Cutting Red Tape: Simplification, SCM, and the Regulatory Guillotine

<< Back to the Services page Give me a place to stand and with a lever I will move the whole world. -- Archimedes Cutting through the jungles of rules is hard work that has defeated many reformers. Our innovative work to simplify regulations and formalities has helped cut and simplify 25,000 regulations and formalities in 10 countries, with $7.8 billion in annual cost savings to businesses. That is real change for peoples lives. Much of our work is simplifying government formalities and red tape to cut costs and reduce corruption. We then help build quality control mechanisms so that governments can continue to better design and implement formalities in future. Our work includes:

Simplification: Simplifying business licenses and other formalities such as in the Doing Business agenda Adapting the Standard Cost Model as a tool to measure operating costs to businesses Regulatory Guillotine reforms, large and small Building registries of licenses, formalities and other forms of regulation to improve access to forms, procedures, and application processes by users such as businesses. The need for the Regulatory Guillotine What is the Regulatory Guillotine? Speeding up the guillotine with the eGuillotine management software What are the results of the Regulatory Guillotine? What Donors and Investors are saying about the Regulatory Guillotine Links to guillotine reforms around the world The need for the Regulatory Guillotine Governments everywhere face the difficult task of reviewing and updating the enormous accumulation of regulations and formalities often, thousands or even tens of thousands -- that has built up over decades. Many of these rules are outdated, fail to protect citizens, and drag down economic growth. The question we faced in designing the guillotine method is this: How can review and simplification of many regulations be organized and carried out quickly, at low cost, and with the full participation of civil society? Guillotine reforms around the world Croatias HitroRez guillotine reform Egypts ERRADA reform

The modern Regulatory Guillotine approach was engineered by Jacobs and Associates in 2003 to meet this need, based on successful experiences in OECD countries. It has been refined in several countries. (The term Regulatory Guillotine is a trademark of Jacobs and Associates Inc.)

Vietnams Project 30

Bosnia Republic Srpskas reform

What is the Regulatory Guillotine? The guillotine is an orderly, systematic, transparent, rapid and low-cost means of COUNTING and then RAPIDLY REVIEWING a large number of regulations against clear criteria, and eliminating those that are no longer needed. It results in economically-significant regulatory cost reductions for businesses, either on a government-wide scale or targeted at specific problem areas such as licenses or sectors. Extensive stakeholder participation helps to ensure that the reviews are realistic and factual. Its core principle is that: Any regulation that is not successfully justified as legal and needed for future policy needs for market-led development will be eliminated, and any regulation that is needed but not business-friendly will be simplified to the extent possible. The guillotine must have strong political leadership at the center of government. It is operated by a small, capable reform unit at the center of government set up especially for the guillotine. The HitroRez Unit in Croatia, the Project 30 Unit in the Office of Government in Vietnam, and the Working Committee on Regulatory Reforms for Business Activity in Kenya are examples of such units. The reform process works like this:

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The government rapidly counts all regulations or formalities affecting businesses. The inventory is placed into a database. In many countries, this is the first complete inventory of regulations. Each rule or formality is reviewed three times by civil servants in ministries, by business stakeholders, and by the central unit. Each rule or formality is reviewed against simple filters in a checklist format: Is it legal? Is it needed? Is it business friendly? Each rule or formality is placed into one of three categories: maintain, simplify, or eliminate. The Council of Ministers eliminates regulations not needed and simplifies regulations that are too complex. The remaining rules or formalities are placed into a permanent registry where users can find information, download forms, and apply for permits. This registry can be the basis for a One Stop Shop if desired. The reform moves from start to finish in 15-18 months. The guillotine is almost never the end of reform, because the gains of simplification can easily be reversed by new rules and formalities. Most governments have followed the guillotine by building new capacities for

Speeding up the guillotine with the eGuillotine management software The eGuillotine software is a flexible IT management tool that speeds up any broad regulatory reform and reduces its labor costs. With SenseConsult, a Croatian firm, we have developed a software called the eGuillotine that assists governments in effectively managing an inter-ministerial regulatory reform involving multiple licenses and participants, and that also establishes a communication channel for feedback from businesses about specific licenses, and creates a basis for a public electronic registry (e-Registry) database of licenses with access over the Internet for all businesses operating in a country. For more on the eGuillotine software, go to http://www.e-guillotine.com/.

