This is a question that should be asked more often in the offices and corridors of the government.
Let me explain why.
In late 2017, along with some colleagues I carried out a small survey of Bangladeshi enterprises.
A questionnaire was sent to about 150 businesses, of which 74 sent a complete response.
A small sample, surely, but the responses were instructive.
I suspect that the main findings will not change much if we do a larger survey today.
The surveyed enterprises were a varied lot in terms of firm age and size, and sectoral distribution.
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Some were new and some quite old. About a third of the enterprises were either in the process of being established or have been in operation for less than a year.
At the other end of the spectrum, about 38% of the respondents were more than 10 years old.
The key finding of the survey: businesses in Bangladesh suffer from an unpredictable regulatory regime.
Unpredictability is manifested in many ways.
Thus, more than two-thirds of the businesses complained that the laws in Bangladesh are often inconsistent with each other, 60% felt that regulatory officials use a lot of discretion in their regulatory decisions and 40% opined that regulations are often enacted without prior consultation or adequate notice.
If we analyze these issues, we will discover that often the root cause lies in the way the laws or regulations are prepared and enacted.
A common problem, particularly for regulations but sometimes for laws as well, is a knee-jerk reaction to a problem that leads to regulatory rush, i.e., enacting a law or regulation in a hurry without thinking through its rationale and its costs and benefits.
It is like some people getting sick from eating kabab from street vendors and the government responding by banning all street vendors.
Regulatory experts have a term for such knee-jerk actions. It is called regulatory reflux.
Regulatory reflux is the reason why we often end up with regulatory confusion and backtracking.
Sometimes, governments realize their mistake but, having carried out a policy change, find it difficult to swallow their pride and retract.
Sometimes, good sense prevails, and they do.
In both cases, damage is done not only to the economy and society, but also to the credibility of governments.
So, what should be done?
Regulatory impact assessments
In my last column, I wrote about the need to introduce a practice of regulatory impact assessments, not necessarily for all regulations initially but at least for some.
Then, the practice could be gradually expanded as capacity and experience is accumulated.
The urge to regulate, to control, is intrinsic to bureaucrats.
That urge needs to be disciplined.
Regulatory impact assessments instill a discipline in government.
So how do you introduce that discipline?
Ministries and other government agencies seeking to introduce new rules or amend existing ones, will have to justify their regulatory proposals to higher authorities.
They will be required to answer a set of questions.
The first question is about the objective of the regulation: what is the problem that will be addressed through the regulation?
This must be clear.
Let us take a concrete example.
Many textile mills in Bangladesh use an inordinately large amount of toxic chemicals in their dyeing activities.
The water used for dyeing is thus polluted and is then discharged into nearby water bodies without adequate treatment.
So, there are two problems: the use of highly toxic chemicals and inadequate effluent treatment.
Let us assume that somebody in the government now comes up with the idea of imposing some regulations on the textile industry to address this problem.
On the face of it, this sounds like a sensible proposal.
The harmful effects of pollution are well known, and many textile factories are not doing anything on their own to reduce pollution.
Hence, the only option left is to regulate the factories.
But hold on, that may not be the only course of action available.
First, there are two problems here and we must decide whether we want to address both or just one.
In Bangladesh, we do have regulations requiring effluent treatment, but these are routinely flouted.
One option is to ensure that existing regulations are adequately enforced instead of enacting new regulations.
But regulatory enforcement has proven difficult in the poor governance environment of Bangladesh.
Incentivizing factories
So, in this case, a better option may be to incentivize the factories instead of controlling them through regulations.
Let us assume that less toxic chemicals are indeed available in the market but not used by the textile factories because the more toxic chemicals are cheaper.
Then an option worth considering is something that changes the relative prices of different types of chemicals so that the less toxic chemicals become cheaper than.
Let us assume both types of chemicals are currently imported, and the import duty is the same on both.
In such a situation adjusting tariff duties, i.e., lowering tariffs on less toxic chemicals and raising those on the more toxic ones, may be the better approach.
Since the factories are strongly driven by cost considerations, the change in relative prices may bring about the desired change in factory behavior.
This is an example of a stroke-of-the pen policy that takes advantage of the incentive structure of business and is thus much easier to implement than a regulation which may prove difficult to enforce.
Another example of a policy action being superior to regulations comes from the actual experience with our mobile telecom industry.
In the early days of the industry, there was a monopoly with a single company having the license to provide mobile telephony services.
Not surprisingly prices were very high, much higher than justified by the costs.
The company holding the monopoly could have been regulated but the owner was politically influential, and it is unclear if the regulations would have been adequately enforced.
However, prices swiftly came down after competition was introduced in the second half of the 1990s by licensing three new mobile phone companies.
It was a policy action, not regulations that addressed the problem of high prices.
Absence of policy option
Sometimes, however, a policy option may not be available.
But even here, a few questions need to be asked before a regulatory action is taken.
Let us assume we understand the problem that will be addressed by the regulation, i.e., we have some idea of the benefits from having the regulation.
But there is also a cost side.
What will be the costs to the government for enforcing the regulation and to the businesses for complying with it? Do the benefits justify the costs?
These are very important questions.
A regulatory impact assessment will assess the challenges the government will face in enforcing the regulation.
What kinds of skills will the regulators need to carry out their enforcement functions? Do the skills already exist, or will new staff need to be hired, or existing ones retrained? Will special equipment be needed? What will all this cost the government? What about the costs that businesses will have to incur to comply with the regulations?
Another important issue is unintended consequences.
Examples abound worldwide of government actions that were taken with good intentions but ended up having an adverse impact.
Let us consider the case of rent controls, a regulation that many cities have introduced to protect tenants.
There is some evidence that suggests that while such regulations may have helped keep rents in check for existing housing, these may have reduced the stock of available housing in the long run.
In India, some economists have argued that restrictive labor laws have resulted in low employment growth in Indian industry even though these may have protected existing workers.
This does not mean that labor regulations are not needed – they are - but these need to be framed in a way that the intended outcomes are achieved while minimizing unintended, undesirable consequences.
All this suggests that regulatory impact assessments are a good idea.
As I mentioned in my last column, a ministry or agency proposing a new regulation may be required to answer the basic questions I posed above, i.e., why is the regulation needed, what benefits are expected, how much will it cost the government to enforce it and businesses to comply with it, and what unintended consequences may occur?
Not all regulations may be subjected to such an analysis.
Governments may come up with a set of criteria to decide which ones require in-depth assessment, for which a simple assessment will suffice, and which do not require such an exercise.
An integral part of the analysis is consultation with stakeholders.
Typically, regulatory impact assessments summarize the feedback from stakeholders and explain how the feedback has been incorporated and if not, why not.
Such evidence-based, disciplined approach to rulemaking helps ensure that irrelevant rules are not enacted, and the ones enacted are those whose benefits outweigh the costs.
Developed countries have long had such a discipline.
Middle-income countries are fast emulating them.
We take pride in being a middle-income country.
It is time we start behaving like one and take the idea of regulatory impact assessments seriously.
The author is an economist, previously with an international development agency