Action Briefing Dec 2004 - Jan 2005
	The Newsletter of Birmingham Friends of the Earth

Eye on the CBI: Red tape or red herring?

Birmingham's ICC hosted the annual conference of the Confederation of British Industry (CBI) again this year, from 8th-9th November. As usual, the Confederation's big cheeses trotted out their usual litany of complaint against greens, the European Union, regulation and the non-business world in general.

CBI President John Sunderland stole the show on Monday with a blistering tirade of sixth-form-sociology-E-grade twaddle about our "over-protected, over-regulated society" and "under-dynamic economy which are no match for their global competitors."

In fact, Sunderland's rant managed to name-check nearly every Right-wing bogey, including the EU (the "Cotton-wool Union"), pressure groups and non-governmental organisations, welfarism, the media, society's "collective aversion to risk", the "stampede from personal responsibility", and, of course, the dreaded red tape, "the herniating mass of regulation we face".

Collective aversion to risk? If only! Speeding, smoking, binge drinking, unprotected and/or underage sex, casual violence, gambling and recreational drug use all flourish in this 'over-protected society'. Try cycling to work in normal traffic, or even crossing a main road, and you'll see just how 'risk averse' the British are, at least when safely ensconced behind the wheel of a car.

Drowning
The argument that business is drowning in red tape, however, has almost reached the status of self-evident truth. Paper-pushing bureaucrats are suffocating innovation, entrepreneurship and competitiveness, we are told. But a new report from the Corporate Responsibility (CORE) Coalition, From Red Tape to Road Signs: Redefining regulation and its purpose, challenges the pervasive anti-regulation rhetoric.

It's a bit of a case of 'What have the Romans ever done for us?' Red tape made London habitable again after the Industrial Revolution. The first Alkali Act was passed in 1863, and the smogs were eventually beaten by regulation requiring smokeless fuel. Since 1990, regulation has cut industrial emissions to air of sulphur dioxide by 75%, particulates by 78%, and nitrogen oxides by 52%. From 1996 to 2001, water pollution levels fell by 65%. There was a 30% drop in the number of environmental incidents between 1997 and 2000. EU regulations have cleaned up Britain's drinking water, rivers and beaches; EU waste laws are improving safety standards at waste disposal sites and boosting recycling.

Regulation is, frankly, saving us from ourselves. It was only through aggressive regulation and taxation that the consumption and commensurate health impacts of tobacco were reduced in the West. In emerging markets, however, such as China, tobacco is only lightly regulated and consumption is increasing rapidly.

Cost
The business community and the financial press tend to over-estimate and over-state the cost of regulation, sometimes by a significant factor. The EC's 1993 Vehicle Emissions Directive, which set standards for Catalytic Converters in cars, was met with industry warnings that the technology would cost £400-£600 per vehicle, with a fuel consumption penalty on top. The real cost turned out to be around £30-£50 per Convertor.

'Industry studies' at the time predicted that the 1990 amendment to the US Clean Air Act would cost the US $51-91 billion a year with up to 4 million job losses. From 1992-2002, the cost to business of comlying with the amended Act were $23-26 billion, but the benefits arising over the same period were $120-193 billion and employment in the areas affected has increased by 22 per cent.

Business went apoplectic over the 1987 Montreal Protocol aimed at phasing out ozone-depleting CFCs. It was feared that whole industries would fold and economic chaos ensue. In the event, substitute technologies may have saved money, according to follow-up studies.

In 2002, the CBI complained about how 'green taxes cost business £14 billion a year'. But almost all the revenue thus raised has been used to cut companies' National Insurance contributions. This year, the British Chambers of Commerce (BCC) claimed that red tape cost British business an extra £30 billion between 1997 and 2003. But this is extremely misleading, as the Cabinet Office made clear (Guardian 8th March 2004): 'What they [the BCC] count as red tape cost is largely the value of the policies themselves to recipients, e.g. enhanced maternity rights for women, the minimum wage for 1.5 million workers and better working conditions, of which the government is rightly proud.'

Business counts only the cost of administering 'red tape', while ignoring the real long-term benefits, to the public, economic growth and even the business community itself, that accrue from effective regulation. If anything, it’s lack of regulation in key areas that is stifling progressive business. Investments requiring a longer-term turnaround are not often welcomed by shareholders, and so are usually scrapped in favour of short-term gain. Regulation clarifies expectations, whilst stimulating new business opportunities at the same time. As no less than the World Bank states in its World Development Report 2000/2001, Attacking Poverty, 'Better Regulation does not always mean less regulation.'

Competitive
But environmental and social regulations make an economy uncompetitive, don’t they? Well, no. Various national competitiveness indices, including by the World Economic Forum and the World Competitiveness Yearbook belie any simple link between regulation and a country’s international competitiveness. In fact, countries with high levels of social and environmental protection are usually more competitive over time. In the case of the WEF's 2003 index, three countries with high levels of business-based regulation, Denmark, Sweden and Finland, make it into the top five. Canada, with stronger maternity benefits, for example, than the UK, tops the World Competitiveness Yearbook for 2003.

Of course, business regularly point to the USA as 'the most competitive economy in the world'. But this is pure assertion, based on a difference in measures of productivity. Between 1992 and 2002 the US lost ground against most European economies in terms of GDP per hour - the best measure of workplace productivity. By 2002, eight of the fifteen EU economies had higher GDP per hour than the US. As Philippe Legrain points out in his excellent book Open World: The truth about globalisation (Abacus, 2002), 'Europe's productivity growth is probably understated relative to America's. Despite its higher taxes and regulations, the euro area is doing at least as well as America.'

A similar picture emerges when we confront the myth that regulation scares off foreign direct investment (FDI). Here's Legrain again: ‘If foreign investment were mainly driven by a desire to escape costly labour and environmental regulations, one would expect it to flow mainly to developing countries, where rules are typically laxer. But in fact, four fifths of it goes to rich countries. In 2000 developing countries attracted only 19 per cent of global FDI flows. The poorest forty-nine countries, where standards are often lowest, received only $4.4 billion of the $1,271 billion invested abroad. Only $35 billion of America's stock of foreign investment is in lower-standard Mexico; $116 billion dollars is in higher-standard Holland.'

Voluntary
We might not be drowning in red tape but we certainly suffer from a proliferation of 'sticking plasters' in the form of meaningless 'voluntary' guidelines and standards, such as the Global Compact, which has no enforcement mechanism but relies on the "enlightened self-interest of companies", or the Organisation for Economic Cooperation and Development (OECD) Guidelines on Multinational Enterprise, with a single, lone Department of Trade and Industry staff member to implement it. Application of the OECD guidelines has been at best patchy, business having lobbied to keep enforcement of the guidelines weak.

There is little evidence that voluntary self-regulation will actually deliver. A 1999 study by Harvard University concluded that because industry representatives are not likely to commit themselves to drastic change, the consensus approach central to voluntary schemes can remove any incentive to innovate. In contrast, clear, stringent and universally applied regulations stimulate innovation by reducing risk and uncertainty. So that's why John Sunderland wants more risk-taking: it's a euphemism for less regulation!

James Botham

The CORE coalition report From Red Tape to Road Signs: Redefining regulation and its purpose can be viewed on-line at www.corporate-responsibility.org. The text of John Sunderland’s speech to the CBI annual conference can be found at www.cbi.org.uk.