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From Red Tape to Road SignsRedefining regulation and its purpose

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From Red Tape to Road Signs was written by Deborah Doaneand edited by Julian Oram. The opinions presented in thispaper are those of the author and do not necessarily representthe opinions of individual members of the CORE Coalition.The author would like to thank Jessica Bridges-Pa l m e r, Simon McRae, Adrian Henriques, Kirsty Hamilton and Janet Williamson for their input and comments, as well asBrian Shadd and members of the CORE Steering Group fortheir ongoing support.

Copyright CORE Coalition, ©2004

w w w. c o r p o r a t e -r e s p o n s i b i l i t y. o r g

Executive Summary

IntroductionPage 1

What is Red Tape?

The regulatory burden:rhetoric versus realityPage 4

No tape here: a stickingplaster will doPage 7

Who pays? Winners and losersPage 9

Conclusion: from Red Tape to Road SignsPage 12

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Executive Summary

‘Red tape’ is the common phrase usedby business to argue against any formof regulation. This paper challenges theassertions made by business and givesus a better understanding of what ‘redtape’ really is. It finds that:

■ Business regularly over-estimates thecost of ‘red tape’, often by asignificant factor

■ That ‘red tape’ has actually helped toachieve tremendous progress in bothsocial and environmental areas

■ Countries with high levels of socialand environmental protection areactually more competitive over time

■ The costs of avoiding red-tape arehigh: and are borne by those leastable to afford it, especially indeveloping countries

CORE has been proposing legitimateregulation that would see businessmore accountable for its wider impacts,from requiring business to report onsocial and environmental impactsalongside financial accounts, to placinga “duty of care” principle on CompanyDirectors to consider the needs of wider stakeholders.

But these initiatives have been foughtwith anti-red tape rhetoric by many inthe business community. Phrases suchas “reduced productivity” or “anti-competitiveness” are typical of theresponses from the businesscommunity to repel any possibleregulation that might help the common good. But a closer look at theimpacts of regulation shows a ratherdifferent picture.

As a counterweight to anti-red taperhetoric, this paper argues that ‘redtape’ be looked at as an opportunity,and as one of the most effective tools to

helping build sustainable development.The CORE coalition is proposing thatbusiness and regulators change theirthinking about progressive regulationfrom ‘red tape’ that obstructs businessto ‘road signs’ that provide companieswith clear signposts towards ethicalpractices. The responsibility of differentactors – including government,business and the media – is to weighup the actual costs and benefits ofproposed regulation for all, rather thandeliver the usual knee-jerk reaction.

IntroductionLook up ‘red tape’ in the dictionary andyou’ll find a succinct definition:“obstructive official routine orbehaviour; time-consumingbureaucracy”.1 However, an equallyplausible definition might be “thephrase used by British Businesswhenever government proposes settingregulation”. ‘Red tape’ has become thebogeyman of modern industry-speak;the ominous mantra repeated time andagain within the media, in politicaldebate and around boardroom tablesacross the UK. Like all fabledbogeymen, we may not know what it isor why its there, but we’ve all learned to despise it. If it has the dictum ‘redtape’ attached to it, then it must be bad.

But, like most fables, a closer look atthe evidence shows us that much ofwhat is feared by business doesn’t holdup to real-world scrutiny. Not only doesbusiness over-estimate the cost ofregulation, it also neglects to considerthe costs associated with irresponsible

FROM RED TAPE TO ROAD SIGNS 1

A closer look at the evidenceshows us that much of whatis feared by business doesn’thold up to real-world scru t i n y.

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2 FROM RED TAPE TO ROAD SIGNS

company practices that must ultimatelybe borne by workers, local communities,consumers and the environment. Nordoes it recognise the benefits thataccrue to society as a whole whenregulation is put forward. While therecan be administrative burdens thatmust be factored in, assumptions aboutwhat ‘red tape’ really means whenpresented in the headlines shouldn’t betaken at face value.

