Overcoming administrative barriers throughout the world

13.05.2016

We found major worldwide examples of victory over administrative absurdities.

Loads of red tape, multi-stage approval process, meaningless laws – these and other bureaucratic obstacles can quickly stifle any project. But fortunately the recent history has successful cases of coping with this. In a joint project with the portal “Building is easy”, which was created to help investors and developers in Moscow, we are studying the cases of success in global fight against bureaucracy.

Georgia
Useless Departments
In 2004, there was a change of power in Georgia. Former president Eduard Shevardnadze left sprawling officialdom which consisted of a number of useless departments. They did not know the boundaries of their own authority and often duplicate each other’s functions.

Method of fighting:
The Parliament of Georgia started the reform of the executive branch. Reformers followed the principle of “the smallest state” freeing the economy from excessive regulation in order to accelerate GDP growth and to fight corruption. They abolished the fire inspection, sanitary-epidemiological service, mandatory inspection of transport, certification and standardization of products.

Results:
Due to the fact that officials did not cope with their work, life has improved without them. The relative number of deaths in road accidents and fires has decreased. People are not affected by medications, because they are tested in the producing countries. It became possible to save money on examinations, and the GDP grew on average by 10% per year (compared to the average 3.7% in previous years) up to the global crisis of 2008. In addition, Georgia regularly enters the top five of anticorruption rankings.

Chile
Paternalism
In the early 1970s, the economic crisis has begun in Chile. One of the problem sectors was transportation: this market was divided between small local companies. At the same time tariffs were determined by the government, and licenses were given only to the members of various associations, but not immediately, sometimes it took a couple of years. Importing technology was limited for the sake of domestic producers.

Method of fighting:
Dictator Augusto Pinochet delegated reforms to neoliberal economists of the Chicago School, they abolished many of the rules of freight and passenger transportation. In 1975, the government deregulated tariffs and allowed all interested companies to enter the market of cargo transportation, and in a couple of years it deregulated bus transport.

Results:
The number of freight companies has increased dramatically. However, after seven years another crisis erupted, and many small firms were destroyed. Prices for passenger transport increased at first, but soon the tickets have fallen due to competition. New company launched additional routes and improved the quality of services.

USA
Omnipotent agency
In the United States, the transport sector was regulated too strictly. The Council for Civil Aviation has not only watched over the safety of flights, but also approved of routes, fares and even established guaranteed profit of 12% for carriers if the aircraft cabin was at least half full. Companies had to agree on all important decisions with the officials, passengers overpaid for tickets. In 1973, oil and kerosene prices have risen, and air tickets went up even more.

Method of fighting:
Five years later, Congress passed a law on deregulation of airlines. The council lost almost all the power, and after a couple of years it disembodied. The Ministry of Transport took charge of the sector, and the rules for carriers were greatly facilitated.

Results:
The consequences of the reform were contradictory. On the one hand, due to increased competition many companies have reduced their staff, some of them were destroyed. On the other hand, by 1990 the average ticket price fell by about a third, and now Americans are much more likely to travel by air.

Russia
Red tape problem
In Russia, the recession is lingering and the money flows away at a record pace. National economy is inhibited by a variety of factors, including the fabulous red tape problem. Thus, the list of the Russian Ministry of Construction includes 141 procedure relating directly to the construction sector, though only 29 procedures related to construction works. More than half of the procedures are governing the work of the networks for the construction site – water and sewage, electrical supply and others.

Method of fighting:
In order to attract investors and reduce the expenses of the budget, the Moscow authorities have decided to lower administrative barriers. Since 2012, unnecessary procedures are being abolished or amended in the capital, and the remaining ones are upgraded, shortening their terms and transferring them to electronic format.

Results:
The lower the administrative barriers, the cheaper and faster to get the necessary documents. In Moscow of 2005, it took an average of 629 days and almost 12% of the project cost; in 2015 it already amounted to 244 days and 1.7% of the project cost. This year these figures have reduced to 99 days and 0.9% of the project cost for certain categories of projects. In the World Bank’s Doing Business ranking Russia has climbed 60 positions in four years due to the progress in dealing with construction permits, now it resides on 119th place.

North Korea
State economy
In the mid-1990s, North Korea experienced a severe famine, which killed millions of people – the state could survive only thanks to humanitarian aid from abroad. We are hardly aware of the news from North Korea, this country is still perceived as a land of poverty-stricken camps. However, this view is not entirely true.

Method of fighting:
The current leader of North Korea Kim Jong-un to preserve his power holding political repressions and tightening the screws in public life. At the same time, he loosened control over the economy. In 2012, the government reformed agriculture sector, making a “small squad” a new backbone of it. Unlike collective farms, small squads consist of one or two families, who cultivate the same plot of land and take part of the harvest. In 2014, the party decided to increase the land plots tenfold. At the same time the directors of state-owned enterprises were allowed to buy raw materials and sell products  and pay for work on arm’s length terms.

Results:
Nowadays North Korean farmers harvest record crops even in dry years, and the country no longer faces mass starvation. Many factories and mines only listed as state property, in fact fell into the hands of entrepreneurs. Today the private sector provides up to 60% of the GDP of North Korea.

Great Britain
Rigid labor laws
Until the mid-1990s, large stores in England and Wales closed on Sundays in conformity with the law. The government cared about the rights of workers and family traditions, however the lost day interfered with business and customers.

Method of fighting:
The Thatcher government tried to resolve the Sunday trading in 1986, but the bill failed in the Parliament. Rules were eased only after eight years: shops with area of over 280 square meters started to work on Sunday for six hours. Later, some members of the Parliament tried to introduce new reliefs, but failed to agree on them.

Results:
Sunday Trading Act of 1994 has improved life of ordinary customers, but after its adoption residents were more likely to go to the supermarkets, making small stores suffer. Economists of the Oxford Economics estimated that due to new regulations in the sector, more than 17 thousand jobs have disappeared, though the pace of GDP growth was not slowed down.

RSA
Closed economy under sanctions
In the 1980s, South Africa was in decline: the economy was not working efficiently, the currency depreciated year by year, many countries boycotted South African products due to apartheid. Agriculture sector survived on subsidies. For example, all the winemakers were forced to be affiliated in the cooperative KWV South Africa, which controlled production, sales and export of wine.

Method of fighting:
The South African government redrew the entire economy: in agriculture there were abolished some restrictions on trade, lowered budget subsidies and incentives on profit  tax, imposed tariffs instead of straight directives on the sale and purchase of goods, began to land reform and reform of the labor market. KWV has been transformed into a joint stock company.

Results:
From 1997 to 2007, wine exports from South Africa grew by an average of 17.8% per year. New farmers and producers entered the market, vineyards planted selected grape varieties, and the industry as a whole has attracted foreign investment, which affected the related sectors of economy, such as tourism.

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