What are the results of the Regulatory Guillotine? The guillotine eliminates and simplifies many regulations in a short period at low cost, while strengthening the governments ability to focus on regulations needed to protect health, safety, and the environment.

If the guillotine is successful, the costs and risks of doing business in the national economy will be visibly reduced, improving competitiveness, investment, and job creation. South Korea, the 11th largest economy in the world, reviewed over 11,000 regulations in 11 months and eliminated almost 50% of them, which was projected to produce over 1 million new jobs and $36 billion in new FDI as a result of the lower barriers to entry and lower compliance costs on businesses.

Summary of Results of Regulatory Guillotine Reforms in 10 Countries (July 2010) Economic gains Number of regulations before cleanup % of regulations eliminated % of regulations simplified
1,066,200 new jobs

Type of review Korea (11 months) Mexico (9 months) Kenya (18 months) Moldova (6 months) Ukraine
Legality

Target rules

Legality, Need, Cost

Regulations

11,125

48.8%

21.7%

Business cost savings: +4.4% of GDP/10 years $36.5 billion extra FDI over 5 years1

Legality, Need, Cost

Formalities

2,038

54%

27% Savings to businesses estimated at US$ 146 million/year, or .06% of GDP2

Legality, Need, Cost Legality Legality

Licenses and fees Regulations Fee-based Permits Regulations Formalities Inspections

1,315 1,130 400

24% 44.5% 68%

29% 12.5% 20.3%

14,000 331 2,473

36% 27% 43%

7,2% 42% 31% Direct savings to business estimated at US$ 2 million/year, and indirect savings of US$ 13 million/year3 Savings of US$ 65.6 million/year. or 0.13% of GDP4 (actually implemented) US$ 106 million (including recommendations from local level implemented at national level)5 Municipalities only US$ 4 million if all recommendations are implemented6 Cost savings for first 268 formalities estimated at over $300 million/year7

(12 weeks) Bosnia /RS (4 months) Croatia (9 months) Serbia (XXX) Montenegro (xxx) Vietnam (3 years)
Legality, Need Legality

Legality, Need, Cost

Business Regulations Formalities, including local levels Business Regulations at municipal level

1,451

15%

10%

Legality, Need, Cost

??

??

??

Legality, Need, Cost

??

??

??

All Legality, procedures at Need, Cost, all levels of WTO impact government

5,700

Underway

Underway

1. Projection, using input-output tables, as cited in Byungki Ha, 1999, Economic Effect on Regulatory Reform in Korea, Seoul, Korea Institute for Industrial Economics and Trade. 2. Measuring Impacts: Monitoring and Evaluation of the Government of Kenyas Business Licensing Reform. Study conducted by Jacobs and Associates, July October 2008 under FIAS Contract in Support of FIAS/World Bank Group's Kenya Regulatory Performance and Capacity Building Program. Final draft report October 2008 3. http://limun.hr/en/main.aspx?id=560374&Page=1 4. An evaluation of the SCM measurements done as part of the regulatory reform work in Croatia, Final draft report, 5 June 2009, Report submitted by short term consultant Peter Bay Kirkegaard. Prepared under contract with FIAS/World Bank Group. 5. Staff estimates 6. Staff estimates 7. Estimates made by Office of Government, Vietnam

