Laws are good. They help to prevent murder, theft and violence. But sometimes they suffocate, stifle and smother growth. In these cases, governments need to get out of the way of business.
The private sector is the main driver of economic growth. Jobs that are productive, encourage innovation and unleash creativity will only be generated by business, not by governments. The role of government is to enhance a country’s competiveness by passing better regulation and removing unnecessary and burdensome rules.
Such rules are often well-meaning. Many new laws and regulations have been introduced world-wide to promote health and safety, to protect consumers, to preserve the environment, to push equal opportunities and prevent discrimination. But bureaucrats tend to go into overdrive and gold-plate the new rules with elements that are Nice-To-Have rather than Absolutely Essential.
Such laws and regulations can impose time-consuming, heavy-handed, paper-churning demands that cost companies large amounts of money and inhibit investment. They can also have an impact on the public sector, tying up and slowing down services like schools and hospitals and hinder individuals in their daily lives.
Health and safety rules are a good example. No-one could disagree with the fact that workers in a dangerous workplace need strong measures to protect them. But are such rules appropriate in industries that handle low-risk products and services, especially small companies which are struggling to start up? Exempting such companies can save time and money without increasing the risks to workers.
Simplifying rules for new companies is an essential area for promoting growth, especially when a government is implementing austerity measures. For example, many countries claim that they have set up a one-stop shop to organise all the different arrangements needed by new investors who want to establish a business. But are such institutions really one stop shops? Or are they one-stop letter boxes: toothless offices that simply take an application and still have to go through countless procedures with different offices before a new company can start operating?
In the United Kingdom, the government has addressed the frequent complaints from businesses by establishing the Red Tape Challenge. Since 2010, government action to cut red tape has saved businesses more than £3 billion. It is no coincidence that over the same period, the private sector has created over 1 million new jobs.
Examples of good practice include changing the tax system to encourage small companies to invest in innovative technologies that give them a cutting edge. Or creating new regional Enterprise Zones with simplified planning regulations and low local tax rates. Or removing bureaucratic obstacles to installing and extending superfast broadband to the whole country so that businesses can communicate with customers quickly.
Steps like this help to enhance a country’s competitiveness. The key issue is whether an investor will choose one country over another for a new factory or office. Being competitive is about more than the level of labour costs. It is about the whole ecosystem within which businesses operate: transport links, the level of education and the cost of land and energy are key factors.
But another crucial aspect is the operating environment: the ease with which a company can set up shop, the flexibility of the labour market and the bureaucratic hurdles they have to confront. The UK is ranked number 1 in Europe for attracting foreign investment but we are always looking at ways to improve and enhance the offer to private sector business as the engine of growth.
One of the key lessons from the Red Tape Challenge is the importance of dialogue: governments have to listen to business, to understand the obstacles they are facing and discuss the best ways to remove them. There will sometimes be a balance to be struck between the drive to create jobs and the need to protect workers and consumers. But without an active and collaborative engagement with businesses, governments will not be able to generate the growth that their people need. So all countries need to look at how to cut the red tape.