September 20, 2020

A good regulation to boost growth

«A regulatory and institutional framework that configures the appropriate incentives for the different economic agents will favor the allocation and accumulation of capital in profitable, productive and innovative investment projects». This is reflected in the "Good regulatory practices" report, prepared by the Institute for Economic Studies (IEE).

The analysis highlights that there is a close relationship between the use of good regulatory practices and the development of countries. And these have a positive impact on productivity and, therefore, on the long-term growth of the economy.

In the opinion of the IEE, when legal security is broken, an environment of uncertainty is generated in which the companies affected postpone or paralyze their investment decisions, with the consequent impact also in terms of employment.

The negative consequences are also noted on the financing side of these investments, by increasing the risk premium demanded by investors and, therefore, increasing capital costs for these companies. This report comes to light in the midst of the criticism of the regulator in Spain (the National Commission of Markets and Competition) for bad praxis by having avoided a prior consultation with the energy sector about the regulations that will establish the new remuneration for different activities during the next six years.

In fact, the analysis emphasizes, precisely, that the participation of the agents of the sector is one of the basic principles to achieve this good regulation. “It is convenient that the decisions to be taken are preceded by consultations, and followed by a participatory dialogue, both to companies and business organizations, so that different points of view can be contrasted and analyzed transparently. consequences that a possible regulatory change may have on the activity ”, underlines the report. In this sense, the study recalls that the institutional framework in Spain regarding the governance indicators related to regulatory quality and compliance with the Law has been recently analyzed by the World Bank in its publication "Worldwide Governance Indicators".

Below the EU

Although the situation in our country is in line with the level required by the supranational credit institution, it does warn that it is somewhat below the European Union average. Thus, the analysis of the qualitative indicators related to regulatory quality and legal certainty shows that, in order to reach the heights of European countries with best practices, it is necessary to advance our economic policy in these aspects, to incorporate, as an explicit objective, the improvement of regulatory quality and legal certainty.

In this context, IEE urges our country to bet on an institutional framework that guarantees compliance with what is considered the principles of best regulatory practices, which are specified in legal certainty, stability and predictability. This does not mean that the norms cannot and must evolve over time to adapt to the realities of each moment, but that these changes must be gradual, avoiding urgent procedures. Furthermore, the actions must be predictable in the sense that they do not suppose drastic changes with respect to the previously existing regulation.

Also, according to the IEE, the analysis and preparation of new standards should be done as responses to a previously detected need. In that sense, continuous and collaborative monitoring within the sector can help identify existing, present and future needs, which may lead to possible regulatory changes.

Consistency, credibility, simplicity and transparency are other fundamental aspects that guarantee proper regulation. “The new regulatory standards that are developed, as well as the decisions of the regulatory bodies, must be consistent with each other and avoid contradictions with other existing standards. In addition, the legislation should be simple, orderly and transparent in order to facilitate its proper understanding by all agents. Therefore, it is convenient to avoid excessive complexity or the abundance of norms that make it difficult to understand them, ”he says.

Finally, the IEE notes that legal certainty is one of the main pillars of the rule of law, so it is protected by the 1978 Constitution, and is included in the individual's guarantees against the arbitrariness of public powers and based on three principles: knowledge of current regulations, technical quality in the development and stability of the legal system.

To this must be added the protection of community law through the principle of protection of legitimate expectations. This has been developed by different judgments of the Court of Justice of the European Community affirming that the public authority cannot adopt measures that are contrary to the hope induced by the reasonable stability in the decisions of that one, and in function of which the individuals have taken certain decisions.

And it is that legal certainty aims to consolidate a system in which it is reasonable to foresee the economic consequences of the actions of individuals and public authorities, which is essential for economic progress.

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