Regulatory Reform: Lessons From Canada

Regulatory Reform: Lessons From Canada
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Earlier this year, Canada made news when it became the first country in the world to legislate a hard cap on regulations. It's a move that may surprise Americans who see Canada as a country that embraces, for better or worse, bigger government. The new federal law requires that for every new regulation introduced, one of equivalent burden must be removed. Remarkably, the legislation had nearly unanimous support.

Canada's new policy is based on a more comprehensive set of reforms implemented in the province of British Columbia. BC's regulatory reform dates back to 2001, when a newly elected government set out to make good on its promise to reduce the regulatory burden by one-third in three years.

The 2001 commitment was unusually bold and concrete, which can partly be understood by the context. At the time, the BC economy was one of the worst-performing in Canada, and excessive regulation was frequently cited as a serious challenge. Restaurants were told what size televisions they could have in their establishments, and forest companies were told what size nails they could use to build bridges over small streams.

In this context, an ambitious short-term objective to cut rules by one-third in three years made sense. But what makes the BC model even more interesting is its longevity. Once the short-term objective to reduce red tape was met, it kept the reforms in place to control regulatory creep from setting in. To use an analogy that many may relate to at this time of year, the government not only lost its excess weight, but has kept it off for over a decade. In fact, the government has reduced regulatory requirements by 43 percent.

During this time period, the province went from being one of the poorest-performing economies in the country to being among the best. While there were other factors at play in the BC's economic turnaround, members of the business community widely credit red tape reduction with playing an important role.

What helped BC be successful? Political leadership was certainly very important. Achieving the one-third reduction was a clear priority for the newly elected premier, which helped it be taken seriously across all government departments.

The BC government also decided to think broadly when deciding what would count as a "regulatory requirement" for purposes of meeting the one-third target. The initial count found roughly 380,000. Prior to the one-third target being met, policymakers committed to eliminating two regulatory requirements for every new one introduced. (Unlike the federal government, BC has not formally legislated its policy of eliminating old rules as new ones are introduced.) Once the one-third target was exceeded in 2004, the government made a commitment to no net increase in regulatory requirements, which it has extended several times. The most recent extension of the commitment was made early in 2015 and extends to 2019.

Further institutionalizing its reforms, this fall the BC government legislated a Red Tape Reduction Day (the first of which is being held in March of 2016). It is currently conducting a consultation about how to reduce red tape for all citizens by improving government customer service, which has solicited hundreds of suggestions.

Canada's experience with regulatory reform offers some very practical lessons for U.S. governments at the federal, state, and local levels. The essential ingredients of effective reform include political leadership from the top, public reporting of clear metrics, and constraints on regulators. It is also very helpful, likely even essential, to have a credible group outside government pushing for less red tape. In Canada's case, that group was and continues to be small business.

— Laura Jones is the executive vice president of the Canadian Federation of Independent Business and author of the recent Mercatus Center at George Mason University study, "Cutting Red Tape in Canada: A Regulatory Reform Model for the United States?"

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