the regulatory framework in iceland...entrepreneurship explicit barriers to trade and investm....
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THE REGULATORY FRAMEWORK IN ICELAND Douglas Sutherland, Economics Department OECD 13 January 2016, Reykjavik
– Background from 2015 OECD Economic
Survey of Iceland
– Policy and regulatory settings drawn from the Product Market Regulation database
– OECD Global Forum on Productivity
2015 OECD Economic Survey of Iceland
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2000 02 04 06 08 10 12 14
Growth rate (%) Growth rate (%)
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Labour productivity growth has slowed
Source: OECD, Analytical and Economic Outlook databases; Labour Force Statistics and Productivity databases.
• Competition can boost productivity
• Icelandic Competition Act is well founded
• Limits to competition in small open economies – e.g. economies of scale
Competition policy in a small open economy
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Barriers to entrepreneurship are high
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Note: Index scale of 0-6 from least to most restrictive. Source: OECD, Product Market Regulation indicators database. The OECD Indicators of Product Market Regulation (PMR) are a comprehensive and internationally-comparable set of indicators that measure the degree to which policies promote or inhibit competition in areas of the product market where competition is viable.
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Less than half of students finish high school on time
Note: Successful completion of upper secondary programs within the set time needed to complete. Source: OECD, Education at a Glance 2014
O
0102030405060708090100
0102030405060708090
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KOR
JPN IRL
SVK
ISR
USA
GRC
HUN
EST
POL
SVN
CAN
SWE
TUR
OECD AU
TBE
LFI
NNZ
LGB
R ITA
CHL
MEX
NLD
ESP
DNK
FRA
NOR ISL
% %
• Create a productivity commission
• Lower legal barriers to entry and regulatory procedures
• Use the OECD’s Competition Assessment Toolkit
• Support students who are vulnerable to dropping out
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Adopt a productivity-friendly agenda
Product Market Regulation
The economy-wide PMR indicator aggregates information by regulatory theme.
Scope of SOEs
Gov’t in-volvem. in netw. sect.
Direct control
Govern. of SOEs
Licenses and permits
system
Communi- cation and simplific.
of rules and procedures
Admin. burdens for
Corporations
Admin. burdens for sole propr.
firms
Barriers in services sectors
Legal barriers
Antitrust exemptions
Barriers in network sectors
Barriers to FDI
Tariff barriers
Differen-tial
treatm. of foreign suppliers
Barriers to trade facilita-
tion
Product market regulation
Price controls
Use of command
and control
regulation
State control
Other barriers to trade and investm.
Complexi-ty of regul.
proce-dures
Barriers to trade and investment
Barriers to entrepreneurship
Explicit barriers to trade and investm.
Regulatory protection of incum-
bents
Involve-ment in business
operations
Public ownership
Admin. burdens
on start-ups
The 2013 reveals a fair degree of heterogeneity across countries
Economy-wide PMR indicator Index scale 0 to 6 from least to most restrictive
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0,5
1
1,5
2
2,5
3
NLD
G
BR
A
UT
DE
U
DN
K
ITA
A
US
N
ZL
FIN
P
RT
HU
N
SV
K
ES
T C
AN
B
EL
CZE
LU
X
FRA
IR
L E
SP
IS
L C
HL
NO
R
CH
E
LTU
JP
N
SW
E
MLT
B
GR
LV
A
PO
L C
YP
GR
C
RO
M
SV
N
KO
R
ME
X
ZAF
HR
V
ISR
R
US
TU
R
BR
A
CH
N
Barriers to trade and investment Barriers to entrepreneurship State control
The PMR scores for Iceland
Sub indicators for the barriers to entrepreneurship indicator
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For corporations For soleproprietor firms
In servicessectors
Licences andpermits system
Rules andprocedures²
Legal barriers Antitrustexemptions³
Barriers innetwork sectors
Administrative burdens on startups Complexity of regulatoryprocedures
Regulatory protection of incumbents
Iceland
OECD¹
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Biggest differences are with the regulatory and legal barriers
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4
5
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2
3
4
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Licences and permitssystem
Rules and procedures²
Administrative burdens onstartups
Complexity of regulatory procedures Legal barriers
Iceland OECD¹
1. The OECD aggregate is an average of data available (25-30 countries depending on the year covered). 2. Communication and simplification of rules and procedures.
Source: OECD, Product Market Regulation database.
