Regulatory Burden

Archived Topic Box from the 2003 Third Annual Benchmark Report

Government regulations, and the economic burden they impose, have become the subject of much discussion in recent years – both in BC and around the world. Much of this debate has been fueled by an increased understanding of the economic costs of regulations, resulting in moves towards deregulation in many industries and countries. Interestingly, these changes come at a time when some consumers in developed nations are also demanding expanded environmental, health and safety regulations. Given this apparent contradiction it is important that British Columbians better understand how and where to use government regulations intelligently – in such a way that societal interests are protected without unduly inhibiting economic growth.

Government regulations are by no means without a sound economic basis. Without some degree of regulation property rights would not be enforced, transaction and compliance costs would increase, monopolies would form, and uncertainty and asymmetric information issues would limit the market's ability to function efficiently. Additionally, some argue that market mechanisms are unable to adequately cost negative externalities (such as pollution) where the firm's costs may not fully compensate for the societal impact of its actions.

Despite this sound economic rationale, many jurisdictions find themselves burdened by regulations that severely inhibit economic efficiency while providing little net benefit to society. The reasons for such distortions in the regulatory process are multifold and are often as simple as regulators having limited or incomplete information on the industry in question. Regulations are often used in place of the tax and transfer system as a tool to redistribute resources and rents.

The costs imposed by regulation are by no means insignificant and have been estimated at between 9.5 and 12.0 percent of GDP in the US and Canada. In BC alone the total number of regulations increased 27% during the 1990s, with an economic cost that has been estimated at $4.84 billion in 1997-98 alone. Clearly, reducing both the number of total regulations as well as the time, effort and cost required to administer each of these is vital for BC's competitive position. It is also essential to recognize that the costs born by government, while high, are just a portion of the total. Estimates have shown that firms pay roughly 20 times more to comply with regulations than government does to administer them, illustrating the considerable impact which inefficient regulation can have on BC's competitive position.

In order to ensure efficiency and competitiveness, it is imperative that BC persists with its efforts to reduce the regulatory burden, while also continuing to protect BC's citizens and environment. Minimizing economic inefficiency requires stringent cost-benefit evaluation of regulations. It is crucial that such analyses consider the economy-wide impacts of regulation – as opposed to simply the costs and benefits to an individual industry or agency – and subject regulations to broad public scrutiny. Reducing the complexity and increasing the transparency of the regulatory process serves to both enhance efficiency and increase legitimacy. Wherever possible, regulations should be devised so as to not inhibit innovation, for instance, by setting performance standards rather than dictating technology usage. By doing so, regulation in BC can be used as an effective economic tool, protecting the rights and needs of British Columbians while also promoting market efficiency, competitiveness and growth.

Sources: Guasch, J. L. and Hahn, R. W., The Costs and Benefits of Regulation. The World Bank Research Observer, February 1999; Ministry of State for Deregulation. Deregulation Mandate and Approach. August 2001.