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Cutting red tape helps economy pick up speed

Publication Date : 24-03-2014

 

When it comes to government regulation, Korea is still a Third World country. This is well illustrated by the low rankings it has continued to receive in the category of “burden of government regulation” in the World Economic Forum’s annual Global Competitiveness Reports.

Korea’s overall rankings in the past three years were 24th in 2011, 19th in 2012 and 25th in 2013. But in the regulatory burden category, it placed 117th among 142 countries in 2011, 114th among 144 countries in 2012 and 95th among 148 countries in 2013. Korea’s rankings improved over the period but this provides little solace.

The performances of Korea and its Asian rivals were in sharp contrast. Singapore led the world in regulatory efficiency over the three-year period, while Hong Kong came third in 2011, fourth in 2012 and fifth in 2013. Taiwan also fared much better than Korea: 30th in 2011, 10th in 2012 and 15th in 2013.

The reports clearly show that government regulation is one area where Korea needs to make improvements if it wants to close the competitiveness gap with the three other Asian Tigers.

In this regard, the government’s recent big push for regulatory reform is welcome as it will not only alleviate the burden of regulations for individuals and businesses but improve the nation’s productivity and international competitiveness, thereby spurring economic growth and job creation.

On Thursday, President Park Geun-hye demonstrated her commitment to regulatory reform by presiding over a nationally televised seven-hour-long marathon meeting with some 160 government officials, businesspeople and academics.

The meeting was originally slated for March 17 but was put off as Park wanted to invite as many entrepreneurs as possible. So some 60 people, instead of the originally planned 12, from small and large businesses attended the debate, bringing up diverse regulatory problems that they faced.

During the meeting, the government disclosed a set of bold initiatives to reform the regulatory system. First of all, it pledged to introduce in 2015 what it called the “cost in, cost out” system in a bid to curb the cost of regulations borne by businesses and the public.

The system, modeled after the United Kingdom’s “one in, one out” approach, would allow ministries to introduce new regulations only if they could abolish existing ones with implementation costs exceeding those of the new ones.

To implement this cost control method, the government will have to set up an independent body tasked with undertaking a cost-benefit analysis for each of the existing and planned regulations.

Another notable initiative is the decision to adopt the negative-list approach in writing new regulations from next month. Under this approach, a regulation would only specify activities that need to be regulated, with engagement in other activities assumed to be allowed.

Other measures proposed by the government included:

- cutting the total number of registered regulations on business activity to 80 percent of the current level by 2016;

- expanding the scope of regulations subject to the “sunset principle” - meaning automatic expiration after five years - from the present 12 percent to 50 percent by 2016;

- requiring each ministry to voluntarily report unregistered regulations by June and ensuring that at least 20 percent of them are abolished by 2016;

- and requiring each ministry to respond within three months to complaints filed regarding the regulations it enforces.

These measures, if implemented as planned, would help reshape the nation’s regulatory framework and reduce the regulatory burden on individuals and businesses. However, a much more important task still remains: Changing the mindsets of civil servants, especially the local government officials who actually enforce regulations.

Many government officials still tend to put themselves ahead of their corporate clients and the public in terms of benefits and convenience. They also tend to maintain the “us versus them mentality” and prioritise the interests of their own organisations over anything else, even national interests. These officials have little incentive to work for deregulation.

To change their mindsets, the government needs to introduce an incentive system that would push them to work more proactively to cut red tape and improve their services.

The Board of Audit and Inspection can play an important role here. It needs to alter the performance evaluation system for the civil service to reward officials who put customers first while punishing those who prioritise administrative convenience and personal benefits.

Another crucial factor for the success of the regulatory reform campaign is full cooperation from the main opposition Democratic Party, given that many initiatives involve revision or enactment of laws.

In the first place, the ruling Saenuri Party needs to persuade the DP to accept the government’s plan to make lawmakers’ legislative proposals subject to regulatory impact assessments. Currently, only government-proposed bills are subject to such evaluations.

The DP’s initial response to the idea has been negative. The party views it as an anti-constitutional attempt to restrict lawmakers’ legislative authority. It has also denounced the government for treating the National Assembly as a drag on economic growth.

Yet the party’s argument is unpersuasive. Any legislative bill, whether proposed by a lawmaker or the government, should be subject to a rigorous regulatory impact analysis to see whether the benefits of implementing it exceed the costs.

If lawmakers’ proposals turn out to be too costly to implement, they need to work hard to find less expensive means to put them into practice. That is how responsible legislators would promote their legislative projects.

The opposition party also needs to be more willing to cooperate with the ruling party in repealing or revising legislation to remove counterproductive, unnecessary or outdated regulations.

Some DP lawmakers viewed the Thursday marathon meeting as politically motivated, asserting that it signaled the presidential office’s involvement in the June local elections.

They need to be reminded that deregulation is virtually the only means available for the government to boost the economy. The government cannot use the fiscal option due to the large deficit last year caused by a huge tax revenue shortfall. It cannot rely on domestic consumption either in light of the huge household debt overhang.

Corporations have the money to increase investment but are reluctant to loosen their purse strings as global economic uncertainty continues. One way to whet their investment appetite is to lower entry barriers for sectors with high growth potential, such as health care and finance. So deregulation holds the key to boosting the economy. Its merit is that little taxpayer money is required.

Yu Kun-ha is chief editorial writer of The Korea Herald. - Ed.

 

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