Excessive bureaucracy holding back business and growth
For an economy to grow, you need to create a setting that enables new business to arise and to thrive, as business is the only way to create jobs and wealth. This simple principle is often found in economic writings, but it can also be seen in daily life. It is, however, also held back by a series of obstacles and restrictions—whether bureaucratic, political, or cultural—that go against business and enterprise as a driver of the economy, the effects of which both meet the needs of the business owner and have a positive impact on the community in which the business plays a leading role. Naturally, no one sees a business as being above the law, a sort of self-serving anarchist within our society. In fact, any good culture of enterprise recognises the values and functioning of the marketplace, a setting which needs to be well regulated, transparent and efficient. What is needed, if anything, for economic development and for enterprise to be able to fulfil its “social functions” (as defined in the Italian Constitution) is that there not be any obstacles that inhibit the key dynamics of business itself, such as the hurdle of excessive bureaucracy.
A document recently published by Confindustria’s research centre (concerning a study by Loredana Scaperrotta) calls for less bureaucracy in Italy in order to return to growth, claiming that even a 1% increase in the efficiency of public administration would result in an increase in per capita GDP of 0.9% and to growth in international investment, which would have a positive impact on employment. The overall message is clear. We need to eliminate the bottlenecks of bureaucracy, because the complex web of too many rules, along with lengthy, uncertain response times and the unsustainable costs of the public and political machine, are holding back development particularly for the most dynamic of Italian businesses.
To understand this better, let’s look at the competitive landscape. According to the World Economic Forum’s 2013-2014 Global Competitiveness Index, Italy is in 49th place out of the 148 nations considered. This is far too low considering that Germany is in 4th place, the US in 5th, the UK in 10th, France in 21st, and even the fragile economy of Spain is in front of Italy in 35th place. The real problem is that we’re falling even lower, having slipped back seven places since last year due to political instability, which is increasing uncertainty, eroding confidence and blocking or slowing reforms, such as, ironically, the reform to combat excess bureaucracy. Other rankings point to Italy’s struggles, as well. The World Competitiveness Index of the International Institute for Management Development has Italy in 44th place, four lower than last year, whereas our European competitors have remained stable (with Germany in 9th place). The Doing Business 2014 study places Italy in 65th place out of 189 nations and, again, far behind our main competitors.
And why? According to Confindustria, public inefficiency is resulting in low levels of competitiveness. Public inefficiency means complex, inefficient bureaucracy (and related high levels of corruption); excessive, contradictory laws (and resulting legislative uncertainty); a slow justice system (particularly in the civil and administrative courts); and both taxes that weigh too heavily on businesses and employment, and fiscal legislation that is very complicated to follow. With the constant changes in laws and regulations, businesses are unable to make reliable fiscal forecasts or to act based on credible financial plans, so it is not by chance that Italy is at the back of the pack in terms of international investment, which is having a negative impact on economic growth, on employment, and on research and innovation.
The World Bank notes that this high fiscal burden on business and the crushing weight of bureaucracy are the highest priorities that Italy must correct. Confindustria estimates that a business spends an average of 269 hours each year on administrative duties to make 15 payments that sap away 65.8% of its profits. Too many authorisations are needed to start a business, to expand a factory, to put a new product on the market, or to file a patent. It takes too long (with Italy’s slow, inefficient justice system only benefiting the dishonest) to collect a debt, to defend a contractual obligation, to combat unfair competitive practices, or to settle a labour dispute. In short, businesses are imprisoned in the “traps and snares” that the governor of the Bank of Italy, Guido Carli, was already pointing to in the 1970s and which have, unfortunately, remained firmly in place despite reforms to simplify bureaucracy (e.g. the Bassanini laws) or even the recent anti-bureaucracy measures of the Monti and Letta governments.
And it’s only getting worse. Based on the Promo PA 2013 report, Confindustria notes that small and micro-businesses spent an average of 30.2 man-days seeing to bureaucratic obligations, up from 28 hours the previous year.
“Eliminate red tape” is the order of the day: fewer, clearer laws; fewer steps in bureaucratic procedures; controls that are more to the point and less formally schematic; transparency. It’s about making radical policy decisions in order to break through conservatism against reforms and to promote those areas of public administration that act with a keen sense for the rules and for the functioning of government (which are a minority, but are of great value), and it’s about bringing profound change to a culture of bureaucracy that looks more to form in procedures and to formal accuracy than to the efficiency of those procedures and the efficacy of the related acts. From this point of view, open dialog between culture of enterprise (and so accountability and results) and the culture of public administration could be of great use.
