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YES
SAYS ROSIE CARR
European businesses are being strangled to death by red tape. There have been more new rules and regulations dictating what every business must do and how they should do it in the past decade than the bureaucrats of the EU have had hot dinners.
Clearly the world is a better place for a bit of regulation. Nobody disputes that health and safely rules are important, but the level of interference has become unbearable.
It's not simply that we critics of officialdom are fed up with being nannied to death, or that we enjoy poking fun at officials who think up daft and inappropriate rules. There is a serious and unpleasant side effect to red tape: every rule costs business time and money and as the burden has increased, economic growth in the Union has been all but snuffed out.
In strong contrast to the economies of the US and other more freely regulated markets around the world, Germany's economy is limping along with a growth rate of absolutely zero per cent, while France is also on its knees. In fact the only numbers in Germany and France that are showing increases are the unemployment statistics.
The crucial difference is that the US has not been crippled by over-enthusiastic bureaucrats. In Europe we are burdened with hundreds of thousands of rules that assume all bosses are wicked and exploitative, and all workers are fools, instead of simply having a hundred sensible rules that recognise that most people can use their common sense.
From ridiculous to dangerous
The rules range from the ridiculous and the highly detailed to the draconian and highly damaging. We've got, for example, regulations that tell us to put signs beside clearly-labelled fire extinguishers saying "This is a fire extinguisher"; rules that make producers of packets of nuts print a warning on the packets that "This product may contain nuts"; and rules even that dictate the shape of rubbish bins in a work environment and how high our work surfaces must be. That can mean chucking out hundreds of perfectly good desks and replacing them with new ones just a few millimetres higher.
But these are all minor rules. Far more destructive are the rules about hiring and firing staff, rules about temporary staff that force employers to treat them like long standing employees, rules about health and safety, about what is fair when dealing with your competitors, and rules about waste emissions.
As a result, the basics of running a business have been turned into an expensive nightmare. In Germany it takes about 45 days to register a company. In the US it takes just four days to get your business up and running and the process is a lot cheaper.
And it’s going to get worse. A new regulation is in the pipeline that will require companies to display a list of "all material information that should be known by the consumer". The lawyers will have a field day on this one. If it's not immediately apparent what this regulation is about, in a nutshell it means that the small print on absolutely everything will become very long and an awful lot bigger.
All over Europe, dozens of companies are moving skilled and white-collar jobs to the Far East and India to wriggle out of the straitjacket of the Working Time Directive. In the process they can save a small fortune as the cost of labour in over-regulated Europe spirals. The cost isn't always the wages bill – it’s simply the expense of ensuring that the working environment is up to date with the ever changing law.
Is it any wonder that productivity rates in the US and Japan are rising but falling in the EU?
Whose bright idea was that?
A business that is forced to spend time and money complying with all of these rules will clearly be disadvantaged compared to one that does not have to bother with the same regulations.
Small businesses in particular struggle to cope with the restraints and to keep up with new ones. The EU is addicted to red tape and every year dozens of new regulations are spewed out. Management time is diverted away from the business itself, and in a growing business that could be disastrous. Even in an established business, forcing managers to worry about petty rules could harm profit margins and put the company's survival at risk. And Seamus Connolly, Managing Director of an engineering company in Northern Ireland, echoed the feelings of many when he complained to the Confederation of British Industry that "All the new rules have taken the fun out of running a business."
Unice is an organisation that speaks for more than 16 million companies across Europe. It believes that, like Swift's Gulliver, companies in Europe have been tied down. Remove the constraints, it says, and watch the European economy surge forward. Leave them in place and Europe will continue to stagnate.
The red tape army came to help and protect workers, but now it seems we all need protecting from these heavy-handed oppressors.
Rosie Carr is Deputy Editor of Investors Chronicle magazine. She has written extensively on investment and business and contributed to several publications including the Daily Express and the Financial Times.
NO SAYS STEPHEN SPURDON
There are two ways of looking at regulation. One is that it is a time-wasting strangulation of enterprise. The other is that it represents the refinement of an advanced and civilised society. From this point of view, the regulation that is often disparagingly referred to as 'red tape’ actually becomes essential if business is to survive and flourish.