This paper aims to challenge theassertions made by business and giveus a better understanding of what ‘redtape’ really is. Rather than accept thephrase ‘red tape’ at face value, it’simportant for us to look at who uses thephrase, why they deplore it and whatthe cost of avoidance really means.

What is Red Tape?The term ‘red tape’ stirs up a provocativeset of emotions. It conjures images ofpointless protocols and convolutedprocedures; of paper-pushingbureaucrats whose sole purpose is tosuffocate and stifle innovation,entrepreneurship and competitiveness.

The phrase, in fact, goes back to thelengths of the red ribbon once used totie up legal documents. Because ourhistory of common law requires us tohave precedents, every judicial decisionhad to be preceded by a thoroughsearch of the records before decisionswere taken. So, according to HerbertKaufman of the Brookings Institution,there were legions of clerks and lawyerswho spent most of their time just tyingand untying ribbon-bound folders.When people rail against ‘red tape’, he writes, they’re basically saying thatthey are subjected by too manyprocedural constraints.2

But what happens when people, orindeed organisations, are left to actwithout constraints? Can we expectevery decision made in one’s self-interest, through market mechanisms,to result in the good for all? This iscertainly the vision of free-marketliberal-economists, such as Hayek orFriedman, right back to Adam Smith.But over the past few decades ofrelatively free-markets, we have seenthat this market-based approach togovernance would more likely result ina winner-takes-all outcome that servesto cause more harm than good. As ToryPolitician, Michael Heseltine famouslyonce said, “the market has no morality.”

This is exactly why ‘red tape’ is importantand helps keep a democracy working.“Red tape turns out to be at the core of our institutions rather than anexcrescence on them,” finds Kaufman.3

In fact, when we look beneath thesweeping arguments against ‘red tape’what we really find is that ‘red tape’ islittle more than a simple euphemism forregulation. And regulation is, or at leastshould be, a neutral phrase. Modernday regulation keeps in check differentcompeting interests and serves toprotect the common good. It steps inwhen markets fail, and protects themost vulnerable from the worst vagariesof unfettered human action.

Like road signs, regulation provides thecommon language by which companiescan negotiate their way through thebusiness world without working againstthe interests of society at large. ‘Redtape’ is also responsible for some of thegreatest advances in social conditionsin modern times.

If we balked whenever an employers’federation argued against ‘red tape’, wewouldn’t have any protection forconsumers, or employees; and whatlittle progress we’ve made on things

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such as recycling or the right to earn aliving wage, would never havehappened. If we look back at the historyof regulation, we can see quite apositive image emerging. According toa report by the UK’s EnvironmentAgency 4, ‘red tape’ has achieved:

■ A vast improvement in air quality inthe capital. The first Alkali Act waspassed in 1863, and London’s smogswere eventually beaten by regulation

requiring smokeless fuel

■ Reductions in industrial emissions ofair pollutants. Since 1990, sulphurdioxide emissions to air have fallenby 75%, nitrogen oxides by 52%

■ A 65% fall in levels of water pollutionin the five years to 2001

■ A 30% drop in the number ofenvironmental incidents between1997 and 2000

DE-BUNKING ANTI-RED TAPE PHRASES

When the CORE bill was first presented, a series of tried and tested euphemisms werespun by lobby groups such as the Institute of Directors and the Confederation of BritishI n d u s t ry to warn against the dangers of “more red tape”. But what do these terms re a l l ymean? And do they hold up to rational debate?

B ox-ticking exe rc i s e . A phrase that refers to business or organisations going throughthe motions, such as: Environmental Impact Assessment; done that”; “appointed ahealth and safety officer, check”. Box ticking implies that, when implemented, actionaiming to fill regulatory requirements will be driven by compulsion to undertake aminimum set of procedural exercises, rather than a real intention to change corepractices, so being rendered meaningless. In fact, “box-ticking” should provide a way forcompanies, industry bodies and government agencies to assess measurable outcomes;and report on changes to these over time.

