Sizing up red tape

OECD Observer
Page 64 

Businesses’ Views on Red Tape: Administrative and Regulatory Burdens on Small and Medium-sized Enterprises 

Filling in government forms, filing official documents and sorting out red tape can be confusing, tedious and time-consuming. But imagine being asked to fill in a form about the administrators, rule-enforcers and bureaucrats themselves. This was the task set to the managers of 8 000 small and medium-sized businesses (SMEs) in 11 OECD countries, and their feedback is not merely paperwork.

The survey asked businesses how easy or difficult it was to comply with employment, tax and environmental regulations and how much it cost them. It also questioned the efficiency of administrative decision-making, right down to personal contact, with true/false responses to statements such as: “Officials do not give definite answers”; “It is not clear who is responsible for decisions”; “One does not get the same view no matter who one contacts”.

The findings confirm that government regulations and bureaucratic formalities have a significant impact on small and medium-sized businesses. SMES surveyed spend on average US$27500 per year complying with administrative requirements. This equates to an average cost of US$4100 per employee, or around 4% of the annual turnover of companies. And the smaller the firm is, the greater the hassle. The smallest companies – those with less than 20 employees – endured more than five times the administrative burden per employee than larger firms did. Small SMEs spend an average of US$4600 per employee on paperwork, whereas SMEs with over 50 employees spend around US$900. Furthermore, small SMEs made eight times more requests for authorisations or decisions each year than larger SMEs.

Not surprisingly, around 80% of SMEs believed that compliance with employment regulations was bad for business. Many felt that employment regulations increased non-wage labour costs, and increased the difficulty of hiring and firing staff.

The point of the survey was to clarify for governments where its red tape was poorly designed or applied, whether it was inefficient or outdated, and whether it impeded innovation, trade and investment. Clearly, regulations are needed, not just to protect public interests but to allow markets to work properly too. But, as this reports shows, red tape may need to be less costly, streamlined and more transparent.

©OECD Observer No 229, November 2001 

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