How necessary is bureaucracy for America
Bureaucracy: necessary, but an evil
Too high and increasing bureaucratic effort
When asked which projects the grand coalition could best increase the competitiveness of German companies, 57 percent of the entrepreneurs surveyed by the DIE FAMILIENUNTERNEHMER association recently responded with the suggestion of reducing bureaucracy. This put the topic at the top.
There is something wrong with the perception of entrepreneurs, as shown by the results of the compliance costs monitor of the Regulatory Control Council, which has been collected since 2011. The annual bureaucratic effort in connection with legislative changes by the federal government has increased by over 8 billion euros since 2011.
The bureaucratic effort affects citizens not only indirectly through higher administrative costs for the state and private organizations, but also in some cases directly: when applying for an identity card, through vehicle registration, through to tax law.
It doesn't work without bureaucracy
Rules are required for people to live together. They give us planning security with regard to the trade of others and, in the best case, encourage cooperative behavior. This applies to smaller groups and even more so to large, complex societies. State rules structure areas of life such as living, living and working, but also formulate rights of defense against the state itself - the word legal peace is no accident. A world without rules would be terrible. Regulatory policy: No good game without the rules of the game.
Rules and their bureaucratic implementation: benefits and costs
In markets, rules can increase the certainty of expectations for companies and the trust of customers. In Germany, all market participants benefit from rules that regulate property rights and structure the transfer of property rights through buying and selling.
The state should only consider the implementation of such rules that have a positive effect per se in that they suppress undesirable behavior, promote desirable behavior and create additional opportunities for cooperation.
In order to assess whether a rule is worth striving for, however, its implementation and enforcement costs must also be taken into account - the necessary bureaucracy with the state, private organizations and citizens directly. If these transaction costs incurred by state units and private actors exceed the benefit of the rule, they should not be aimed for.
Estimating the benefits and costs of rules and their application is a tricky undertaking. How the resulting benefits and costs are weighted determines whether a rule under discussion is considered worthwhile. Different reviewers will regularly come to different conclusions. And yet, based on the analytical separation between rules on the one hand and their enforcement and implementation on the other, it can be stated that rules should be set that are not only desirable per se, but are also easy to implement and enforce.
A few examples: In the case of environmental regulations, it is better to set goals than to give detailed guidelines on how goals are to be achieved. In the area of tax and social law, generous lump sums are often preferable to the attempt to create individual justice down to cents.
It goes without saying that it is the state's task to guarantee or enable the cheapest possible alternative for implementing and enforcing its rules. Unfortunately, the German state regularly fails to meet this ideal. In a 2015 report, the Regulatory Control Council came to the conclusion that 30 percent of government administrative costs could be saved through the consistent implementation of e-government solutions. Not much has changed since then. The savings through a more consistent implementation of e-government would certainly also be considerable on the part of private actors.
Tendency to be over-regulated
In democracies, not only are state rules introduced, which an impartial observer would also find desirable for a large majority of society. Politicians can raise their profile by introducing new rules and interest groups with narrowly defined particular interests can influence rules to their advantage. In both cases, the parliamentary process can unearth new regulations with negative social net benefits.
In addition, employees of state organizations who are entrusted with the implementation and enforcement of rules have an interest in their ongoing (resource-intensive) implementation in order to be able to justify their existence - even if the rules should no longer be applied from a social perspective. This applies to federal and state administrations as well as to administrations at EU level.
An increasing density of regulations over time and the associated increase in compliance costs are therefore not surprising. They are to be expected for political and economic reasons. There are many indications that the freedom of contract is too restricted by state rules today and that the bureaucratic effort involved is too high.
Avoid institutional sclerosis
All the more, those not directly involved in the political process should insist on subjecting rules per se to reviews and consequently using cost-saving potentials in their implementation, for example through the use of e-government solutions, in order to avoid institutional sclerosis.
The example of the EU Commission shows that attention and public pressure can contribute to changing the political-economic calculation: In response to the criticism that the EU is setting too many rules that are too detailed, the current Commission became the first Vice-President and Deputy chairman of the commission, Frans Timmermanns, is in charge of reducing the density of rules - a small step, but at least in the right direction.
Justus Lenz is head of budget policy and digitization at the association DIE JUNGEN UNTERNEHMER / DIE FAMILIENUNTERNEHMER and research associate at the Hamburg Institute of International Economics.
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