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GBR
SW
E CH
L AU
S N
ZL
EST
DNK
RUS
BGR
IRL
NLD
CZ
E DE
U
LVA
HRV
SVK
FIN
RO
U
LTU
CH
E SV
N
AUT
MLT
PR
T PO
L CA
N
ESP
NO
R IT
A KO
R G
RC
JPN
FR
A HU
N
IND ISL
MEX
CH
N
BEL
LUX
ZAF
BRA
TUR
ISR
Barriers in services sectors
Barriers in network sectors
Legal barriers to entry
Differences with respect to other regulatory barriers to competition
PMR indicator on barriers in network and services sectors and legal entry barriers Index scale 0 to 6 from least to most restrictive
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1998 2003 2008 2013
On average in the OECD, legal barriers to entry have fallen
Barriers in services sectors
Barriers in network sectors
Legal barriers to entry
1. To ensure comparability over time, only OECD countries for which data are available for all years are taken into account.
PMR indicator on barriers in network and services sectors and legal entry barriers Index scale 0 to 6 from least to most restrictive
OECD Global Forum on Productivity
• Established late 2015 – Already 13 countries in steering group
• Share best practice • Share data on results of policies • Support policy-orientated analysis
• High-level meeting, workshops, dedicated
web portal, working papers
OECD Global Forum on Productivity
Additional slides
Methodologies and strategies used to construct the PMR indicators.
• Economy-wide regulation (PMR) • Regulation in telecoms, electricity, gas, post, rail, air passenger
transport, road transport, retail trade and professional services (NMR) Scope
What are the OECD’s indicators on product market regulation? • Enhancing the knowledge of regulatory practices in OECD and non-OECD countries
• Quantifying a country’s regulatory stance and track reform progress over time
• Investigating their link with economic performance.
Aim
• The indicators capture foremost de jure regulatory settings • The implementation and enforcement of regulations and the associated
institutional framework are not covered by the PMR and NMR
Policy setting
• Countries: 34 OECD countries and 21 non-OECD countries • Years: 1998, 2003, 2008, 2013 (for regulation in network sectors: 1975
to 2013) Coverage
How do we proceed from data collection to computing the final indicator value?
• OECD countries: Questionnaire sent out to governments
• Non-OECD countries: Questionnaire sent out to governments or local consultants
• Internal consis-tency check
• Cross-check with external data-bases
• OECD staff (with educa-tional back-ground/work experience in the area of product market regulation
Data collection Data
verification • Qualitative
information coded by assigning numerical values to each reply
• Quantitative information divided into classes using thresholds
Coding of data
• Normalization over 0 to 6 scale, from least to most restrictive
• Aggregation into higher-level indicators based on equal weights
Data aggregation
• Database and indicator scores presented to delegates at WP1 meeting
Peer review
Regulation can hamper productivity
Source - Arnold, J., Nicoletti, G. and Scarpetta, S. (2011). “Does anti-competitive regulation matter for productivity? Evidence from European firms”. IZA Discussion Paper No. 5511.
Increase in multi-factor productivity compared to regulatory stance
Fast
er g
row
ing
More regulated
The indicators on sector regulation aggregate information by sector – network sectors
Energy
Electricity
Entry regulation
Public
ownership
Vertical integration
Market
structure
Gas
Transport Communication
Post Telecom Air Road Rail
Entry regulation
Public
ownership
Vertical integration
Market
structure
Entry regulation
Public
ownership
Entry regulation
Public
ownership
Vertical integration
Market
structure
Entry regulation
Price
controls
Entry regulation
Public
ownership
Market structure
Entry regulation
Public
ownership
Market structure
ETCR
Countries displayed different extents of regulatory reform over the period 2008-13
Economy-wide PMR indicator Index scale 0 to 6 from least to most restrictive
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0,5
1,0
1,5
2,0
2,5
3,0
3,5
4,0
NLD
U
SA
G
BR
A
UT
DE
U
DN
K
ITA
A
US
N
ZL
FIN
P
RT
HU
N
SV
K
ES
T C
AN
B
EL
CZE
LU
X
FRA
IR
L E
SP
IS
L C
HL
NO
R
CH
E
JPN
S
WE
P
OL
GR
C
SV
N
KO
R
ME
X
ZAF
IDN
IS
R
RU
S
TUR
B
RA
C
HN
IN
D
2013 2008
Information on competition law and policy is aggregated in two different ways.
Indepen-dence
Governance
Electricity Gas Ports Telecom Airports Rail
Scope of action
Account-ability
Instruc-tions
Staff
Budget
… … …
…
… … … … … … … … … … … …
… … … …
The information on competition law and policy is aggregated in two different ways.
