The first justification given by the Ferrovial company for moving its headquarters to the Netherlands was that it sought greater legal certainty. This was received by the Government and other economic agents as a real offense: in Spain there is no less legal certainty than in the Netherlands, numerous political, business and academic leaders immediately bellowed.
Without detracting from those who defend that Spain is a legally secure country for economic and commercial relations, there are not a few who, however, complain about an aspect that, if it does not bankrupt, does damage said legal security: it is the profusion of legal norms that are generated every year and its regulatory complexity. Since the beginning of the current democratic stage, Spain has been experiencing an extensive period of growing increase in the creation of new regulations from all administrative levels (state, regional and local), which is heading towards half a million laws approved in this period.
An investigation recently published by the Bank of Spain on The sectoral economic effects of regulatory complexity: data from Spain has revealed that from the beginning of the current democratic stage to the present (1979-2022) a total of 414,272 laws of all kinds have been approved in the country, by all public administrations. A large number, which for the authors of this study –Juan S. Mora-Sanguinetti (Bank of Spain); Javier Quintana (Bank of Spain); Isabel Soler (European University Institute); and Rok Spruk (University of Ljubljan) – embodies what they call regulatory complexity. This measure of said complexity also involves the readability of these standards and the number of referral links. Thus, these experts start with a starting statement that consists of confirming that “over time, all the measures that assess regulatory complexity have been increasing hand in hand: the volume of regulations has grown, while the legibility of the texts have decreased and the reference links (necessary for their understanding) have also increased”.
That said, this research has used a database of 206,777 laws from all the administrations approved between 1995 and 2020, to qualitatively analyze how this complexity affects economic activity. Specifically, in the first place, it has studied the negative impact of regulatory profusion on employment, working hours, the participation of sectors in GDP or investment. While, in a second part of the study, it has inquired about the impact of this regulatory landscape according to the type of company (size and age).
The main conclusions indicate that “greater regulatory complexity has a negative effect on the employment rate and the same harmful effect on added value”. The data points to what has already been shown in other US studies of the same type: that each additional increase in the additional regulatory complexity index is associated with a 0.7% drop in the share of employment in each sector.
In addition, in the sectoral analysis that this research also does, its authors discover that the most affected types of activity are manufacturing, which, in their opinion, may be related to the greater investment required in these sectors.
Regarding the effects according to the type of company, the researchers have used the Continuous Sample of Working Lives as a business database and this study has also determined that “the negative impact of the complexity of regulation is concentrated in the smallest companies and young. Thus, these economists ensure that a 10% increase in the number of new laws has an impact on a 0.5% cut in employment in the workforces of SMEs with less than 10 workers.
Likewise, there is a strong heterogeneity between the standards issued by each autonomous community, which are the most prolific. Between 1995 and 2020, a total of 300,769 standards were approved in Spain, of which 219,903 had the regional seal. According to this analysis, the regions of Catalonia and Andalusia are by far the most active in legislative work, while Madrid, the Basque Country and Cantabria are the least regulatory among the communities.
But this work is not the only one that highlights the obstacles that regulation presents if it becomes excessive. The Intelligent Regulation Forum has produced a report on The burden of regulatory duplicity in Spain between the different administrations, emphasizing in the same line as the Bank of Spain researchers that “this phenomenon is not innocuous from the economic point of view, since it directly affects employment and economic growth”. The reason is that business resources associated with compliance with current legislation are increasing, which also results in greater litigation and a slowdown in the functioning of justice. “Companies must allocate a larger budget to the management of bureaucratic and legal risks, it implies diverting resources that companies should allocate to increasing their productive capacity.”
For its part, the proliferation of standards has been a workhorse of the CEOE employers for years. In 2015, it began to publish its “Regulatory Production” report annually, which by 2022 concludes that last year the Official Gazettes at the state and regional level published 1,329,865 pages of new regulations or modifications to current ones, 22% more than in 2021 and the highest figure reached in eleven years.
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