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What Is the Regulatory Guillotine

Reviewing old regulations with 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 Many of these rules are outdated, fail to protect citizens, and drag down economic growth.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 JC&A faced in designing the modern guillotine method back in 2004 is this: How can governments review and simplify hundreds or thousands of old regulations quickly, at low cost, using modern scientific methods, and with the full participation of civil society?

The modern Regulatory Guillotine™ approach was engineered by Jacobs and Associates to meet this need, based on successful experiences in OECD countries such as Sweden and South Korea. Its carefully structured process has been tested and improved in more than a dozen countries. (The term Regulatory Guillotine is today a trademark of Jacobs, Cordova & Associates Inc.)

The Regulatory Guillotine™ has since been used to eliminate and simplify 25,000 laws and other regulations in a dozen countries, reducing business costs by around $8 billion/year, with a return on the cost of the guillotine of more than 3,000 to 1 over ten years.

 

JC&A Guillotine reforms around the world

Croatia’s HitroRez Successful Regulatory Reform in Croatia.pdfhttp://pdf.usaid.gov/pdf_docs/PNADG614.pdf
Egypt’s “Egyptian Regulatory Reform and Development Activity” (ERRADA) ERRADA http://www.errada.gov.eg/
Iraq’s “Iraq Solution for Regulatory and Administrative Reform” (ISRAR) http://iraq.usembassy.gov/pr-021913.html
http://www.iraq-businessnews.com/tag/iraq-solution-for-regulatory-and-administrative-reform-israr/http://www.theiqdteamconnection.com/iraq-news/regulatory-guillotinetm-in-iraq
Vietnam’s Project 30 http://csdl.thutuchanhchinh.vn/trang_d_uhttp://www.brookings.edu/research/papers/2010/09/vietnam-schwarzhttp://www.oecd-ilibrary.org/governance/administrative-simplification-in-viet-nam/regulatory-reform-in-viet-nam_9789264096646-8-en
Bosnia Republic Srpska’s reform Speech Rajko_Kuzmanovic.pdfhttp://www.eumonitor.nl/9353000/1/j9vvik7m1c3gyxp/vitq47nps8xg
Kenya’s Radical Licensing Reforms, 2005-2007 http://www.businessenvironment.org/dyn/be/docs/155/Jacobs.pdf

How does the Regulatory Guillotine™ work?

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 scientific criteria for good regulation, 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 principles are that:

Any regulation that is not justified as legal and necessary for government policy in a market economy will be eliminated. Any regulation that is legal and 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:

  • 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 and is a significant benefit.
  • Each rule or formality is reviewed three times by 1) civil servants in ministries, 2) by business stakeholders, and 3) 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?
    • Are fees necessary and reasonable?
  • After review, each rule or formality is placed into one of three categories: maintain, simplify, or eliminate.
  • The Council of Ministers and Parliament, by an omnibus process, takes the steps needed to eliminate regulations not needed and simplify 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 18-30 months.

The eGuillotine™ software is a flexible IT management tool that speeds up this broad regulatory reform and reduces its labor costs. With SenseConsult, a Croatian firm, JC&A has 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.

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 Regulatory Impact Assessment (RIA) and other permanent good regulation tools.

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 government’s 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

Type of review Target rules Number of regulations before cleanup % of regulations eliminated % of regulations simplified Economic gains
Vietnam(3 years) Legality, Need, Cost, WTO impact All procedures at all levels of government 5,421 8.8% 77% Cost-savings estimated at $1.4 billion/year when fully implemented1
South Korea(11 months) Legality, Need, Cost Regulations 11,125 48.8% 21.7% 1,066,200 new jobsBusiness cost savings: +4.4% of GDP/10 years$36.5 billion extra FDI over 5 years2
Mexico(9 months) Legality, Need, Cost Formalities 2,038 54% 27%
Kenya(18 months Legality, Need, Cost Licenses and fees 1,315 24% 29% Savings to businesses estimated at US$ 146 million/year, or .06% of GDP3
Moldova(6 months) LegalityLegality Regulations
Fee-based Permits
1,130
400
44.5%
68%
12.5%
20.3%
Ukraine(12 weeks) Legality Regulations 14,000 36% 7.2%
Bosnia /RS(4 months) Legality, Need
Legality
Formalities
Inspections
331
2473
27%
43%
42%
31%
Direct savings to business estimated at US$ 2 million/year, and indirect savings of US$ 13 million/year4
Croatia(9 months) Legality, Need, Cost Business Regulations 1,451 15% 10% Savings of US$ 65.6 million/year. or 0.13% of GDP4 (actually implemented)5
Serbia(XXX) Legality, Need, Cost Formalities, including local levels ?? ?? ?? US$ 106 million (including recommendations from local level implemented at national level)6
Montenegro(xxx) Legality, Need, Cost Business Regulations at municipal level ?? ?? ?? Municipalities only US$ 4 million if all recommendations are implemented7

 

1. Estimates made by Office of Government, Vietnam
2. 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.
3. Measuring Impacts: Monitoring and Evaluation of the Government of Kenya’s 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
4. http://limun.hr/en/main.aspx?id=560374&Page=1
5. 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.
6. Staff estimates
7. Staff estimates

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