Opinion: Daily Journal

Cutting Red Tape the Canadian Way

Why do we call fussy government regulations “red tape”?

It makes one think of a shopkeeper caught up in a sticky mess, unable to serve the public and make money for his family. As a visual, that works rather well.

The term’s origin precedes our use of “tape” in the sense of Scotch tape or, for that matter, duct tape. It originated in the 18th century in reference to the red ribbon that was used to bind up legal and official documents. It became a handy metaphor for the binding of individuals that government regulation represented.

It’s also the worst kind of regulation, and therefore the most easy to find strong bipartisan support for eliminating. Nobody likes it.

Especially not in Canada, which is showing the world how to get rid of it.

Red tape reduction and regulatory reciprocity in Canada

It started in 2001 in British Columbia, struggling to emerge from its “dismal decade.” The newly elected Liberal government under Premier Gordon Campbell committed to reducing the province’s regulatory burden by one-third in three years. To that end he created a position of minister for state deregulation, appointing Kevin Falcon.

By 2004, British Columbia’s leaders had achieved their objective, cutting regulation by 37 percent. That’s astonishing!

Research published by the Mercatus Center at George Mason University by Laura Jones, executive vice president of the Canadian Federation of Independent Business, explores Falcon’s reforms in detail. Several insights were crucial to the success of the effort:

  • Measuring regulatory requirements as opposed to individual regulations
  • Setting a clear target for regulatory reduction
  • Focusing on eliminating red-tape requirements as opposed to more easily justifiable regulations
  • Using a decentralizing approach, putting each government ministry staff in charge of determining which of their regulatory requirements to eliminate (which helped create buy-in rather than suspicion of the process)
  • Using a nimble approach to deregulation while recognizing the need for new regulation (at first requiring two requirements be eliminated for every one new requirement, which at one point reached a 5-to-1 ratio)

Jones shows that what province officials did next, however, was just as important as cutting regulatory requirements: they put a lid on total regulation, thereby preserving their hard-won reductions. They instituted a policy of no net increase in regulatory requirements (i.e., a 1-to-1 ratio).

Think of it like dieting. Some people diet until they achieve their weight-loss goal, then get off the diet, and within a short time they’ve gained all their weight back. Some people make a lifestyle change, keeping to a maintenance diet after losing the weight and therefore keeping the unhealthy weight from returning.

When B.C. adopted (and extended three times now) its policy of no net increase in regulatory requirements, the province showed it had made a lifestyle change.

And as for B.C.’s economic health? As Jones showed, “The province went from being one of the worst performing in the country to being among the best.”

Other reforms, including tax reductions, took place during that time, so the extent of the regulatory reduction’s positive effect is hard to quantify; however, anecdotal evidence from the business community suggests it was very important.

The preponderance of economic research literature holds that increasing regulation restrains economic growth. Reducing it should release the economy from the binding holding its growth in check.

Red tape, that is.

B.C.’s success in reducing red tape inspired Canada’s Red Tape Reduction Act of 2015, which requires the Canadian government to get rid of at least one regulation for each new one introduced.

A blueprint for North Carolina

I think it should inspire North Carolina’s ongoing regulatory reform efforts, too.

My recent Policy Report promoting a REINS Act for North Carolina to slow down its regulatory proliferation concluded with several “sunrise” provisions state leaders should consider (as opposed to “sunset” provisions that help end existing regulations that are no longer necessary).

The need to tame the regulatory beast here is urgent; Beacon Hill Institute economists projected the annual cost of regulation to North Carolina’s private sector could be over $25 billion.

One of those reforms is regulatory reciprocity:

Even if periodic review were in place, there would be no cap on the total stock of state regulation. As discussed above, [economists John W.] Dawson and [John J.] Seater have estimated great costs over time from accumulated federal regulation. Economists Patrick A. McLaughlin and Richard Williams have researched the negative economic and even safety effects of the growing stock of federal regulation and see “significant opportunities to improve the U.S. economy via regulatory cleanup.”

An approach to incrementally trimming down this existing stock, especially of outdated rules with nevertheless lingering negative effects on the economy, would be to require agencies to retire two old rules for every new rule installed. This approach would also introduce opportunity cost to agency rulemaking, as agencies would have to consider the trade-offs of creating a new rule.

Regulatory reciprocity in North Carolina could also lead to a voluntary speeding up of periodic review, as agencies might face internal pressure not to wait the full allowance of 10 years to report unnecessary rules if identifying and culling them out earlier would clear the path for a new rule it considered necessary.

To be the most effective, however, regulatory reciprocity should trade like rules for like. In other words, trading in two unnecessary minor rules for one major rule could have a net negative impact on the state’s regulatory climate and economy, even though it would reduce the total stock of rules.

Jones writes, “The B.C. model of red tape reduction stands out for its simplicity, effectiveness, and longevity.” Not only did B.C. eliminate over one-third of the red tape that kept its economy bound up, but it has kept those reductions intact for over a decade. Jones sees the B.C. reform as a “blueprint” for other reform efforts in the U.S.

I agree. Politicians like ribbon-cutting events to welcome new businesses. Let’s cut the red ribbons of regulatory excess to do the same.

Jon Sanders (@jonpsanders) is director of regulatory studies at the John Locke Foundation.