For an economy to grow, you need to create a setting that enables new business to arise and to thrive, as business is the only way to create jobs and wealth. This simple principle is often found in economic writings, but it can also be seen in daily life. It is, however, also held back by a series of obstacles and restrictions—whether bureaucratic, political, or cultural—that go against business and enterprise as a driver of the economy, the effects of which both meet the needs of the business owner and have a positive impact on the community in which the business plays a leading role. Naturally, no one sees a business as being above the law, a sort of self-serving anarchist within our society. In fact, any good culture of enterprise recognises the values and functioning of the marketplace, a setting which needs to be well regulated, transparent and efficient. What is needed, if anything, for economic development and for enterprise to be able to fulfil its “social functions” (as defined in the Italian Constitution) is that there not be any obstacles that inhibit the key dynamics of business itself, such as the hurdle of excessive bureaucracy.
A document recently published by Confindustria’s research centre (concerning a study by Loredana Scaperrotta) calls for less bureaucracy in Italy in order to return to growth, claiming that even a 1% increase in the efficiency of public administration would result in an increase in per capita GDP of 0.9% and to growth in international investment, which would have a positive impact on employment. The overall message is clear. We need to eliminate the bottlenecks of bureaucracy, because the complex web of too many rules, along with lengthy, uncertain response times and the unsustainable costs of the public and political machine, are holding back development particularly for the most dynamic of Italian businesses.
To understand this better, let’s look at the competitive landscape. According to the World Economic Forum’s 2013-2014 Global Competitiveness Index, Italy is in 49th place out of the 148 nations considered. This is far too low considering that Germany is in 4th place, the US in 5th, the UK in 10th, France in 21st, and even the fragile economy of Spain is in front of Italy in 35th place. The real problem is that we’re falling even lower, having slipped back seven places since last year due to political instability, which is increasing uncertainty, eroding confidence and blocking or slowing reforms, such as, ironically, the reform to combat excess bureaucracy. Other rankings point to Italy’s struggles, as well. The World Competitiveness Index of the International Institute for Management Development has Italy in 44th place, four lower than last year, whereas our European competitors have remained stable (with Germany in 9th place). The Doing Business 2014 study places Italy in 65th place out of 189 nations and, again, far behind our main competitors.
And why? According to Confindustria, public inefficiency is resulting in low levels of competitiveness. Public inefficiency means complex, inefficient bureaucracy (and related high levels of corruption); excessive, contradictory laws (and resulting legislative uncertainty); a slow justice system (particularly in the civil and administrative courts); and both taxes that weigh too heavily on businesses and employment, and fiscal legislation that is very complicated to follow. With the constant changes in laws and regulations, businesses are unable to make reliable fiscal forecasts or to act based on credible financial plans, so it is not by chance that Italy is at the back of the pack in terms of international investment, which is having a negative impact on economic growth, on employment, and on research and innovation.
The World Bank notes that this high fiscal burden on business and the crushing weight of bureaucracy are the highest priorities that Italy must correct. Confindustria estimates that a business spends an average of 269 hours each year on administrative duties to make 15 payments that sap away 65.8% of its profits. Too many authorisations are needed to start a business, to expand a factory, to put a new product on the market, or to file a patent. It takes too long (with Italy’s slow, inefficient justice system only benefiting the dishonest) to collect a debt, to defend a contractual obligation, to combat unfair competitive practices, or to settle a labour dispute. In short, businesses are imprisoned in the “traps and snares” that the governor of the Bank of Italy, Guido Carli, was already pointing to in the 1970s and which have, unfortunately, remained firmly in place despite reforms to simplify bureaucracy (e.g. the Bassanini laws) or even the recent anti-bureaucracy measures of the Monti and Letta governments.
And it’s only getting worse. Based on the Promo PA 2013 report, Confindustria notes that small and micro-businesses spent an average of 30.2 man-days seeing to bureaucratic obligations, up from 28 hours the previous year.
“Eliminate red tape” is the order of the day: fewer, clearer laws; fewer steps in bureaucratic procedures; controls that are more to the point and less formally schematic; transparency. It’s about making radical policy decisions in order to break through conservatism against reforms and to promote those areas of public administration that act with a keen sense for the rules and for the functioning of government (which are a minority, but are of great value), and it’s about bringing profound change to a culture of bureaucracy that looks more to form in procedures and to formal accuracy than to the efficiency of those procedures and the efficacy of the related acts. From this point of view, open dialog between culture of enterprise (and so accountability and results) and the culture of public administration could be of great use.