Of course, if any regulation is badly conceived and enacted, business has a right to complain. Would employers prefer a model with much lighter regulation though, in which they are likely to spend more time and money fighting legal actions from aggrieved employees? I think not.
SO MUCH FALSEHOOD IS SPOUTED ABOUT REGULATION THAT IT HAS TAKEN ON A LIFE OF ITS OWN, LIKE SOME URBAN MYTH. HENCE WE HAVE MISLEADING REPORTS OF EUROPEAN LEGISLATION LEADING TO ABSURDITIES SUCH AS STRAIGHT BANANAS AND THE LIKE.
In fact, so much falsehood is spouted about regulation that it has taken on a life of its own, like some urban myth. Hence we have misleading reports of European legislation leading to absurdities such as straight bananas and the like.
Clocking off
The EU Working Time Directive is one example of legislation that was held up as a prime example of over-regulation that would lead to economic catastrophe.
But action had to be taken — recent evidence from the GMB union claimed that nearly one in four men in the UK were working longer than the 48-hour European limit.
In 1998, France introduced a 35-hour week, which, according to some, was a recipe for economic disaster. But since then workplace productivity in terms of Gross Domestic Product (GDP) per hour work has improved from 110.8 in 1997 to 113.7 in 2002 (the EU 15 countries average is 100). Over the same period comparable figures from the UK (the least enthusiastic participant in the working time regulation) declined from 88.2 to 88.1. In 1997 the unemployment rate in France was 12%, but by 2002 this had declined to 9.1%.
GMB General Secretary, Kevin Curran, makes his feelings on the subject clear: “You simply can’t be at your best if you are continually working more than 48 hours a week even during holiday time. This kind of workhouse ethic will not increase productivity – in fact it will leave the workforce resentful and burnt out.”
The story stateside
This leads neatly on to another old chestnut: because it is 'over- regulated’, Europe has a far lower level of productivity than the USA. This type of comment reached a crescendo during the productivity 'miracle’ in the USA in the second part of the 1990s. However, in 1998 two economists at the Department of Trade & Industry published a study showing that Germany and France had caught up with the USA and in fact had pulled ahead during the 1990s.”
They concluded that France and Germany were assuming the role of productivity leaders within the Organisation for Economic Cooperation and Development (OECD) and that “one implication for policy is that we should increasingly be looking to France and Germany for best practice on how to utilise labour that is in work. The US is no longer the productivity leader as commonly assumed”.
The contention that workplace rights are a recipe for economic stagnation compared to countries with a 'flexible’ labour market (where hire’n’fire rules) is just not borne out by the facts.
For instance, the Netherlands, Denmark and Sweden have some of the most tightly regulated labour markets in Europe, while having amongst the highest productivity and employment rates. Comparing the Netherlands with the USA is particularly instructive. In 2002, for instance, the Netherlands’ GDP per hour was 113.2 while the USA’s was 105.0, and its employment rate was 74.1% compared with the USA’s 75.0%. But the strength of employment legislation on a 0 to 5 scale measured by the OECD in 1999 was 0.7 for the USA and 2.2 for the Netherlands!
Regulation myth
It is not just the nature of regulation that is complained about, but also the amount of it. And the current UK government is blamed for placing infernal regulatory restrictions on enterprise. However, that has not prevented some one and a half million businesses from starting up in the UK since 1997. Overall there has been a net gain of 120,000 firms since the government took office.
That old bogeyman the EU itself is also held up as a Tower of Babel, issuing nonsensical regulation in ever-increasing amounts. But the fact is that the quantity of new European legislation proposed by the European Commission has declined a great deal since the end of the Single Market programme, from more than 60 proposals in 1990 to just 40 in 1998.
Sure, some businesses are off-loading employment costs by relocating services to low-wage, lightly regulated areas. But this phenomenon may well be temporary as workers, legislators and environmental concern leads to increased regulation. So why should people in Europe sacrifice hard-won gains when they have set the standards that others aspire to? A regulated workplace is a fairer workplace, and according to the evidence above, a more productive one too.
Stephen Spurdon is a personal finance journalist who writes for The Independent, The Sunday Telegraph and the Investors Chronicle, amongst others.
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