Lessons From Dutch Regulatory Reform: How The U.S. Could Save $450 billion Per Year

by Christian Rice on April 4, 2013

in Deregulate to Stimulate, Regulation

In 2003, the Dutch improved their regulatory situation through the “Dutch Administrative Burden Reduction Programme.” This program sought to reduce the cost of regulatory burdens on businesses by 25 percent cumulatively in just four years.

To put this in domestic terms, for the United States to meet such a goal, it would have to cut about $450 billion in business regulation – quite an ambitious goal.

To meet the 25 percent target, the Dutch established two new organizations: the Interministerial United for Administrative Burdens (IPAL) and the Advisory Board on Administrative Burdens (ACTAL).

IPAL was created to organize the process between various ministries and to overcome political obstacles. IPAL performs its function in part through the Standard Cost Model, which measures administrative costs and burdens to businesses from regulations. This ensures the regulatory cost measurement process is accurate and consistent across agencies.

The SCM requires each government ministry to measure the burdens traced to legislation that falls under its purview, according to the SCM handbook. Each ministry hires consultants to identify regulations, survey and hold discussions with business representatives to get feedback and conduct experiments to accurately measure the cost of regulation (such as the stopwatch-method). The consultants are coordinated by the Ministry of Finance to ensure all agencies are consistently measured.

IPAL measures regulatory costs; ACTAL then advises the Dutch government on regulatory reduction efforts and works to ensure ministries meet their reform goals.

By 2006, the Netherlands was on track to meet the 25 percent reduction in regulatory costs according to the World Bank. Now, many European countries, including the UK, Germany and Norway, use the SCM.

Although some assume the Netherlands’ regulatory reduction model would not work in the United States because regulatory agencies are susceptible to capture by special interests, we can still take lessons from the Dutch success:

First, creating a specific 25 percent target attracts attention to the regulatory reduction program and puts pressure on regulators to meet this goal.

Second, creating a separate organization to measure regulations and their corresponding costs is valuable as it removes an agency’s bias to underestimate costs. Since agencies don’t have much influence in the measurement process (including the development of the SCM), and because third-party consultants are used, agencies don’t have the opportunity to report biased cost statistics. This ensures more accurate measurements of regulatory burdens and improved decision-making capabilities in regards to a rule’s cost-effectiveness.

Third, we can take a lesson from ACTAL.  Without an independent watchdog such as ACTAL, there is no guarantee regulatory agencies will follow through with regulatory reform. The board’s enforcement ensures agencies comply with approved reform measures.

The most important lesson of the Dutch experiment is that taking regulatory cost measurement and enforcement of regulatory reform policies out of agency hands removes an important obstacle to reform. Since agencies rarely reduce their powers voluntarily, outside parties are necessary if substantive reform is to take place.

To see the previous post in this series on regulatory reform, please read Regulatory Lessons from the United Kingdom (Continued).

For more on Dutch regulatory reform, please see A Process for Cleaning Up Federal Regulations by Joshua Hall and Michael Williams from the Mercatus Center at George Mason University.

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