The Prosperity Problem: Measure the cost of red tape first, then cut it to fit

Politicians pledge to cut red tape. Entrepreneurs share stories of becoming entangled in red tape. Task forces and committees and panels (perhaps even blue-ribbon ones?) are formed to study both its redness and its tape-iness.

The phrase has become so bandied-about that it has almost become an abstract concept. And yet what it represents could not be more important: red tape is the web of rules and regulations that business owners must follow. Without concerted effort from government, that web can become so complex that it either keeps would-be entrepreneurs from starting businesses, or keeps existing businesses from growing. This threatens our collective prosperity by suppressing innovation.

Talk to any business owner about regulations and they will have a story to share. Some even reach the levels of sublime absurdity. There’s the Calgary costume-shop owner facing tens of thousands of dollars in tariffs because border agents changed years of precedent and judged his imported clothes to be “fancy dress” instead of “festive wear.” Or the time federal inspectors shut down a children’s lemonade stand in Ottawa because it didn’t have a permit.

There’s also the way routine paperwork can take over the life of professionals, such as doctors who spend an average of 12 hours a week just typing up notes about patients, but could surely find more productive uses of that time.

That isn’t to say rules are inherently bad. We need regulations to protect our natural environment. We want employees to be safe and healthy at work. We must curb monopolistic companies from abusing their dominance and stomping on smaller rivals.

But rules are not inherently good either. And lawmakers must regularly review them to make sure they are still relevant and useful.

A common way to review old red tape and cut it are so-called “one for one” laws. These dictate that, for every new regulation a government adds, an old one must be removed. British Columbia was the first government in Canada to adopt such a policy; others have followed, such as the federal government in 2015.

One-for-one laws have served some purpose, in that they have made lawmakers more aware of the burden each new regulation puts on businesses. But they have never been an ideal solution.

For one, they create a misleading cap that supposes that whatever the level of regulation a government had when it adopted the law is the correct amount of regulation to have. Better for policy makers to be pro-active in eliminating burdensome regulation – and we have some ideas on that below – rather than to be reactive, only looking for cuts when required.

As well, unless a one-for-one rule accurately measures the lengths of the red tape being added and the red tape being cut, it can be easily gamed. A government could add a very long, complicated strand of regulation at the same time as it lops off only a tiny snippet, leaving the overall impact in question.

That’s why assessing regulatory impact – measuring red tape – is critical. The Saskatchewan government has an interesting way to do that, through its Direct Cost Estimator. This is a tool the province has made mandatory for departments and agencies since 2017, and which requires new regulations to have their cost burdens measured and reported. The province then uses this as a sort of “regulatory budget,” akin to a financial budget. It’s an approach other governments should adopt.

One of the greatest dangers with red tape is its tendency to pile up. Here, too, Saskatchewan has an idea that other provinces could adopt: a promise to review every one of its regulations over a 10-year cycle. That approach can help spot outdated rules that can easily be cut.

Governments have promised to trim regulations for nearly as long as entrepreneurs have complained about them. But Saskatchewan has come up with an approach that has the potential to boost productivity: measure red tape accurately, so you can better tailor it to the needs of the economy.