Business regulation reform: “guillotine” or purge?

The guillotine, a tool for instantly cutting off heads, was invented as a “humane” means of execution. It is, of course, more humane than slowly separating the head from the body using a carving knife or, for example, quartering. However, the Cabinet of Ministers thought about it and abandoned the reform of regulatory policy using the “guillotining” method. We decided to cut the system apart piece by piece. It might hurt.

This year, out of more than 200 regulatory instruments awarded for cancellation (about a thousand regulations were reviewed in just ten months), only 54 ceased to exist. It is unlikely that business breathed a sigh of relief.

An entrepreneur is a cash cow for various departments. If only taxes... Businesses pay for various licenses and many other regulatory documents, which is often a common but rather expensive and troublesome formality that smacks of corruption a mile away.

Let's say you produce, for example, grave monuments. You make them from raw materials for which there are already a bunch of permits. The raw materials are inedible, so why the sanitary and epidemiological examination? Yes, to make money! Actually, the regulatory system is designed for this - to steal money. Often it looked like extortion: if you don’t pay for a fictitious fine or permit, we’ll stop the enterprise.

And so the Cabinet of Ministers, with the help of the European Union, once again took up deregulation.

The Center for Economic Strategy (CES) recently held a joint briefing with the Ministry of Economy of Ukraine. We discussed the project of deregulation and support for the private sector. This initiative is also supported by the Ministry of Foreign Affairs of the Netherlands.

First Deputy Prime Minister and Minister of Economy of Ukraine Yulia Sviridenko said that this is the first stage of large deregulation.

According to Sviridenko, the government’s task is to support entrepreneurial initiatives and make it as easy as possible to open your own business, especially during war.

“For us, one of the priority tools for supporting business, along with access to financing and grant support, is deregulation reform,” she emphasized.

According to the First Deputy Prime Minister, from the beginning of 2023, a government interdepartmental group began to systematically review regulatory instruments that hinder the development of Ukrainian business. We reviewed more than 1,000 permits.

“We saw that the work of entrepreneurs is complicated and regulated, and we recommended that more than half of the permitting procedures be simplified or digitalized during this year. We recommended canceling almost a quarter of the regulatory instruments,” explained Yulia Sviridenko.

In particular, the conclusions of the State Sanitary and Epidemiological Expertise are no longer needed for the production of non-food products, or licenses for intermediary employment services abroad. Thousands of enterprises operating in the service sector are no longer required to coordinate work hours with local authorities, and the permitting system for subsoil use has been simplified.

“However, this is only part of the path to a free regulatory field,” Sviridenko clarified. “We do not stop there and want business to see us as partners.”

Optimistic. But how long will it take? Alas, the age of cabinets is short. Well, half-reforms are often much worse than if they had not existed at all.

In the recent past, people started talking about deregulation even in Groysman’s Cabinet. In March 2015, the government adopted Resolution No. 357-r “On approval of the action plan for the deregulation of economic activities.” In that plan, as in the current one, which is now only being discussed, we were talking about digitalization of the issuance of permits, simplifying the procedure for participation in government procurement, limiting government intervention in pricing, etc. Did businessmen breathe a sigh of relief? Not all of them, exactly.

Year 2019. December 4th. Another resolution on deregulation (No. 1413-r). The latest amendment to the resolution dates back to January 31, 2023. And again there are no sighs of relief. We must assume that a new deregulation is just around the corner...

As CES senior economist Dmitry Goryunov said, they first took the path of deregulation in the Netherlands in 2003. The administrative burden was estimated at 16.4 billion euros, or 3.6% of GDP. The attempt to reduce the load was successful. By 2007, its cost had decreased by 25%. That is, a quarter of the costs for all kinds of licenses and permits did not petrify and fall on the shoulders of consumers, but remained in the business. The Netherlands was followed by other European countries.

Note that their deregulation and ours do not go in unison, so if their remaining regulation is superimposed on ours, you will get a lot of regulation, but not the other way around.

As for Ukraine, the cost of regulation in our country, according to Dmitry Goryunov, is estimated at approximately 3-4% of GDP. Before the deregulation campaign, it was proposed to use the so-called deregulatory guillotine - to cut off unnecessary regulatory documents in one fell swoop. However, later the idea of ​​the “guillotine” was abandoned. An interdepartmental working group was created that analyzed regulatory instruments to determine whether they were needed or not. Reviewed 1000 documents. They decided to cancel 235, and change more than half a thousand. But so far only... 54 decisions of the working group have been implemented. Hmmm! Yes, this is not a guillotine at all...

CES researchers consider it necessary to conduct a full-scale or at least selective calculation of the cost of business regulation and, in the process of further deregulation, to reduce the cost of regulation. In his presentation, Dmitry Goryunov did not rule out returning to the idea of ​​a “regulatory guillotine.”

So is it still a “guillotine” or a thoughtful shoveling of existing regulatory tools? Deputy Minister of Economy Alexey Sobolev answered this question.

In his opinion, what has been done is only the beginning, and many regulatory standards need to be revised. But don't cut it off.

“I don’t really believe in the guillotine,” he explained, “I can’t say that what we did for ten months should be canceled. There are objective reasons for the existence of this or that regulation. However, many processes can be digitized and simplified so that a person can go to one window and receive the necessary certificates (yeah, we already read this in the resolution of the Cabinet of Ministers of 1915 - V.K.). But these certificates are needed.”

However, according to Alexey Sobolev, the ministry is always happy to receive requests from businesses, since the working group, although it has gone through a lot, is still identifying details that it missed. In his opinion, we should continue to work at the same rhythm as in the previous ten months. He also noted the positive role of the moratorium on inspections during the period of martial law. In his opinion, this is a good experiment. “Now we will think about how to optimize inspections,” he promised.

So, the working group, on behalf of which the Deputy Minister of Economy spoke, is against an immediate reduction in the number of regulatory acts based on the “guillotine” principle. However, the Ministry of Economy sees the destructive role of frequent business inspections and intends to rid it of them. And generally interact with business in dialogue mode. Seems normal...

However, in the meantime, the State Audit Service almost stopped the activities of the Luch design bureau, where high-precision domestic weapons are being developed, about a month ago. Reason: the state-owned enterprise included profits in the price of its products. “How could it be otherwise?” - you ask. - “With zero profit, a strategic enterprise, and any other enterprise, will go down the drain.” The scandal became public. This is clearly not a dialogue with business and clearly not at the right time.

So, maybe it’s still a “guillotine”? And then, from a clean slate and with an eye on EU practice, transform regulatory policy from punitive and punitive to service-supporting?