Regulation and Competitiveness: A mysterious and difficult relationship in the European Union

[From the introduction]. The Lisbon Agenda, which has attempted to combine the attainment of ambitious competitiveness goals with social progression and inclusiveness, places Europe in a uniquely difficult position globally, most particularly as an example of an experiment which many consider to be doomed to failure.1 As Europeans continue to examine ways in which Europe can become more economically competitive (compared, in particular, with US economic indicators) the focus has increasingly been on regulation and its effect on entrepreneurship, productivity, business growth, and capital liquidity. Assessing this effect or relationship is complex for a number of reasons. Firstly, it is clear that many non-regulatory factors contribute to economic and competitive success.2 Legislative policy is not the only significant element in the creation of conditions which are conducive to competitiveness, innovation and productivity. Furthermore even if we can agree that regulatory and legislative frameworks are important, sometimes the effects of regulation are difficult to predict. Secondly, within the European Union there is evidence of internal conflict within the Commission as to the relative importance of the Lisbon goals and in particular regarding the relationship between the competitiveness goals and the social goals of Lisbon. This, in turn, has led to a failure to engage in a profound way with assumptions around what can be loosely described as cost-benefit analyses3, in other words a failure to grapple effectively with the difficult task of balancing goals which, despite protestations to the contrary4 do conflict. Thirdly, the experience of distinct member states presents challenges.5 Despite considerable attempts at harmonisation substantial regulatory differences exist between members states and in addition substantial differences exist between the relative economic performance of member states. More confusingly, economic performance within different states over the last ten years delivers no clear lessons regarding the relationship between regulation and competitiveness.6 Nevertheless, undaunted by the complexity of these issues the European Union has embarked on a path which attempts to provide definitive insights into the effect of particular types of regulation on businesses. The European Commission7 has estimated that the cost of regulatory compliance obligations on businesses in the European Union is between 4% and 6% of GDP and that 15% of this figure is avoidable ‘red tape’ (the term used to specifically signify unnecessary compliance burdens). Member states8 have embraced this Better Regulation project with varying degrees of enthusiasm. This paper will, in the first part, consider the position of the EU at present in the context of the Lisbon agenda following the midterm review in 2005. The second part will consider some of the difficult questions surrounding the relationship between legislative policy, regulation and competitiveness, particularly as experienced within the EU. The third part will discuss the response of the EU Commission to these difficult questions and will examine the Dutch9 and UK approaches to the reduction of the regulatory burden, as examples of leaders in the field, in the context of the recently announced EU project. The final part will raise some critical points regarding likely outcomes as we rapidly approach 2010, the year for attainment of the Lisbon goals