The tragedy of business lobbying for “less regulation”

Business associations and individual economic actors often lobby for “less regulation”. Politicians and officials often feel obliged to follow this call. In some jurisdictions, even entire regulatory policy departments have been created to limit the quantity and the heaviness of regulation. As a consequence, regulations sometimes become “light”, containing general provisions and leaving details out. In this article, we claim that businesses are partly shooting themselves into the foot by calling for “less regulation”  instead of “less obligations”. We also state that we are all better served by more and more detailed provisions.

1. When it comes to the elaboration or revision of regulation, economic actors and their business associations call for “less regulation” or “light regulation” as they hope to reduce their obligations. They have a point. Our economies and societies become ever more complex in terms of number of aspects to be managed. The root cause is that the number of ways of interaction have multiplied see the ever more environmental interactions we discover and see the internet-based interactions that were unconceivable 30 years ago. As a consequence of the increase of interactions and aspects to be managed, more regulatory needs emerge and the number of applicable regulations increases from year to year as well. Companies, and in particular small and medium enterprises, find it hard to apply all the applicable regulations cumulatively. Regulators need to take this difficulty into account and should apply utmost care in terms of (further) burdening business, whilst of course pursuing their task of optimising the common good.

2. Once regulation is adopted, some economic actors and their business associations begin to complain about:

  • authorities do not enforce the regulation systematically causing competition disadvantages to complying economic actors;
  • different regional authorities not enforcing the regulation with the same strength causing market distortion;
  • some authorities applying the regulation in a too severe way;
  • different authorities applying the regulation in different ways and thereby creating additional compliance costs and creating an uneven playing field;
  • different courts interpreting the same regulation in different ways and thereby also distorting the market;
  • provisions being unclear so that economic actors do not know what to do concretely.

3. But what can central administrations in charge of the management of regulations do about these complaints? In many, if not most, democratic jurisdictions, most of the enforcement and interpretation issues are in the hands of courts or executing lower level authorities e.g. of regional entities like intra-nation regions/states or districts on which the central administrations have no or limited control. Central administrations sometimes try to step in by guidance. But guidance to fill-in legal loopholes can quickly become legally problematic as guidance tends to walk into the field of competence reserved to the legislator. Guidance mostly does not bind courts or private actors, and sometimes even lower level authorities1. And where it does, guidance also risks infringing the autonomy of regional entities where they are constitutionally or otherwise legally in charge of the application of regulation. Finally, central administrations in charge of the management of regulations tend to be understaffed. Regional entities, on the other hand, face capacity issues. All this, in essence, means: once the light regulation is adopted, the central administration in charge of the management of the regulation has limited to no means to act.

4. Coming back to the list of complaints in Section 2: which measures would really improve the situation? For the first complaint2, any measures leading to strong and consistent enforcement on the entire territory could improve the situation. Measures could be taken by simple political will, by shifting administrative resources and developing enforcement programs. This would imply the coordinated will of all regional entities and local branches of central administrations involved in the implementation of the regulation – possible, but quite difficult to be obtained.

5. But measures countering the first complaint could also be taken by means of regulation itself. More and more regulation around the world include provisions on enforcement, on the minimum intensity of enforcement, on the minimum resources to be made available for enforcement and so on3. Rightly so, because including such provisions harmonises the practice of various geographic entities and strengthens the negotiation position of regional or local administrations in charge of enforcement when it comes to the yearly budget planning. A legal obligation to undertake a certain type of enforcement with high intensity is quite a strong argument. However, even such provisions collide with the call for “less regulation”.

6. For the second complaint4 listed in Section 2, more detailed provisions on enforcement, and in particular a minimum benchmark, could substantially improve the situation. In addition, other types of provisions could help, such as provisions on better coordination, cooperation and sharing of resources between different geographic entities. Geographic entities often differ widely in terms of wealth and financial means, and in terms of the number of staff and equipment necessary to enforce regulation. The poorer geographic entities will often struggle to make available noteworthy enforcement power.

