Red tape begins at home for business

Having worked all my life in the private sector - mainly for big business, including a big accounting firm - I've long known it's not just the public sector that's bureaucratic. Waste time and money on pointless rules and procedures? Sure.

To imagine otherwise - that the profit motive makes business immune from inefficiency - you'd have to have spent all your life working in the public sector. In the old Treasury, say, or a university.

Even so, private sector inefficiency is not a subject to be raised in public. No, nothing must be said that could undermine the contention that governments and their intervention in markets are the sole source of poor economic performance. That if our rate of productivity improvement is flagging, the only conceivable explanation must be the passing of some law big business didn't like.

This is why I've been waiting for the Australian Enforcers of Right Thinking to start beating up Chris Richardson, of Deloitte Access Economics, the way they tore into some poor sap from Treasury who mentioned in a speech research suggesting Australia's manufacturers were less than perfect.

Richardson has had the temerity to publish a report purporting to show that the cost of self-imposed red tape in the private sector far exceeds the cost of government-created red tape.

In a report titled Get Out of Your Own Way, he urges business to lift its productivity by lifting its game.

My guess is it's a problem limited largely to big business, with inefficiency increasing with the size of the firm. It's one of the diseconomies of scale, such as those that commonly cause company takeovers to be less profit-enhancing than imagined (while still justifying a big pay rise for the surviving chief executive).

Multinational corporations are likely to be worse on red tape than national companies. Companies with monopolies - or access to economic rents, such as the financial services sector - would have the most scope for wastefulness. As had our miners before commodity prices fell.

Richardson suggests the problem has built up over the long period of prosperity since our last big recession, and I don't doubt he's right. Nothing like a recession to subsequently improve productivity (but don't tell the Business Council I said so).

The other Richo's report is so full of uncommon common sense it deserves closer attention. "To be clear," he says, "rules and regulations are vitally necessary.

"They cement the key foundations of our society, protecting the rule of law and a wealth of standards in everything from health to safety and the environment. And they can help businesses to reduce risk and plan for the future."

But our rule-makers - both government and business - often try to achieve the unachievable, the report says. They set rules that are too prescriptive, overreact to momentary crises, let new rules overlap with existing rules, don't listen to those most affected and don't go back later to check how well their rules are working or if they are still required.

"So Australian businesses have bulked up, employing many people whose role is to create and then enforce a whole bunch of rules and regulations. That doesn't just mean some lawyers and accountants. It also includes some people in finance and information technology and human relations functions, as well as in fast-growing governance and security roles."

As a result, there are already more "compliance workers" across Australia than there are people working in construction, manufacturing or education. In fact, one in every 11 employed Australians now works in the compliance sector.

New technologies are delivering a huge dividend but we're not seeing the gains, the report says.
There's been a huge decline in "back-office" workers such as switchboard operators [why have them when you can make your customers deal with some fast-talking, incomprehensible and powerless person in Manila?] mail sorters and library assistants. They have been rapidly shrinking as a share of the workforce, yet those productivity savings have been swallowed up amid the rising cost of Australia's compliance culture.

Corporate Australia has let that culture grow partly because firms overestimate the extent to which they can insulate themselves from costs (a rogue employee, a nasty story in a tabloid, a grumpy customer) and partly because humans are bad at estimating risks, we're told.

Among the many examples of business craziness Richardson and colleagues quote, my favourite is the firm that insisted staff complete an ergonomic checklist and declaration when they moved desks, then introduced "hot-desking" so that everyone spent 20 minutes a day filling out forms.

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Abbott's red tape play-acting hides rent-seeking

The world of politicians gets deeper and deeper into spin, and so far no production of the Abbott government rates higher on the spin cycle than last week's Repeal Day.

Hands up if you believe in red tape? No, I thought not. So how about we package up a huge pile of window dressing with some worthwhile but minor measures, slip in a few favours for our big business supporters and generous donors, and call it the most vigorous attack on red tape ever? This will give a veneer of credibility to our claim it will do wonders for the economy.

In the process, of course, we'll have changed the meaning of "red tape". It's meant to mean bureaucratic requirements that waste people's time without delivering any public benefit. In the hands of the spin doctors, however, it's being used to encompass everything from removing dead statutes to the supposed deregulation of industries.

Repealing redundant laws and regulations dating back as far as 1900 is mere window dressing. By definition they don't waste anyone's time - if they did they'd have been repealed long ago. Their primary purpose is to allow Tony Abbott to quote huge numbers: today I announce the abolition of more than 1000 acts of Parliament and the repeal of more than 9500 regulations. A trick you can pull only once.

Somewhere in there is some genuine, time-wasting red tape we're better off without, but it doesn't add up to much - hence the need for so much padding. Governments of both colours are always promising to roll back red tape, mainly because it gives people such an emotional charge.

But while it's true there are examples of mindless, unreasonable bureaucratic rules and requirements that could be eliminated or greatly simplified at no loss to anyone, much alleged red tape is in the mind of the beholder: it's red tape if you don't like it and good governance if you do.

There are plenty of small business people who'd try telling you supplying information to the Bureau of Statistics was "pointless red tape", maybe even filling out tax returns. In an era when big business is going overboard on "metrics", it's whingeing about the "reporting burden" the government imposes so it - and the rest of us - can know what's going on in the economy.

When business isn't complaining about "compliance costs" it's demanding greater transparency and accountability from governments. Guess what? They're opposite sides of the same coin. The world is and always will be full of compliance costs. The sensible questions are whether they're higher than they need to be and whether the benefits of compliance outweigh the costs.

The notion that all so-called red tape comes from power-crazed bureaucrats is a delusion. Most excessive regulation comes from politicians. Sometimes they act at the behest of lobbyists for particular industries, sometimes they're merely trying to create the appearance of action (an old favourite is laws to make illegal something that's already against the law) and sometimes they pass an act to impress the punters while carefully leaving loopholes and escape hatches for the industry pros.

But the most objectionable feature of the whole red tape Repeal Day charade is the way it has been used as cover for rent-seeking by the Coalition's industry backers. It's an open secret the protections for investors provided by the Future of Financial Advice legislation are being watered down at the behest of the big banks, which want to be freer to incentivise unqualified sales people to sell inappropriate investment products to mug punters.

Then there's the strange case of the Charity Commission,which was set up only recently to reduce inefficient regulation and red tape. It's to be abolished despite the objections of most charities, presumably because the Catholic Church doesn't like it.

It's being claimed all these dubious doings will "drive productivity, innovation and employment opportunities", not to mention "creating the right environment for businesses of all sizes to thrive and prosper and to drive investment and jobs growth".

Yeah sure. The claimed savings of $700 million a year (don't ask how that figure was arrived at) are equivalent to 0.04 per cent of GDP, and yet they'll work wonders. Must be an incredible multiplier effect.

We're told we'll be getting at least two Repeal Days a year, with the goal of achieving savings worth $1 billion a year. Really, a minimum of six Repeal Days in Abbott's first term? What's the bet that promise will be quietly buried?

But for as long as this pseudo reform lasts it seems it's intended as a substitute for genuine deregulation.

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