This article by FNV union economists Vera Vrijmoeth and Tijmen de Vos appeared earlier on their Substack Red Figures and is reposted here with their permission.
Companies everywhere are whining about regulatory burden. Whether it's the City of Amsterdam, the Dutch government or the European Parliament, everywhere bureaucrats are said to get in the way of entrepreneurs.
Not without results. The European commission wants to remove 25% of the rules. The cabinet, too, was fully committed to fewer rules at the Dutch entrepreneurial summit.
But here comes the catch: is the regulatory burden really high? And are fewer rules really the solution to declining productivity growth?
What does the European Commission base its decision on?
The main document cited in Europe to argue for less regulatory burden is Draghi's report. This states that we have far too many regulations in Europe and that, among other reasons, we are less competitive with the United States and have lower productivity growth.
There is limited evidence to support this contention: Draghi barely gets beyond one comparison. Europe is said to have imposed as many as three times as many regulations as the U.S. Congress. According to Erik Jones, director of the Schuman Center, this comparison only misses the point, because in the United States most regulation does not come from parliament, but from the executive branch. So Draghi forgets to factor much of U.S. regulation into his comparison.
So how high is the regulatory burden?
This is measured by the OECD (the Organization for Economic Cooperation and Development). The Netherlands and Europe have a lower regulatory burden than the United States. This difference is only increasing. While the regulatory burden in the U.S. remained constant between 2018 and 2023, the European regulatory burden has decreased. So this European regulatory burden is not so bad.
Do rules then perhaps reduce investment?
Every year, the European Investment Bank asks entrepreneurs whether regulatory burden is now an obstacle to investing, and what do they find? For companies in the Netherlands and Europe the regulatory burden is a lesser obstacle to investing than in the United States. Again, the figures for the Netherlands are well below the European figures.
And do we have the right rules?
That leaves the question: are the rules we have in place good for our economy as a whole? Fortunately, the OECD is conducting research on this too. Based on more than 1,500 questions answered by contacts in more than 30 countries, the OECD assesses to what extent the regulations ensure a competitive, open and well-functioning economy. Europe turns out to regulate much better than the United States and the Netherlands again much better than Europe.
Why did we have those rules again?
In other words, the European (and Dutch) regulatory burden is lower than the U.S., is less of an impediment to investment, and the rules we have seem to favor the economy as a whole.
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But then why do we hear companies complain so much about regulations? Probably because, in fact, they always do. For example, historian Timon de Groot showed that in 1930, employer organizations also complained about the introduction of the eight-hour workday and the 27 inspectors sent out to all Dutch companies.
The rules have a function, of course. And even if they occasionally create extra work or obligations for an individual company, they serve a broader interest. For example, the Commission currently wants to drastically weaken European rules thathold companies liable for environmental damage and violated workers' rights in supply chains. New regulations are also being proposed that would reduce the regulatory burden, but meanwhile undermine the very protection of workers in posting. And that's a shame. Because European regulation is precisely what contributes to broad welfare, which the U.S. lacks.
Moreover, scrapping regulations does not solve the problem Draghi identifies: declining productivity growth. If regulations were the problem we would already have been much more productive than Americans.