B o i l e r- p l a t i n g . Similar to “box-ticking”, boiler-plating refers to the lifting of standardphrases or approaches, for a one-size-fits-all format, and is used as an argument againstminimum standards. In corporate governance, or social and environmental reporting,minimum standards are needed to provide a baseline for comparison and to enableshareholders and stakeholders to critically evaluate companies' social andenvironmental commitments. Without this they cannot monitor, assess and benchmarkcorporate performance.

P ro d u c t i v i t y. Generally taken to mean GDP per capita, or GDP per employee ore m p l o y e e - h o u r, productivity measures take no account of other important outputs of ane c o n o m y, such as public goods, life satisfaction, equity, or stability. Nor do they take intoaccount negative indicators of welfare – such as the economic growth that may accruethrough an increase in so-called ‘defensive expenditures’ on items such as burglaralarms, insurance, or prisons.

C o m p e t i t i v e n e s s . An aggregate measure of what gives one country economicadvantage over another. There are varying methodologies, but most include acombination of economic measures along with government indicators, such as health,education and judicial systems. Contrary to popular rhetoric, the more competitivecountries tend to include those with high levels of social and environmental protection.The World Economic Forum’s Global Competitiveness Report, sees Denmark, Swedenand Finland all in the top 5 in 2003.5

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In other areas, such as employment,disability or human rights protection,we’ve achieved huge strides in the lastcentury and the last few decades, fromproviding freedom of rights ofassociation for workers, to theminimum wage.

In the past few years, however, we’velapsed into a quagmire of voluntaryinitiatives that have enabled Britishbusiness to claim progress despite thelack of evidence of verifiable changeacross the board. While voluntarismhas helped to raise awareness and kick-start innovation (think of thepioneers in renewable energy, or non-financial reporting), it can’t besustained over the long-run, as markets fail to respond.

History shows that regulation is needed to accompany voluntaryapproaches in order to move forward. It brings up the laggards, avoids free-riders and has a tendency to inspireeven more innovation by business. If itwasn’t for ‘red tape’, the misery of theindustrial revolution would still be uponus, and the welfare of the majoritywould still depend on the charitablegoodwill of the few.

But the possibility of future success isslowly being eroded by the rhetoric ofthe anti-red tape brigade. As the threatsof climate change, poverty and globalinequality are increasingly being felt atour doorstep, and are now presenting athreat to world economic output, theneed for progressive regulationbecomes ever more pressing.

The regulatoryburden: rhetoricversus realityThe business community and theircolleagues in the financial press have abad habit of over-estimating the cost ofregulation, sometimes by a significantfactor. The numbers vary wildly, but theydo make great headlines:

Red Tape Cost British Industry£6 Billion a Year 6

Red Tape Cost Business £30 Billion 7

CBI HITS OUT AT RED TAPE:environmental regulations costemployers billions of pounds 8

According to a report from the BritishChambers of Commerce (BCC), an extra£30 billion in costs were imposed onBritish business between 1997 and 2003.“The burden of regulation is the mostsignificant avoidable constraint onbusiness growth” stated David Frost,Director General of the BCC, upon therelease of their annual BurdensB a r o m e t e r.

Only the Guardian posted a generalrepost to the BCC’s claims, which,argued the Cabinet Office, were extremelymisleading. “What they count as redtape cost is largely actually the value ofthe policies themselves to recipients –eg. enhanced maternity rights for women,the minimum wage for 1.5 millionworkers and better working conditions –of which the government is rightly proud.”9

Business, says the Cabinet office,deliberately confuses the administrationcosts with the actual benefits paid.

