We believe that federal regulators should apply four principles to achieve the vision that we set out in section 2 of this report. The principles draw on our own experiences as well as on what we heard from businesses, small and large. They take into account what we have learned from federal officials, outside experts and international examples. We are using all of this information to guide our detailed recommendations in the next section of this report. As they are put into effect, day in and day out, these principles will help bring about the culture change that is needed.
Regulators must understand the needs and circumstances of businesses before creating regulations or establishing blanket enforcement practices that will affect them. This means carrying out thorough and in-depth consultations with businesses prior to designing a regulation and during its implementation. This approach will enable regulators to understand business realities and to appreciate how proposed and existing regulations will impact businesses' ability to innovate, compete and succeed.
We often heard the term “common sense” during our conversations with businesses. Even when they accept the value of regulation, entrepreneurs rightly want to know, as one stated, that “everything done by the government passes the test of consistency, clarity, convenience and common sense.” What is meant by common sense is what is practical and reasonable, based on first-hand experience, proportional to the real risk being addressed, and easy to explain and implement.
In this context, common sense tells us that risk cannot and should not be regulated out of existence. Taking risks is important for economic and social progress. A society that takes no risk is a society that will not innovate, grow, increase its productivity and raise incomes. Misunderstanding the risks or being overly averse to risk leads to over-regulation.
Although many regulations lead to benefits, both for business and for society, they also impose direct and indirect costs on businesses that must comply; in this, they are not like other government functions. If anything, this cost element increases the importance of the accountability that the government must accept for the regulations it introduces and that regulators have for ensuring their programs are managed well and at the least possible cost to businesses. In a system characterized by accountability, a department that generates regulations and another that enforces them would both interpret them in the same way. Licences and approvals would be provided in a timely manner, based on clear service standards.
In a fully accountable regulatory system, small business impacts would be accurately analyzed as regulations were developed and monitored. Regulators would have the scientific and technological sophistication to keep pace with innovation. Officials would provide consistent advice and interpretations. We also believe that this principle of accountability would lead to reduced compliance costs. Without ongoing regulatory accountability in the form of regular tracking and reporting, any overall reduction in red tape will be short-lived. Given the lack of competition, government agencies need to be extra vigilant about finding ways to hold themselves accountable.
The responsibility of regulators for ensuring compliance can involve audits, inspections and, on occasion, more demanding forms of oversight and enforcement. These activities must be carried out professionally and with respect. We do not believe that there is ever a reason for a “non-cooperative” or “condescending” attitude. Professionalism must be the mark of all public services, and it should come with consequences for both good and bad performance. The private sector's regulatory compliance obligations and the government's regulatory administrative expectations should be symmetrical and fair. For example, a hefty fine levied on a taxpayer for being one day late in filing is asymmetrical with the same taxpayer waiting several months for money owed to him or her by the government. The private sector is held accountable for compliance. The government should be accountable for administering the rules in a way that makes compliance reasonable.
Although we believe that these four principles are important, we recognize that they will not always be easy to apply and that scarce resources will need to be allocated to priorities such as red tape reduction. We know that strong leadership—politically and from within regulatory agencies—will be needed. For example, Cabinet ministers should also be ambassadors for making the reduction of red tape a priority within their own departments and agencies. Based on our engagement with leaders to date, we have every confidence they are committed to following these principles.