7. This is not just an issue for poor nations. For example, in Germany, there are hundreds of districts with around or less than 200.000 inhabitants5 and only a few hundred district employees who have to fulfil many local tasks, but in addition must apply several hundred international, supranational, federal or regional regulations, all needing technical knowledge. These district administrations inevitably fail to keep track of all the regulations they have to apply, somehow like small nation states that fail to cumulatively apply all obligations incumbent on them due to international public law6. Ironically, the district administrations face the same dilemma as the small and medium enterprises, as they are confronted from year to year with more regulations to be applied: the regulations go cumulatively over their heads.

8. An asymmetric burden-sharing between the different districts or other geographic entities would be helpful, but it is mostly even not allowed – districts are in charge of the application of regulations for their territory, period. Here, regulation permitting or even mandating the merger of resources, asymmetric burden sharing, etc. could tremendously help, whilst such rules constitute more, not “less regulation”.

9. The remaining complaints listed above in Section 2 have a common root cause: vague provisions in the regulation. Regulatory provisions are necessarily vague where the drafter is not authorised to:

  • differentiate between different situations,
  • provide exemptions to rules where the rules do not make sense,
  • insert additional definitions,
  • explain how certain obligations are to be fulfilled, or
  • otherwise go into details that provide more precision, as it is practice in the United States and to a less extreme extent in Singapore. In the United States, lawyers seem to elaborate regulation with the same precision as at contracts, preparing for all eventualities and anticipating interpretative questions. The call for “less regulation” hinders more precision to find its way into regulations. It is thus aggravating the impreciseness of regulation and is partly responsible for the complaints listed in Section 2.

10. Of course more detailed provisions will not put an end to diverging interpretations altogether. Diverging interpretations are unavoidable in law. But more detailed provisions will automatically reduce the differences with regard to the most important issues. The level of importance of the divergences is drawn downwards, so that the gravity of the divergences is substantially reduced. If a regulation sets up a 30-day deadline for an administration to oppose a certain activity, there still might be diverging views as to how the 30 days are to be counted when the 30th day is a public holiday. But at least. on the first working day after the public holiday, it is clear that the administration has missed its opportunity to oppose the activity. No such clarity exists where there is no provision at all or just light wording like “appropriate time”.

11. The increased clarity should be in the interest of economic actors and administration alike. But how can we obtain this clarity if we, as drafters of regulation, are called upon to cast less and light regulation? We simply cannot. We should not beat about the bush: there is a trade-off between shortness and lightness on one side and precision, clarity and harmonised strong enforcement on the other.

12. To sum-up: the undifferentiated call for “less regulation” causes a tragedy. Business shoots itself into the foot. Much of the burden that economic actors suffer from could be lifted by more detailed provisions, not “less regulation”. Economic actors and their business associations should maybe call for less obligations incumbent on them, but certainly they should also call for:

  • more details in the provisions so as to reduce the margins of interpretation,
  • more provisions on how obligations of economic actors should be fulfilled,
  • more provisions on harmonisation of practices, cooperation and coordination of authorities,
  • more provisions on enforcement, and
  • more precise provisions on sanctions;

and all this to create a level playing field for all economic actors.

13. Those drafting regulations and their respective regulatory policy makers should, accordingly, not follow these undifferentiated calls for “less regulation”. Aiming at more provisions and more detailed provisions whilst carefully scrutinising obligations for economic actors serves business and all of us better, at the end of the day.

1  The situation is less grave in states where the execution of the regulation is in the hands of local branches or representations of the central authority. These branches or representations do not belong to geographic entities, but still to the central administration and are thus easier to control by instructions or guidance. Nonetheless important deviations of practices are also to be observed under this setting.

2  “Authorities do not enforce the regulation systematically so that the complying economic actors have competition disadvantages.”

3  See the respective Chapters 10 to 12 of the Handbook “How to Regulate?”.

4  “Different regionally responsible authorities not enforcing the regulation with the same strength so that the market is distorted.”

5  The smallest one has less than 35.000 inhabitants.

6  It is currently a kind of taboo, but even in Europe, certain small nation states need the support of neighbors. E.g. France supports Luxembourg and Monaco; Italy supports Malta, San Marino and the Vatican State; Switzerland supports Liechtenstein. Moreover, Australia, New Zealand and the United States support various Pacific nations and Timor Leste. We think that it is no shame for a small state to ask for support by another state and thus call for lifting the taboo.

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