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The table below presents a comparisonbetween the predicted cost and impactsof a sample of environmental andemployment regulation measures,versus the actual outcome afterwards.The evidence is compelling: industrypredictions of dire consequences rarelyhold up to scrutiny. The reasons for thisare varied. For one, business assumes astatic view of the market and fails tofactor in other opportunities that mayemerge as a result. “Regulators andenvironmental economists generallyoverestimate costs because theyunderestimate the innovation potentialwithin industry,” notes a study by theInternational Chemical Secretariat.10

Others have pointed the finger at thepolicy process itself. In a review of the

regulatory process, Peter Bailey soughtto find out why previous studies showedthat business regularly overestimatedtheir forecasts about the cost ofenvironmental regulation. They notethat impact assessment forenvironmental regulation is often seen as causing a trade-off betweenenvironmental protection and economic growth. As a result, they find, business and regulators tend tofocus solely on the cost of compliance.Furthermore, the incentives forbusiness to inflate figures in order toweaken prospective legislation are high. The authors warn policy makersand others to be wary of any estimates made of the cost ofregulation, especially during policynegotiations.11

RED TAPE REALITIES

R E G U LAT I O N P R E D I C T I O N R E A L I T Y

National Would result in over one million Unemployment fell by 200,000Minimum job losses within two yearsWa g e

EEC introduction The cost of the technology would Real costs of around £30-£50 of Catalytic be £400-£600 per vehicle, with a per convertor; technologicalC o n v e r t e r s fuel consumption penalty on top innovation led to smaller cars

US Clean Would cost the US $51 to $91 Yearly cost £22 billion to Air Act billion per year and result in business, but employment in

anywhere from 20,000–4 million areas affected up by 22 percent;job losses the benefits arising are

between £120 to £193 billion

Montreal Opposed by industry on No impact; substitutePr o t o c o l economic cost grounds, but no technologies may have

projected figures saved costs, according to follow-up studies

Source: TUC and International Chemicals Secretariat


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The problem is that business is onlyinterested in the immediate impact onprofits. They fail to factor in the publicbenefits that accrue from ‘red tape’, asthe Cabinet office argued. And theydon’t recognise that these publicbenefits may actually provide long-termbenefits for economic growth and thebusiness community itself. Prior to theintroduction of the minimum wage in1999, business predicted a hugeincrease in unemployment would result.According to a paper by PatrickMinford, from Cardiff Business School,the measures should have produced565,000 more unemployed within oneyear and 1,050, 000 within two, writesthe TUC. But the results, in fact, wereprecisely the opposite: unemploymenthad fallen by around 200,000 and it fellby a total of over half a million since thespring of 1997 to 2003, notwithstandingthe protection it gave to the lowestincome earners in the country.12

The CBI and other groups have statedthat the cost of implementing theOperating and Financial Review, a newregulation that will require business toreport, to a limited extent, on theirsocial and environmental impacts and

opportunities, is far underestimated bythe Department of Trade and Industry,at £29,000 per company, though theydisclose no actual figures themselves ofwhat they think it will cost.

But even the DTI’s estimate doesn’trecognise the financial benefits thathave been shown to accrue from bettertransparency. A 2001 report by DEFRAand Environ found that while the actualcosts of producing an environmentreport could be anywhere from £10,000to £90,000, those companies that had amature reporting regime realisedsignificant financial benefits.

All of this says that we have to take ‘redtape’ polemics with a large pinch ofsalt. We know, for instance, that there isno direct correlation between a countrythat protects its workers and theenvironment, and lower productivity orcompetitiveness.

Various national competitivenessindices, including by the WorldEconomic Forum and the WorldCompetitiveness Yearbook find thatcompetitiveness is a complex mixture of variables that can’t possibly be

THE R E A C H D I R E C T I V E

The forthcoming REACH directive, the new chemical legislation proposed by the EUC o m m i s s i o n, has been challenged by business for being too costly. In the study, CryWo l f, by the International Chemical Secretariat, they review the predictions of a numberof business groups and accountancy firms about the economic impact of implementingthe Directive. In Germany, Accountancy Firm Arthur D. Little predicted at one point thatjob losses of up to 2.35 million people could be expected, along with a reduction of 6.4%GDP of the German economy. Mercer Management made a similar prediction for theFrench government, estimating that over a period of ten years there would be job lossesof 670,000 people, with a 3.2% reduction in GDP per year.

