Poor regulation is the main factor limiting productivity and growth in economies all over the world, particularly in developing countries - this according to the latest research by the McKinsey Global Institute. The solution: regulators need to protect people, not jobs, and stop the practice of trying to pick winners.
Regulation is supposed to ensure fair competition, maximize total welfare returns and protect workers, consumers and the environment. However, in many countries regulation has become a red tape straightjacket which actually impedes competition and growth and unfairly hinders and hurts segments of the population. The authors of this article describe poor regulation as the main factor limiting productivity and growth in developing economies:
"India could raise its labor productivity by 61 percentage points if it removed harmful rules. Brazil could raise its labor productivity by 43 percentage points. Research on Russia suggests that more effective regulation in that country, principally to ensure fair competition, could raise its structural economic growth rate to as much as 8 percent a year without significant capital investment, which it now struggles to raise despite current high oil prices."
This report by MGI examines the negative impact of regulations in three specific areas: the regulation of factors of production (labor and land), the overregulation of competitive sectors, and the poor and inflexible regulation of former monopoly industries. The authors conclude with several suggestions for improving regulation as we move forward.
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