Dr. André Nijsen Adviser Regulatory Reform

1

Standard Cost Model 2.0Standard Cost Model 2.0

Workshop Sonnenfels Center WienApril 11 2011

IssuesIssues

What is SCM 1.0? Looking back: origin of SCM 1.0 Taking stock: lessons learned Where does the SCM 1.0 stand? Where to go: SCM 2.0? Summary and Conclusions

What is SCM 1.0?What is SCM 1.0?

Policy instrument to measure compliance costs of legal information obligations (IOs)

Compliance costs of IOs = administrative burden (AB)

SCM is a P(rice) xQ(uantity) model AB = P (costs per message) x Q

(number of messages)

Red tape has significant impact Red tape has significant impact on the economyon the economy

4

Source: SCM network and Danish Commerce and Companies Agency

DirectDirect compliance costs compliance costs

Financial obligations

Information obligations to government

Administrative burdenRetributions, taxes,

premiums, legal dues, fines

100% marginal costs

Business Effects of RegulationsBusiness Effects of Regulations

Secundairy compliance effects

Social-economic effects

Competition

Substantive obligations

Costs of investments and adaptation

Partial business as usual costs and marginal costs

100% marginal costs

Looking back: origin SCM 1.0Looking back: origin SCM 1.0

Origin: Mistral® = Measuring InSTRument Administrative Burden (Burden = Last in Dutch)

Developed in the Netherlands: 1992-1994 Funded by Ministry of Economic Affairs Focus on improving business climate 1994: AB reduction policy part of Coalition Agreement Cabinet

Kok I 2000: Mistral® methodology accepted by Dutch Cabinet and

renamed Standard Cost Model (SCM) From 2003 onwards spread to Denmark, UK, Sweden, Norway,

Belgium, Germany, Austria, 2006/7/8: declared best practice by OECD, World Bank, EC 2011: SCM in over 20 countries

Taking stock: lessons learned (1)Taking stock: lessons learned (1)

Sources:1. My own practical experiences (1992-2011)2. Cutting Red Tape II: OECD (Allio, Renda,

2010)3. SCM experiences in OECD Countries; 2002-

2009 (Nijsen, 2010)4. The SCM: a critical appraisal (Weigel, 2008)

Taking stock: lessons learned (2)Taking stock: lessons learned (2)

Main issues:1. Institutional setting reduction policies2. Organisation/management project3. Methodology4. Too narrow scope?5. Results AB reduction policies

Taking stock: lessons learned (3)Taking stock: lessons learned (3)

Institutional setting reduction policies:

1. Ex-ante and ex-post2. Scope (coverage laws and sectors)3. Reduction targets 4. Ensuring policymakers understand and

accept results5. Training6. Central data base

Taking stock: lessons learned (4)Taking stock: lessons learned (4)

Organizational patterns and project management:

1. Central watch dog2. One ministry in charge (principal)3. One consortium as project manager4. Relevant to invest in consortium

Taking stock: lessons learned (5)Taking stock: lessons learned (5)

Methodology:1. Concept of AB: ‘real’ or standardised costs (typical firm)?2. Focus on exogenous determinants of AB-> law3. Measurement unit: business or IO?4. Presumption: normally efficient firm->standardising

endogenous determinants of AB5. Full or real compliance?6. What about business as usual costs? (sheet 5 and 12)7. Validity, reliability and representativeness (sheet 13)8. How to tackle the problem of AB, being hidden costs? (sheet

14-15)

Composition of substantive Composition of substantive compliance costscompliance costs

Law Transport dangerous products

Substa

ntiv

e

com

plia

nce

costs

Substa

ntiv

e

com

plia

nce

costs

Law to check identity new employees

Law Employees Council

= Business as usual costs = Marginal costs

Substia

ntiv

e

com

plia

nce

costs

Base line

Getting the right dataGetting the right data

13

Taking stock: lessons learned (6)Taking stock: lessons learned (6)

Too narrow scope of the SCM?1. Main argument for quick spread of SCM: focus

on efficiency (politically neutral) and not on effectiveness (achieving public goals)

2. Possible extensions: other compliance costs, benefits, enforcing costs

3. Keep focus on exogenous determinants (law) by standardising endogenous determinants of compliance

4. Step by step approach: start with AB

Taking stock: lessons learned (7)Taking stock: lessons learned (7)

Lack of succes of AB reduction policies1. Is SCM to blame for that?2. Argument: risk of cutting down AB

without C/B or C/E analysis3. SCM is not prescriptive. To cut down AB

is a political decision4. Succes of reduction programs depends

on political will5. Main risk of every AB reduction

program is neglecting business preferences

Where does SCM 1.0 stand? (1)Where does SCM 1.0 stand? (1)

SCM 1.0 is part of the RIA family SCM 1.0 is a cost-assessment But it’s a special one because of

standardising endogenous determinants of AB

SCM fits well into the main stream of theories on policy making

Where to go: SCM 2.0? (1)Where to go: SCM 2.0? (1)

There are more rationalities simultaneously involved in the process of law making:

1. Political rationality (power)2. Legal rationality (legitimising)3. Economic rationality (payability)4. Technical-social rationality (feasibility and

public support)• Political rationality is dominant mostly

Where to go: SCM 2.0? (2)Where to go: SCM 2.0? (2)

In societies were the political rationality is dominant, there is a serious risk of bad regulation. This risk is even more serious, if regulation deteriorates to a tool to achieve and retain political power. Regulatory tools can help to warn about and prevent from this risk of political rationality. The question is: how could a next generation of the SCM - SCM 2.0 - help to tackle the major externalities of the modern risk society? Part of this is how to handle the predominance of political rationality during the process of policy-making?

Where to go: SCM 2.0? (2)Where to go: SCM 2.0? (2)

Possible steps for SCM 2.0:1. Extension with modules for other compliance

costs2. Extension with modules for benefits3. Extension with modules for enforcing costs4. Developing a facility to repress the political

rationality during the legislation process

Summary and ConclusionSummary and Conclusion

I told you about mine and others experiences with SCM 1.0 and the lessons learned

Keep in mind: SCM 1.0 is an ‘if-than model’, if businesses are complying in an efficient way than the costs will be x

Possibly there will be opportunities to extend SCM 1.0 to SCM 2.0: if businesses are complying in an efficient and effective way than the costs and benefits will be x and y

GratitudeGratitude

I thank you all for your attention Especially Professor Weigel for being so

kind to invite me It will be my pleasure to answer all your

questions and to discuss my presentation