What Donors and Investors are saying about the Regulatory Guillotine Project 30 has proven very efficient in taking stock of the complexity and in defining the content of simplification measures. OECD Deputy Secretary General Mario Amano, November 2010 (http://en.baomoi.com/Info/Big-admin-hurdles-still-remain/3/87495.epi) A top-down, comprehensive reform process, similar to the so-called guillotine approaches. [T]here is much to be gained from a comprehensive approach that targets the whole licensing system. [O]n efficacy grounds, bold successes are more likely when not giving in to special interests. How to Reform Business Licenses, IFC/World Bank Group, June 2010 A government regulatory reform programme in Croatia known as Hitrorez or the guillotine received worldwide acclaim at the Capacity is Development Global Event for enhancing the countrys economic competitiveness, decreasing costs for doing business and including the private sector in the design of regulatory frameworks. UNDP, 18 March 2010 The Serbian Association of Employers is appealing to the Ministry of Economy and Regional Development and the government over all to speed up process of Regulatory Guillotine in order to help Serbian economy to cut cost in yet another hard year for the business. Serbian Association of Employers, Belgrade, February 24, 2010 (http://www.poslodavci.rs/?page_id=10) The Foreign Investors Council strongly supports the initiative to launch the project of the regulatory guillotine to help present investors in their everyday business and encourage new direct investment. Foreign Investors Council, Serbia, 2008 The guillotine is a fast-track approach that can deliver short-term results This combination of simplicity and speed, and the results already achieved, provide a relatively promising foundation for the reform, and for using its achievements as a stepping stone for further regulatory reforms. -- Business Licensing Reform: A Toolkit for Development Practitioners, World Bank, 2006 Evidence compiled to date suggests that guillotining can be an effective means of reducing needless bureaucracy and achieving a more carefully considered regulatory system. -- Best Practice Guide for a Positive Business and Investment Climate. Organization for Security and Co-operation in Europe (OSCE), 2006 Application of the Guillotine Law is one of the most significant events in the reform process since Moldovas departure from the USSR. USAID Frontlines, February 2006 Reduction by regulatory guillotine of business licenses in Kenya is a key result that will contribute to reducing the cost of regulation of the private sector in Kenya , and toward improving transparency and fighting corruption. Demba Ba, Head, Africa Regions Private Sector Development Group in the World Bank (June 2006) Links to guillotine reforms around the world General sources on the regulatory guillotine USAID Business Enabling Environment: "Top-Down" Approaches http://apps.develebridge.net/amap/index.php/Types_of_Approaches IFC Guillotine Approach http://www.fias.net/ifcext/fias.nsf/Content/BRG_Bibliography_Toolsimproveexistingreg_Guillotine

Vietnam Vietnam Project 30 Administrative Simplification Reform http://www.thutuchanhchinh.vn/index.php/?language=en Bosnia Bosnia Srpska Republic Registry of Approvals and Inspection Procedures http://www.regodobrenja.net/index.php?akc=sadrzaj&id=1&jezik=3 Business Community Greets Regulatory Guillotine in RS http://www.usaidspira.ba/news2.php?nid=4 Egypt ERRADA (Egyptian Regulatory Reform and Development Activity) http://www.errada.gov.eg/ Croatia Croatia HitroRez (Rapid Cut) Reform http://www.hitrorez.hr/ The Regulatory Guillotine Strategy: Preparing the Business Environment in Croatia for Competitiveness in Europe (USAID, December 2005) http://pdf.usaid.gov/pdf_docs/PNADG614.pdf UNDP Top Prize for Croatia Guillotine (February 2010) http://europeandcis.undp.org/gender/show/AECA8C17-F203-1EE9-B59522FEC109F58E Croatian approach to estimating administrative cost savings from regulatory guillotine project (2010) http://www.senseconsulting.eu/en/articlecontent.php?id=10&what=insights&src=home Improving Business Regulations in South East Europe. Monitoring and Evaluating better business regulations: Croatian approach. OECD: Second Working Group meeting. Vedran Antoljak, Sense Consulting, Vienna, Austria, 2-3 April 2008 www.oecd.org/dataoecd/3/36/40469467.pdf Moldova Egyptian Reformers Learn from Moldova's Success (2009) http://www.usaid.gov/locations/europe_eurasia/press/success/2007-11-18.html Montenegro Montenegro implements Regulatory guillotine project (Dec 2009)

http://www.mrt.com.mk/en//index.php?option=com_content&task=view&id=7861&Itemid=28 Serbia Serbia's regulatory guillotine (Oct 2009, Public Service Review: European Union - Issue 18) http://www.publicservice.co.uk/article.asp?publication=European%20Union&id=402&content_name=Overvie w&article=12793 Kenya Kenyas Radical Licensing Reforms, 2005-2007: Design, Results, and Lessons Learned, by Scott Jacobs, Peter Ladegaard, and Ben Musau, October 2007 http://www.ifc.org/ifcext/fias.nsf/AttachmentsByTitle/FIAS_BRG_KenyaRadicalLicensingReformsPaper/$FIL E/Kenya+Radical+Licensing+reforms_paper.pdf PUBLIC CONSULTATION ON BUSINESS LICENSING REFORMS. THE WORKING COMMITTEE ON REGULATORY REFORMS FOR BUSINESS ACTIVITY IN KENYA www.tradeandindustry.go.ke/documents/licence.pdf