Debate on Country Specific Recommendations, Tripartite Social Summit, Brussels

Dear Ladies and Gentlemen,

let me share with you with 3 thoughts combining insights from recently published BusinessEurope Reform Barometer 2016 and specific experience with Country Specific Recommendations from my country, Slovakia.

Firstly. According to BusinessEurope Reform Barometer 2016 businesses consider only 20 % of recommendations to be implemented satisfactorily by member states. Our experience from Slovakia confirms this general observation. It was about this low implementation rate with which the Slovak government dealt with recommendations in 2015, including health care cost effectiveness, labour market flexibility, education, public procurement, etc.

So, why is this implementation rate everywhere so low? My explanation is as follows: everybody who has kids in a school age knows how difficult sometimes it is to „force“ kids to make their homework. Despite it is beneficial for them in the long run, they have all kinds of incentives not to do so in the short run. And there is a similar situation with the so called European Semester. Imposing good policy making on member states from Brussels – because the Country Specific Recommendations look like this – has its own weaknesses. Imposing discipline from a centre is inferior to the first best option which is discipline imposed on us by competitive pressure and market forces. And since they are replaced by mostly administrative exercise, a 20 % implementation rate seems to be a logical consequence.

2. Secondly. The Country Specific Recommendations procedure is not only mostly administrative exercise; it is also very much inward looking exercise. I cannot remember any single instance of a phone call from any ministry willing to consult the Country Specific Recommendations with businesses. This exercise keeps busy a part of the European Commission that is responsible for this area. And it keeps busy selected parts of governments in member states. There is no communication with businesses at all, except updates and short memos sent to us by The Representation of the European Commission in Slovakia.

And I am afraid it is even worse than that. If we would conduct an opinion poll in the rest of the government on the Country Specific Recommendations I would not be surprised if the result would be either no awareness or a very low awareness about it among vast majority of other public servants that are not directly involved in the process.

More involvement of social partners, for example by writing their opinion on implementation of recommendations that would be part of the report, could be beneficial. It could help address numerous conflicts of interests of the governments being object of the recommendations, the subject of the recommendations, and at the same time being the source of information on progress that was achieved.

3. Thirdly. One of the strongest insights of the BusinessEurope Reform Barometer 2016 is that least progress has been achieved in areas where it is needed the most. High administrative and regulatory burden is definitely one of them. It is one of the most critical areas in Slovakia despite some measures adopted relatively recently, including positive steps like an establishment of The Centre for Better Regulation at the Slovak Business Agency. However, regulatory burden keeps growing for years and a legislative activity went completely out of control. Let me illustrate this point by following statistics: if we take just 10 laws that are the most relevant for doing business in Slovakia and count number of their amendments in 2015, we get at least one change in of them in just less then 10 days on average. That is a nightmare.

However, this situation is typical not only for Slovakia. Again, according to BusinessEurope Reform Barometer in Europe there is overall tax burden 50 % higher than in the US and 25 % higher than in Japan, administrative burden is much higher in Europe than in the US and industrial energy prices are 2,5 times higher than in the US. Ladies and gentlemen, it is a „deadly cocktail“ for entrepreneurs.

While politicians and policy-makers all agree with this diagnosis, they usually opt for wrong instruments to remedy it. The first best option for them seems to be throwing taxpayer’s money on us, sometime in a form of money helicopters, some other time in a form of investment stimuli for selected segments of economy. However, businesses do not need taxpayer’s money. Politicians and policy-makers have much more powerful option for boosting economic growth. By far the most important investment stimulus available for them today is called elimination or significant reduction of financial, legislative, regulatory and administrative burden. This single measure would lead to a release of a break that is today imposed on much needed entrepreneurial energy. And there is additional nice thing about it: unlike measures funded by taxpayer’s money it would cost us no single euro. That is why the systemic efforts to eliminate regulatory burden for businesses should be ranked much higher among priorities in the Country Specific Recommendations.

Thank you for your attention.

Ján Oravec, Tripartite Social Summit