SMEs and the economies of scale

Unintended microeconomic choices: interfering with optimal allocation of resources within the company to different business processes. Regulatory uncertainty causes risk of deferral of investment

Barriers to efficient market functioning

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Qualities of regulation supporting competitiveness

Necessary Clear/ accepted Light (costs) Well targeted Stable Proportional Well applied

Professional assessment on the basis of international best practice

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Regulatory quality (RQ) supports NC

Not to be confused with regulatory competition Does not equate with deregulation RQ aims at making the best use of regulation in

support of the full range of public policies RQ pursues several objectives (growth, social

cohesion, risk management, protection), NC is one of the aims, not the only objective.

RQ can be more, or less, geared towards NC

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Dimensions of regulatory quality

Policies

ToolsInstitutions

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Competitiveness a main concern in RIA

The best tool is RIA: regulatory impact assessment: “competition” and “competitiveness” are the 2 first listed economic impacts to be studied

European Commission has made this even clearer by introducing the “competitiveness test” for all new EU law (Oct 2010) with public announcement

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