The Enterprise and Regulatory Reform Yawn

The details of the government’s red-tape busting Enterprise and Regulatory Reform Bill still have to be hammered out. “Overhaul the employment tribunal system” and “Cut unnecessary red tape for businesses” could mean all sorts of things. The Institute of Directors and Federation of Small Businesses are already complaining that it doesn’t go far enough but, for regulation-haters, it probably never will.

According to the OECD, of its member countries, only the USA has less red-tape than Britain. Does this stop American business leaders complaining about red-tape? Does it hell! Last autumn, the Republicans produced a list of the Top Ten Job Destroying Regulations, described by the House Majority Leader as, “costly bureaucratic handcuffs that Washington has imposed upon business people who want to create jobs.”

Sounds familiar doesn’t it?

However little regulation there is, it will always be an irritation. The truth is, employing people is a pain in the backside. You have to look after them, find them work to do and train them. Even if you don’t do any of that, shouting at them when they get things wrong still takes up time and energy. For business owners, taking on their first employees is a huge leap of faith. Suddenly you have responsibilities for others as well yourselves. It’s difficult for small businesses too. If you’ve only got ten employees, if one of them goes sick or doesn’t perform, that’s 10 percent of your workforce knocked out.

This has always been the case and all the deregulation in the world is not going to change it. There is, and there always has been, a certain amount of aggro involved in taking on and managing people. Victorian chimney sweeps were allowed to beat the small boys who worked for them yet even they would have thought carefully before taking on extra staff.

It is confidence in the economy and the belief that they can make profits by employing people that makes people decide whether or not to take on extra staff. The amount of regulation is a side issue.

As employment lawyer Alan Jones said:

The main obstacle to employing people is lack of confidence, lack of funding, lack of demand (particularly in retail) and the general economic malaise in which we find ourselves. Employment law has been around in one form or another for over 40 years, and rates of unemployment have varied over that time depending on the economic cycle.

The same can be said of comparisons between countries. Those with more regulation than the UK still manage to be more competitive and have higher growth than we do.

None of this is to say that businesses don’t find regulations irritating. From its recent call for evidence, the government published the ‘top ten regulations‘ that deter businesses from taking on staff. (Haven’t we heard that somewhere before?) Some of these, like discrimination, the government can’t do much about. Top of the list was health and safety, where most of the problems faced by businesses have little to do with legislation. But even if all these regulations could be abolished, would it really make that much difference?

Even in the no-regulation economy of the Victorian era, firms were reluctant to take people on when the economy was on its knees. Cutting regulation is not going to give firms the confidence to take on staff. If the economy does pick up and orders start coming through the door again, firms will start recruiting and regulation won’t stop them.

Whatever the Enterprise and Regulatory Reform Bill contains, there are two things we can almost bank on. Firstly, it will make no difference to economic growth and job creation. Secondly, it will not stop people moaning about red-tape. The amount of regulation seems to have little effect on either.

Update: The OECD has just released this data showing the change in employment rates since the financial crash:

Change in employment rates

Percentage points

You’ll notice that the only major economy which is has managed to improve its employment rate since the recession is that well-known bastion of deregulation, Germany.

The only other countries with significant improvements were Turkey and Chile.

Look where Turkey is on the OECD’s employment protection league table:

Employment Protection in 2008 in OECD and selected non-OECD countries

Scale from 0 (least stringent) to 6 (most restrictive)

So you can have lots of employment law and still create jobs. Who’d a thought it?

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4 Responses to The Enterprise and Regulatory Reform Yawn

  1. Pingback: The Enterprise and Regulatory Reform Yawn - Rick - Member Blogs - HR Blogs - HR Space from Personnel Today and Xpert HR

  2. B.O. Locks says:

    This is spot on.

    If business leaders really believe it is regulation that prohibits growth then God help us! It is difficult to see how the economy will recover with business leaders in place whose diagnosis is so obviously lacking.

    Perhaps we should blame that other shibboleth, the education system, to explain why these business leaders are so thick, just as they blame the education system for high youth unemployment?

  3. Vince Lammas says:

    Hi Rick,
    Well said on all fronts. Any business owner who sees demand in the economy that can be met by employing people to do work will act in the most efficient manner they know how (using permanent or emporary staff with the required skills).

    It is the lack of confidence about the economy and long term business security (plus perhaps over-cautious lending criteria from banks) which are holding back jobs and growth – nothing to do with regulation.

    I could see an argument, perhaps, for making some clear exemptions or some simple solutions for micro-businesses (those which might worry about taking those first steps) but generally this stuff seems to be so much hot air.

    But then, if you can’t be useful … look busy

  4. Dave Timoney says:

    The red tape trope usually involves two separate claims. The first is that it is difficult to sack an underperforming worker. The second is that these regulations are a particular burden on small businesses.

    Since April this year, a new employee can only claim unfair dismissal if they have worked for 2 years (previously 1 year), assuming the dismissal does not breach any statutory rights and is not discriminatory. In effect, an employer can dismiss an underperformer with a minimum of effort (you’d expect a couple of written performance reviews in that timeframe). If the employer cannot spot a wrong ‘un within 2 years, then they are incompetent.

    While it is possible to believe that a large corporation, with a bureaucratic HR department, might struggle to get its shit together in terms of performance reviews and actively managing underperformers, it is not credible to believe this in the case of small businesses. An underperformer in a 10-person company will be spotted pretty quickly. If 10% of the workforce are failing to earn their corn, that’s a big hit on the bottom line. And while the HR processes may be rudimentary, you can bet they will be effective.

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