• A historical review
• Why reducing red tape for businesses?
• What are administrative burdens?

A historical review
With an open economy and a relatively small home market, economic growth in the Netherlands largely depends on international economic developments and the ability of Dutch businesses to respond to them. The administrative burdens’ reduction for businesses became a political objective in the Netherlands in the mid nineties, after an international comparison had shown that the economy performed structurally less than neighbouring Anglo-Saxon economies. Dutch businesses responded slower and less flexible towards new developments than their counterparts. The difference can partly be explained by the way the economic process and especially the way of doing business was regulated at a national level.

The regulatory framework was considered to be an obstacle for starting up new businesses, competition, investment and innovation. Before going into business an entrepreneur had to go through a long and difficult bureaucratic process to obtain the prescribed permits. After obtaining them, the entrepreneur had to cope with many rules limiting his freedom to run the business as he wished or the market demands. Accordingly the Dutch economy was not very competitive and innovation orientated. As a result economic growth in the Netherlands was only modest and the unemployment rates were high.

The Netherlands clearly needed a reform program improving the legislative quality in terms of more space for entrepreneurship, more competition and less bureaucracy.  This last target was translated in a program to reduce the cost of businesses to meet the informational demands from government (administrative burdens on businesses) with 10%. As a part of the regulatory reform program existing legislation was systematically evaluated on the possibilities to cut back, modernize and harmonize informational demands without harming the public goals reached by legislation.

The next step was made when in 2000 the government - upon the advice of a high level committee under the leadership of the former CEO of Royal Shell Oil, mr. Slechte - decided to consistently quantify administrative burdens on businesses.

The Dutch Advisory Board on Administrative Burdens (ACTAL) was established by government decree on May 1, 2000 following the recommendations of the Slechte Committee to institutionalise attention regarding administrative burdens on enterprises. ACTAL is an independent, government appointed temporary advisory body that acts as a watchdog and facilitator for the Dutch government, giving backing to the government’s own objective to bring about a 25% reduction in the overall red tape on businesses. ACTAL’s functions include the independent review of proposed legislation, appraising ministerial plans to reduce administrative burdens in existing legislation and giving advice to the government concerning its overall strategy to structurally achieve lower administrative burdens.

Although a lot of work had been done and large legislative territories were evaluated, the total reduction was still modest. In 2002 the total reduction of administrative burdens was estimated 1 billion euro (or 6 à 7% compared to the 1994 level). Simultaneously the administrative burdens increased due to new legislation.

In the meantime the economic situation in the Netherlands was strongly deteriorating; economic growth almost came to a hold, unemployment rates were growing rapidly and after years of surpluses the budget showed a deficit. Businesses again made an appeal to government for a firm administrative burdens’ reduction because they were experiencing squeezing regulation. An economic recovery in the Netherlands demanded more opportunities for businesses to operate efficiently and to become the engine for new economic growth. In line with this the current government made the administrative burdens’ reduction on businesses one of its top priorities and committed itself to reduce it by a quarter compared to the zero base measurement (per 31/12/02) by the end of its term (May 2007).

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Why reducing red tape for businesses?
Regulation is important for the economy. Without regulation economic activities are impossible. On the other hand, over-regulation causes excessive costs, which curbs leeway for businesses. Rules should never be an object in themselves, but always a means of assuring a public interest or achieving a public goal. Over-regulation is at the expense of compliance, which often means missing the objective. The art is to find a balance.

In the last few decades, the Dutch system of rules has become increasingly complex, due to which the cohesion and logic of rules for companies and citizens are not always easy to grasp. This hampers compliance and is unnecessarily time-consuming and expensive, not to mention irritating. The balance must be reinstated. This is why the Dutch Cabinet has declared tackling red tape and regulatory creep as one of its most important themes. The approach involves, among other things, improving the quality of legislation to identify more transparent responsibilities and a clearer notion of what does and does not constitute public interests. The basic principle is more leeway and responsibility for the corporate sector. This implies that the Government does not attempt to resolve all the problems itself.

One of the key operations to restore the balance for businesses is the reduction of red tape by a quarter in 2007. The reduction of administrative burdens boosts a country’s national economy and helps restoring its competitive position. This is an urgent requirement as the total Dutch volume of these burdens, at some 16.3 billion euros, constitutes 3.6% of the Gross Domestic Product (GDP).

The Dutch Bureau for Economic Policy Analysis (CPB) estimations indicate that the reduction in burdens has positive effects on productivity in the market sector, competitiveness, output in the market sector, employment and economic growth. In the long term, a red tape reduction by 25% means a GDP increase by 1.5% and a rise in labour productivity by 1,7%. Pushing back bureaucracy in the collective sector will free 24,000 workers to be redeployed for the primary process (‘hands-on’), which will in turn contribute to increasing output and improving the quality of service provision in the collective sector. Moreover, a drop in bureaucracy will enable employers to respond more swiftly to changing market situations. This will subsequently aid a faster recovery in economic growth. More information on the macro-economic effects of reducing administrative burdens can be found in the full CPB report.

A  study - by the Dutch Economic Institute for Small and Medium-sized Businesses (EIM) in 2003 - on the distribution of red tape over businesses and branches shows that 90% of all the administrative costs are imposed on small and medium-sized businesses (SMEs). This can of course be explained from the dominance of SMEs in the Dutch economy. But it is also true that especially small businesses suffer much more from administrative burdens than larger ones. This because a large part of the administrative costs is fixed.  It can also be explained by the impact of specific legislation on sectors. Most specific legislation does not take the size of the companies involved into consideration. It focuses only on the activity carried out instead, which disproportionately affects SMEs.

Of course there is more to better regulation than administrative burdens for companies. The impact of regulation on businesses is wider than the red tape scope. However, administrative burdens are a reliable estimate of a country’s regulative efficiency. Even if high compliance costs may be required as an element in good legislation (for instance investments in environmental technology), unnecessarily and disproportional high administrative burdens never directly serve a public good. Last but not least, they are a major source of irritation for businesses.

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What are administrative burdens?

A comprehensive framework on red tape definitions can be found in the manual “The Standard Cost Model; a framework for defining and quantifying administrative burdens for businesses”, a guide for defining and quantifying national administrative burdens for businesses. FAQ also provide more understanding on whether businesses are being faced with administrative burdens or not.

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