January 2002
Measuring the Regulatory Burden: The First Step Towards Accountability
by Laura Jones
During their 2001 election campaign, British Columbia's Liberal Party made an interesting promise: to reduce the regulatory burden in British Columbia by one-third within three years. Many governments talk about reducing regulation but what makes the Liberal's promise so remarkable is that they have given such a concrete target. The target implies a commitment to actually measure the regulatory burden—no easy task. But last month they made good on that commitment by announcing a tally of 404,000 provincially-imposed regulatory requirements.
The government reviewed a total of 3,654 pieces of legislation, regulations, and related policies which they define as any "compulsion, obligation, demand or prohibition placed on an individual, entity or activity." This is a good way to count the volume of regulation. Previous studies have counted the number of regulations but that is misleading since any one regulation can have hundreds of requirements associated with it. For instance, the Workers' Compensation Act, regulations, and related policies have 35,308 regulatory requirements associated with them. The Forest Practices Code, widely regarded as a regulatory nightmare, involves 10,616 regulatory requirements. Even the Liquor Control and Licensing Act has an astonishing 5,931 regulatory requirements.
The regulatory count is also available by ministry. The Ministry of Community, Aboriginal and Women's Services, for example, oversees 78,000 regulatory requirements while the Ministry of Finance oversees 68,000 such requirements, and the Ministry of Skills Development and Labour oversees close to 46,000 requirements.
Finding more accurate ways to measure the regulatory burden is critical. Excessive regulation affects the economy in much the same way too much taxation does: it dampens innovation and slows productivity growth. In other words, too much regulation lowers our standard of living. But regulation is, in effect, a hidden tax because most of the costs of it do not appear in government budgets but are passed on to businesses and consumers who must comply with the rules. The few attempts that have been made to measure these costs suggest they are not trivial. One study suggests that for every dollar spent by the public sector administering regulations, the private sector spends between $17 and $20 on compliance (Weidenbaum and DeFina, 1976). According to this formula, Canadians spend roughly $103 billion a year, or roughly $13,700 per family of four complying with regulation. This is only slightly less than an average family would pay in income taxes (Jones and Graf, 2001).
Because most of the cost of regulation is passed on to businesses and consumers, many governments find regulating attractive. Former BC premier Glen Clark explained his government's penchant for regulation to a reporter for the Vancouver Sun earlier in 2001: "We were an old-fashioned activist government, with no more money. So you're naturally driven to look at ways you can be an activist without costing anything. And that leads to regulation."
Clark's confession illustrates what is particularly perplexing about regulation: it escapes the regular scrutiny that taxing and spending decisions receive from political opponents and media pundits. When governments annually table their budgets, there is no corresponding tabling of a regulatory plan, complete with cost estimates, for the year. Incredibly, no government in Canada has ever provided an annual estimate of the cost of their regulatory activity. Imagine how much waste there would be if governments did not have to account for how they spent our tax dollars.
Since measurement is the first step towards accountability, the Liberals should be commended for their accomplishment in measuring regulatory requirements and their commitment to reduce them. But there is much more work to be done. Now that the BC government has found a way to measure the volume of regulation, they must look for ways to measure the cost of it. Such measures should then be published on an annual basis. Finally, each ministry should be required to detail its regulatory plans and the costs of those plans along with its annual spending plans. We need an institutionalized, annual accounting for both the amount of regulatory activity and its costs. This will prove even more difficult than counting administrative requirements. Let's hope the Liberals are up to the challenge so that they can provide a model for the rest of the country.
References
Jones, Laura and Stephen Graf (2001). Canada's Regulatory Burden. Fraser Forum Special Issue (August).
Weidenbaum, Murray L. and Robert DeFina (1976). The Cost of Federal Regulation of Economic Activity. Washington, DC: Competitive Enterprise Institute.
Laura Jones (lauraj@fraserinstitute.ca) is Director of Environment and Regulatory Studies at The Fraser Institute. She received her M.A. in Economics from Simon Fraser University.
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