Thursday, April 28, 2005
Red tape? My arse!
For as long as anyone can remember, the business lobby has always complained about there being too much 'red tape'. It likes to paint a picture of British industry struggling under an enormous burden of onerous regulation and punitive corporate taxation.
It's a refrain that was traditionally repeated only by the Tories until New Labour jumped on the bandwagon. More recently, the Liberal Democrats seem to have endorsed this world view. In 2003, the party approved a green paper tendentiously titled "Setting business free" and its economic spokesmen have sometimes sounded more like Rotary Club bores than Liberal Democrats. But is this new consensus based on sound assumptions?
An analysis in today's Financial Times (available online only to subscribers) explodes a lot of myths.
- Business regulation - Britain is among the most lightly regulated business environments of advanced countries. The UK ranks near the bottom of the OECD's index of both product market regulations and labour market regulations, lower even than the USA. This is against a background of falling regulation in most countries.
- Corporate income tax - The main rate was cut from 33% to 31% in 1997, and then to 30% in 1999. Despite these cuts, the present rate is slightly (4%) above the EU average and places the UK only 14th lowest among the EU's 25 member states. However, this ranking is due mainly to EU enlargement, since the ten new member states have a low average rate of only 19%. The UK remains more lightly taxed than most other West European countries.
- UK competitiveness - The UK is a consistently strong performer in league tables of international competitiveness, which would indicate a relatively supportive environment for growth. The World Economic Forum's Global Competitiveness Report indicates that the UK scores well on macroeconomic management and a good business environment. The biggest concern in the survey is neither regulation nor taxation, but poor public infrastructure.
In my last job we wanted to take out a partition wall in the reception area to improve the look of the thing - good for business and so on. We were told by the Planning Officer that the whole area would have to be remodelled, the stairs moved, a lift installed and so on, in order to bring it up to current standards. This was beyond our financial means. So the investment didn't happen.
Regulation is a major factor in pushing manufacturing jobs out of the UK. It is costing people their jobs. So serious an issue deserves a less flippant post.
No-one is arguing that regulation is perfect and one can find plenty of examples of absurd and over-zealous officialdom.
However, the claim that "Regulation is a major factor in pushing manufacturing jobs out of the UK" is unsupported by any evidence.
The OECD's survey quoted in my original post (which, by the way, was not "flippant") shows that the UK is relatively lightly regulated.
The decline in UK manufacturing is a function of globalisation more than anything else.
The obsession conservatives have with "regulation" deserves closer scrutiny. It is my thesis that, since the Thatcher/Reagan era, the idea has gained currency that business exists in a moral bubble and is not subject to the same social obligations as the rest of us.
For further examination of this issue, see my article 'It's not personal, it's business' in the November 2004 edition of Liberator.
You are right that the major cause of the loss of manufacturing jobs is globalisation, and I was careful to say "a major cause" and not "the cause". This change is probably inevitable, but I see no need to speed it up by overregulation. I'm not an economist and I can only speak from experience - I was formerly a director of a small manufacturing business. It was a constant battle to cope with the new rules and government inspectors. You complain of underinvestment, but there would have been much more cash to invest without the state telling us to spend it on their priorities.
By the way, do you have any idea what research the OECD do to reach the conclusions they have?
You speak of business operating in a moral vacuum. Do you, a Liberal, believe that government has the right to dictate morals?
If you were to stand in a British election on a platform of copying Chinese standards of pay or health and safety, all I can say is good luck!
This is not a question of governments "dictating morals". (Although I trust that, when parliaments legislate on any matter, their decisions are rooted in a moral standpoint).
"Regulation" is basically just a fancy word for the law. Just as we need laws to help prevent bad behaviour by individuals, so we need laws to help prevent bad behaviour by corporate bodies.
What I object to is double standards, in this case the idea that we are somehow obliged to indulge bad business behaviour in a way that we would not for bad individual behaviour.
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