Greek Crisis Underscores the Importance of Regulatory Reform – in Greece and Around the World

Alden Abbott —  16 July 2015

The Heritage Foundation continues to do path-breaking work on the burden overregulation imposes on the American economy, and to promote comprehensive reform measures to reduce regulatory costs.  Overregulation, unfortunately, is a global problem, and one that is related to the problem of anticompetitive market distortions (ACMDs) – government-supported cronyist restrictions that weaken the competitive process, undermine free trade, slow economic growth, and harm consumers.  Shanker Singham and I have written about the importance of estimating the effects of and tackling ACMDs if international trade liberalization measures are to be successful in promoting economic growth and efficiency.

The key role of tackling ACMDs in spurring economic growth is highlighted by the highly publicized Greek economic crisis.  The Heritage Foundation recently assessed the issues of fiscal profligacy and over-taxation that need to be addressed by Greece.  While those issues are of central importance, Greece will not be able to fulfill its economic potential without also undertaking substantial regulatory reforms and eliminating ACMDs.  In that regard, a 2014 OECD report on competition-distorting rules and provisions in Greece, concluded that the elimination of barriers to competition would lead to increased productivity, stronger economic growth, and job creation.  That report, which focused on regulatory restrictions in just four sectors of the Greek economy (food processing, retail trade, building materials, and tourism), made 329 specific recommendations to mitigate harm to competition.  It estimated that the benefit to the Greek economy of implementing those reforms would be around EUR 5.2 billion – the equivalent of 2.5% of GDP –  due to increased purchasing power for consumers and efficiency gains for companies.  It also stressed that implementing those recommendations would have an even wider impact over time. Extended to all other sectors of the Greek economy (which are also plagued by overregulation and competitive distortions), the welfare gains from Greek regulatory reforms would be far larger.  The OECD’s Competition Assessment Toolkit provides a useful framework that Greece and other reform-minded nations could use to identify harmful regulatory restrictions.

Unfortunately, in Greece and elsewhere, merely identifying the sources of bad regulation is not enough – political will is needed to actually dismantle harmful regulatory barriers and cronyist rules.  As Shanker Singham pointed out yesterday in commenting on the prospects for Greek regulatory reform, “[t]here is enormous wealth locked away in the Greek economy, just as there is in every country, but distortions destroy it.  The Greek competition agency has done excellent work in promoting a more competitive market, but its political masters merely pay lip service to the concept. . . .  The Greeks have offered promises of reform, but very little acceptance of the major structural changes that are needed.”  The United States is not immune to this problem – consider the case of the Export-Import Bank, whose inefficient credit distortionary policies proved impervious to reform, as the Heritage Foundation explained.

What, then, can be done to reduce the burden of overregulation and ACMDs, in Greece, the United States, and other countries?  Consistent with Justice Louis Brandeis’s observation that “sunshine is the best disinfectant,” shining a public spotlight on the problem can, over time, help build public support for dismantling or reforming welfare-inimical restrictions.  In that regard, the Heritage Foundation’s Index of Economic Freedom takes into account “regulatory efficiency,” and, in particular, “the overall burden of regulation as well as the efficiency of government in the regulatory process”, in producing annual ordinal rankings of every nations’ degree of economic freedom.  Public concern has to translate into action to be effective, of course, and thus the Heritage Foundation has promulgated a list of legislative reforms that could help rein in federal regulatory excesses.  Although there is no “silver bullet,” the Heritage Foundation will continue to publicize regulatory overreach and ACMDs, and propose practical solutions to dismantle these harmful distortions.  This is a long-term fight (incentives for government to overregulate and engage in cronyism are not easily curbed), but well worth the candle.

Alden Abbott

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I am a Senior Legal Fellow at the Heritage Foundation. I write on antitrust, domestic and international regulatory policy, and law and economics. I am an Adjunct Faculty Member at George Mason Law School.