Germany: Improve regulation for Better economy

Germany: Improve regulation for a more dynamic economy, urges OECD

Germany needs a comprehensive strategy for managing regulation in order to encourage innovation and entrepreneurialism and open up new sources of growth, according to the OECD.

To support businesses, Germany has already begun simplifying regulations by cutting red tape. But while these efforts are essential, they are not sufficient, says the OECD Review on Better Regulation in Germany.

The economic crisis has revealed structural deficiencies in Germany’s economy, particularly in the banking sector. And although growth picked up again in 2009, overall output levels are not projected to return to pre-crisis levels before 2013.

“Stimulating new sources of growth will require more liberal product market regulation,” OECD Secretary-General Angel Gurría said, delivering the report to Chancellor Angela Merkel. “Lighter but more effective regulation can boost Germany’s economy by unleashing positive forces of innovation and change.”

The OECD report makes four main recommendations for improved regulation:

· The institutional framework for regulatory policy should be reinforced;

· Consultations with stakeholders should be broadened;

· Cooperation between the federal government and the state governments should be deepened;

· Impact assessment should become a key part of effective policy and law making

Broader public consultations will reduce the risk of bias in assessing results, encourage the flow of new ideas and make for more transparency in lobbying, the report says. Changes are already under way, with e-consultation allowing citizens for the first time to interact directly with government on some draft bills.

As a federal state, however, Germany’s regulatory production system is complex. Federal laws are usually implemented by the state governments, or Länder, but there are often disconnects between the two levels. Mechanisms for cooperation need to be strengthened, while respecting the constitutional independence of the Länder.

E-government initiatives are helping to modernise and streamline public administration, and these should be continued, the report says. E-government can speed up culture change within the administration by challenging the “silo” mentality of federal ministries. It also supports the reduction of red tape and promotes greater transparency in public consultation and communication.

But prior assessment of the potential impact of proposed regulatory actions is also needed, to help law makers avoid unnecessary pitfalls. And more efforts are needed to ensure clear communication, without which the government cannot expect support for changes.

The OECD review of Germany is part of an EU 15 Better Regulation project launched in 2008 as a partnership between the OECD and the European Commission and due to be completed this year.

ENDS

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