Although the REACH directive has yet to be put in place, most estimates have foundthat the cost would be more like 0.05% of the chemical industry’s turnover. But becauseof highly dubious predictions made by a strong and successful business lobby, theoutcome of the final proposal is actually going to result in fewer obligations to restrictthe industry, with less protection for human health and the environment.

Source: International Chemicals Secretariat

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solely linked to a regulated orunregulated state. In the case of theWEF forum’s index, three countries with high levels of business-basedregulation, including Denmark andSweden, make it into the top five.Canada, with stronger maternitybenefits, for example, than the UK, tops the World CompetitivenessYearbook for 2003.

Of course, business regularly points outthat the US is the most competitiveeconomy in the world and, as a model,most be followed. Much of what thisassertion is based on, however, is adifference in measures of productivity.A report from the TUC finds thatbetween 1992 and 2002 the US lostground against most Europeaneconomies in terms of GDP per hour –the best measure of productivity in theworkplace. By 2002, eight of the fifteenEU economies (Luxembourg, Belgium,Italy, Netherlands, France, Ireland,Denmark, Germany) had higherworkplace productivity (GDP per hour)than the US. The report notes thatalthough these figures provided byEurostat have not been adjusted for theeffects of the economic cycle, some ofwhich impacted the early 1990s, theystill don’t suggest the US has secured adecisive lead over Europe.13

No tape here: asticking plaster will do Because of the perceived cost ofregulation, and the arguments made bybusiness in favour of an unrestrainedapproach to corporate behaviour, self-regulation has become the preferredmethod by business and governmentsfor dealing with social and

environmental “externalities” caused by the market.

Business-led codes of conduct andindustry guidelines now pepper thelandscape and help business to evadeso-called red tape. Initiatives such asthe Global Compact, with noenforcement mechanism, or the OECDGuidelines on Multinational Enterprise,which relies on no more than one DTIstaff member for implementation, havebecome the preferred approach forregulators and business alike.

But such initiatives are in no way asubstitution for effective regulation.A recent report by OECDWatch, SOMO,and RAID, an international network ofcivil society organisations promotingcorporate accountability, shows thatapplication of the OECD guidelines hasbeen patchy, at best, and that fewinterventions using the guidelines haveled to an adequate resolution. Over thepast four years, complaints againstthirty-two companies have been filed by NGOs under the guidelines. Of thethirty-two complaints that have beenbrought forward, only twelve cases haveconcluded, with just two of theseresulting in an agreed joint statementbetween the complainant and theMultinational. Others have beendisallowed or remain unresolved, with several being drawn out for several years.14

Business, in part, has lobbied effectively to keep enforcement of theGuidelines weak. In a review of the roleof the corporate sector in the conflict inthe Democratic Republic of Congo, anexpert UN panel initially listed eighty-five companies as having failedto comply with the OECD Guidelines. As a result of naming those companies,a report from the NGO RAID finds thatseveral companies subsequentlylobbied their own governments and theSecurity Council directly, to have their

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names removed from the report. Thefinal report, with no formal sanctioningpower, stated that most of the eighty-five cases had since been resolved,although there is no public record onhow these resolutions were achieved.15

The UN Global Compact fares no better. American-based NGO CorporateWatch found several cases of“greenwash” by a plethora ofcompanies, also noting how thecorporate sector uses the UN to theirpublic-relations advantage, referring toa photo opportunity between Nike bossPhil Knight and UN Secretary-GeneralKofi Annan on the signing of the Global Compact.16

But governments are doing little todiscourage the proliferation ofmeaningless voluntary guidelines andstandards. Rather, they are encouragingtheir adoption against a backdrop ofweak international regulation.

