Beware Stakeholder Views on Red Tape

Asking stakeholders about the impact of red tape is a good idea. But it also opens up the possibility of regulatory capture in red tape feedback.

Most better regulation models in Australia, the UK and Canada identify stakeholder and consumer feedback as central to good red tape reduction. And it is.

This has led to projects like the UK Red Tape Challenge and the Canadian Red Tape Reduction Commission. And to the Australian Coalition Deregulation Taskforce that consulted with “180 organisations”. So far, so good.

The problems arise when we start to think about innovation, regulation and the tension between industry incumbents and prospective new entrants.

When you throw in the fact that large incumbents have the resources to engage in stakeholder consultation, and nimble, new entrant SMEs don’t, you’re left with the possibility of regulatory capture in red tape feedback.

The Red Tape Status Quo Can Be Comfortable

It’s nothing new to say that entrenched interests might lobby – or provide stakeholder feedback – to the point of regulatory capture.

In the particular case of red tape reform, that capture can take a slightly different shape.

Where red tape poses barriers to new entrants – possible competitors – current stakeholders are unlikely to push for its removal, as it is a sunk cost in their case. They garner no benefit for making industry entry easier, and could face a competitive cost.

Even where red tape imposes an ongoing burden on incumbents, they may be large enough to absorb it, have already set up organizational structures to manage it, or have already factored it into their pricing. They can be comfortable with the devil they know and its associated costs, provided it helps protect them from innovative competition from more agile new entrants.

The presence of ongoing red tape burden can dissuade new entrants from trying, even if they are willing to take on the entry red tape burden.

The Feedback You’ll Never Hear

In an environment where outsourcing, internet delivery and cloud provision have started to level the playing field in scale and access to infrastructure, small businesses can compete effectively with large ones. Particularly in services and consumer goods.

But small and medium sized businesses with innovative ideas run close to the wind. They don’t have the spare employees, cash or time to lobby about red tape imposts specific to an industry. Peak small business groups don’t have a good record of doing so either – generally contenting themselves with feedback on general issues that affect small business. And fair enough; the payoff-to-effort ratio is much better.

This is a real cost of red tape, and one that the Standard Cost Model can’t measure effectively. It is the chilling effect of red tape on new entrants, who have an innovative idea, look at what bureaucracy it is necessary to endure, and then walk away in silence.

Because innovation and change are the essence of progress, in these cases red tape isn’t merely a burden on existing activities. It is an inadvertent tool for a deeply conservative and risk-averse approach to the world. It reinforces the power of insiders and it stops some of our most talented from fulfilling their potential.

Because of this, reducing red tape that affects smaller outsiders is precisely the sort of thing that all sides of politics should agree on prioritising. But smaller outsiders are precisely the people who can’t and don’t provide feedback, and whose opinions are never sought.

The key takeaway:  that red tape feedback departments are so keen on getting might be more misleading than the average project manager thinks.

One Comment
  1. Pyrmonter

    Regulatory Capture is an optimistic assessment. A more sceptical one might suggest it is a means of opening up the marketplace for bids for political favours.

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