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

“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 people’s 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

Guillotine reforms around the world

Croatia’s HitroRez guillotine reform

Egypt’s ERRADA reform

Vietnam’s Project 30

Bosnia Republic Srpska’s reform

outdated, fail to protect citizens, and drag down economic growth.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?

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.)

 

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:

 

  • 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 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 (July 2010)

Type of review

Target rules

Number of regulations before cleanup

% of regulations eliminated

% of regulations simplified

Economic gains

Korea(11 months)

Legality, Need, Cost

Regulations

11,125

48.8%

21.7%

1,066,200 new jobs

Business cost savings: +4.4% of GDP/10 years

$36.5 billion extra FDI over 5 years1

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 GDP2

Moldova(6 months)

Legality

Regulations

1,130

44.5%

12.5%

Legality

Fee-based Permits

400

68%

20.3%

Ukraine(12 weeks)

Legality

Regulations

14,000

36%

7,2%

Bosnia /RS(4 months)

Legality, Need

Formalities

331

27%

42%

Direct savings to business estimated at US$ 2 million/year, and indirect savings of US$ 13 million/year3

Legality

Inspections

2,473

43%

31%

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)

Serbia(XXX)

Legality, Need, Cost

Formalities, including local levels

??

??

??

US$ 106 million (including recommendations from local level implemented at national level)5

Montenegro(xxx)

Legality, Need, Cost

Business Regulations at municipal level

??

??

??

Municipalities only US$ 4 million if all recommendations are implemented6

Vietnam(3 years)

Legality, Need, Cost, WTO impact

All procedures at all levels of government

5,700

Underway

Underway

Cost savings for first 268 formalities estimated at over $300 million/year7

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 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

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 country’s 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 Moldova’s 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 Region’s 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=Overview&article=12793

Kenya

Kenya’s 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/$FILE/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