This article by FNV labor economists Vera Vrijmoeth and Tijmen de Vos was previously published on their Substack Rode Cijfers and is republished here with their permission.
Everywhere, companies complain about the regulatory burden. Whether it’s the City of Amsterdam, the Dutch government, or the European Parliament, bureaucrats are said to be getting in the way of entrepreneurs everywhere.
And it wasn't without results.The European Commissionwants to eliminate 25% of the regulations. TheDutchgovernment, too, made a strong case for fewer regulations at theDutch Business Summit.
But here's the catch: Is the regulatory burden really that high? And are fewer regulations really the solution to declining productivity growth?
What is the European Commission basing this on?
The key document cited in Europe to advocate for reducing the regulatory burden isthe Draghi report. It argues that we have far too many regulations in Europe and that this is one of the reasons why we are less competitive with the United States and have lower productivity growth.
This claim is supported only to a limited extent: Draghi barely goes beyond a single comparison. He suggests that Europe has imposed three times as many regulations as the U.S. Congress. According toErik Jones, director of the Schuman Center, this comparison is flawed because in the United States, most regulations do not come from Congress but from the executive branch. Draghi therefore fails to take a large portion of U.S. regulations into account in his comparison.
So how high is the regulatory burden, exactly?
This is measured by the OECD (the Organization for Economic Cooperation and Development). The Netherlands and Europe have a lower regulatory burden than the United States. This difference is only growing. While the regulatory burden in the U.S. remained constant between 2018 and 2023, the European regulatory burden has decreased. So the European regulatory burden isn’t as bad as it seems.
Could regulations perhaps lead to a decline in investment?
Every year, the European Investment Bank asks entrepreneurs whether regulatory burdens are an obstacle to investment, and what does it find? Regulatory burdens are a less significant obstacle to investment for companies in the Netherlands and Europe than they are in the United States. The figures for the Netherlands are, in turn, significantly lower than the European figures.
And do we have the right rules?
That leaves us with the question: Are the rules we have actually good for our economy as a whole? Fortunately, the OECD is also conducting research on this topic. Based on more than 1,500 questions answered by contacts in more than 30 countries, the OECD assesses the extent to which regulationsensurea competitive, open, and well-functioning economy. Europe appears to regulate much more effectively than the United States, and the Netherlands, in turn, much more effectively than Europe.
Why did we have those rules again?
In other words, the regulatory burden in Europe (and the Netherlands) is lower than in the U.S., poses less of an obstacle to investment, and the regulations we have appear to have a positive impact on the economy as a whole.
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But why, then, do we hear companies complaining so much about regulations? Probably because they’ve always done so. For example, historianTimon de Grootshowed that in 1930, employers’ organizations also complained about the introduction of the eight-hour workday and the 27 inspectors who were sent to all Dutch companies.
Of course, the rules serve a purpose. And even if they occasionally result in extra work or obligations for an individual company, they still serve a broader interest. For example, the Commission is currently seeking to drastically weaken the European rulesthathold companies liable for environmental damage and violations of workers’ rights in supply chains.New regulationsare also being proposed that would reduce the regulatory burden but, in the process, actually undermine the protection of posted workers. And that is unfortunate. Because European regulations contribute precisely tobroad prosperity—something that is lacking in the U.S.
Moreover, dismantling regulations does not solve the problem that Draghi identifies: declining productivity growth. If regulations were the problem, we would already be much more productive than the Americans.