Competencies
Sanctions/ remedies
Powers to investigate
Horizontal agreements
Vertical agreements
Mergers
Independence
Private enforcement
Exclusionary conducts
Accountability
Procedural fairness
Advocacy
Scope of action Policy on anti-comp. behaviour
Probity of investigation Advocacy
Indicator set 1
Indicator set 2
The independence of economic regulators
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DE
U
ITA
TU
R
KO
R
GR
C
HU
N
SV
K
IRL
CA
N
ES
P
CZE
FR
A
ISR
C
HE
D
NK
P
OL
ES
T LU
X
PR
T JP
N
SV
N
NZL
A
UT
NLD
FI
N
BE
L S
WE
M
EX
C
HL
GB
R
ISL
AU
S
NO
R
Elecricity Gas Telecom Rail transport Airports Ports
Index scale 0 to 6 from most to least independent
0,0
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1,0
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2,0
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ES
P
FRA
G
BR
P
RT
NZL
A
US
M
EX
C
AN
IR
L IT
A
NLD
G
RC
P
OL
DE
U
JPN
H
UN
S
VK
A
UT
SV
N
BE
L S
WE
FI
N
CH
E
NO
R
LUX
C
HL
DN
K
ISL
KO
R
CZE
TU
R
ISR
E
ST
Elecricity Gas Telecom Rail transport Airports Ports
The accountability of economic regulators
Index scale 0 to 6 from most to least accountable
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1,0
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GB
R
ITA
P
OL
NLD
K
OR
S
VK
IS
L G
RC
IR
L FI
N
HU
N
PR
T C
AN
M
EX
FR
A
TUR
A
UT
LUX
C
ZE
JPN
S
WE
IS
R
NZL
D
EU
B
EL
AU
S
ES
T N
OR
C
HE
D
NK
E
SP
C
HL
SV
N
Elecricity Gas Telecom Rail transport Airports Ports
The scope of action of economic regulators
Index scale 0 to 6 from most to least scope of action
http://www.oecd.org/eco/pmr
Further information can be found on the PMR webpage.
Competition Assessment Toolkit
Regulation
Markets do not always operate efficiently, need for state intervention = regulation
Correctly designed regulation has very important beneficial effects for society (protection for consumers & environment, health & safety, etc.)
Rules and regulations typically have desirable socio-economic objectives
BUT • badly designed regulation can also distort competition
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In specific circumstances, rules and regulations have the potential to cause harm to the efficient functioning of markets, by preventing new firms entering a market or altering the ability and incentives of firms to compete
We do not question the socio-economic values
Our objective: assess the effects of the regulations on – Extent of competition in the markets – Incentives for firms to engage in innovative activity – Potential for growth of the markets – The usefulness or purpose of the regulation itself
Regulations and their impact on markets
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• The objective is to assess the effect of regulation on – Extent of competition in the markets – Incentives for firms to engage in innovative activity – Potential for growth of the markets – The (unintended) effect on consumers
A different way of stating the objectives – We want to avoid restricting competition when making
policy – Better to address concerns related to competition and
innovation before a policy is enacted • Vested interest-groups may make later corrections rather
difficult
Why competition assessment?
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Why the emphasis on assessments? • Some of the factors relate to
– Increasing realisation that markets may work reasonably well in many industries that traditionally have been heavily regulated
– Change in technology and market conditions warrant re-evaluation of many types of regulations
– Improved quality of regulations may lead to national economies becoming more competitive and innovative, and domestic firms being in a better position to compete globally
• The assessment process involves revision and improvement and should lead to positive change
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Competition assessment: examples
Review of existing legislation in Mexico • Multi-year project to improve competitiveness in cooperation with the
OECD • 4 sectors with widespread impacts on competitiveness selected for review • 11 sectors with significant consumer expenditure selected for review • 4 additional areas of cross-sectoral regulation with a high impact on
competitiveness also examined.
Australia review of laws and regulations resulting in substantial restrictions on competition • Over 1800 laws and regulations reviewed over 5 years
Greece Competition Assessment • Approximately 1000 pieces of legislation touching 4 sectors (food
processing, retail trade, building materials, tourism) were reviewed
Reviewed 4 sectors in Greece, totalling 21% of GDP, in 2013
Sector: Food processing
Retail trade
Building materials Tourism Horizontal
legislation Total
Pieces of legislation examined
100 210 46 132 67 555
Recommended for change
54 129 32 76 38 329
OECD Recommendations for reform valued at €5.2bn annually for Greece Issue Annual Benefit Number of
provisions affected
Value, €m
“Fresh” milk €33m (consumer benefit/year) 2 33
Levy on flour €8m-11m (value of levy/year) 1 8
Sunday trading €2.5bn (annual expenditure), plus 30,000 new jobs 3 2 500
Sales and discounts €740m (annual turnover) 9 740 Over the Counter pharmaceuticals €102m (consumer benefit/year) 23 102
Marinas €2.3m (annual turnover) 10 2
Cruise business €65m (annual turnover) 4 65
Advertising €1.8b (consumer benefit/year) 14 1 800
Everything else ??? 263 ???
Total: €5.2bn + ???