A recent White Paper on Trade andInvestment from the UK Department ofTrade and Industry dismissesinternational regulation as a means forachieving sustainable development infavour of a voluntary approach toCorporate Social Responsibility. “Theargument has been made thatgovernments should work towardsbinding international laws governingthe behaviour of multinationalcompanies. However, given the breadthof the issues concerning suchbehaviour and the wide variety ofcircumstances – economic, legal andcultural – in which those companiesoperate, we are not convinced of thefeasibility of an effective andenforceable universal regime.”17

This is in spite of the fact that the UKgovernment signed a declaration at the2002 World Summit on SustainableDevelopment in Johannesburg,pledging to:

“…actively promote corporateresponsibility and accountability, basedon the Rio Principles, including throughthe full development and effectiveimplementation of intergovernmentalagreements and measures,international initiatives and public-private partnerships, and appropriatenational regulations, and supportcontinuous improvement in corporatepractices in all countries.”

Prefaces to both the UN GlobalCompact and the OECD Guidelinesstate that they are not regulatoryinstruments. The Global Compact, forexample, relies on the “enlightened self-interest of companies” to pursue actionin support of the Compact’s tenprinciples relating to human rights,labour standards and the environment.By promoting these instruments assubstitutes for international governanceinstitutions, the UN and OECDeffectively undermine the ability ofnational governments to put forward adifferent approach. In a letteraccompanying the OECD Guidelines,Peter Costello, Treasurer of theCommonwealth of Australia states: “It istrue that the Guidelines are not legallybinding. But they enjoy a number ofimportant advantages over multilateralconventions: notably, the Guidelineswere negotiated relatively quickly andthey set a high standard, reflecting ourvalues and aspirations”.18

But how likely are multinationalenterprises to translate lofty aspirationsinto improved business practices; and

Self-regulation, on its own, is unlikely to deliver the brave solutionsnecessary to tackle theimmense challenge that sustainable development presents.

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how closely do their values reallycorrespond and overlap with theinterests of the public good?Environmental group Green Alliance,finds in their report “The Private Life ofPublic Affairs” that the green image ofmany industries runs counter to theirefforts to “water down or prevent cruciallegislation.”19 They conclude that“indiscriminate lobbying againstregulation perversely puts the short-term interests of the vocal under-performers before the long termeconomic and environmental interestsof the enlightened companies, and ofthe country as a whole.”

In an extensive academic review of howbusiness has influenced climatechange negotiations in the US, Canada,the EU and Japan, it was found thatbusiness effectively managed to ensuregovernments gave preference tomarket-based regulations, such asemissions trading. “There is aninternational business ‘consensus’ thatthese market-oriented approaches willdeliver, if ‘flexibility’ is fully handed overto business,” the authors argue.20 In theEU, lobbying efforts by traditionallyinfluential business associations suchas the International Chambers ofCommerce, remain focussed on s e c u r i n g such an approach in order toprotect ‘international competitiveness’.This is in spite of the fact that manyb u s i n e s s e s themselves project a green image.

But there is little evidence thatvoluntary self-regulation through themarket will actually deliver. In the caseof climate change, the authors of theextensive study on Kyoto and lobbyingconclude: “The discrepancy betweenemissions profiles and emissionsreduction goals suggests that thisapproach is not yet working, nor is itclear whether it will really foster longerterm investment changes in preparationfor much deeper cuts in emissions”.20

It seems that without standard rules orenforcement mechanisms, thevoluntary approach will continue to hold us captive to a system that favoursbusiness interests over the publicinterest. Self-regulation, on its own,is unlikely to deliver the brave solutionsnecessary to tackle the immensechallenge that sustainable development presents.

Who pays? Winners and losers“One person’s red tape may be another’s treasured safeguard.” 21

Often business can be quite like Janus,the two-faced god, when it comes toregulation. At one level, there are ‘redtape’ measures that help businesswhen it is convenient, such as taxincentives on investment or funding fortraining schemes. Business will go toall lengths to avoid taxation through off-shore investment vehicles and cleveraccounting techniques. On the otherhand, business frequently voices direwarnings about falling profits, lowershareholder dividends and theinevitability of staff retrenchments if“unfair” regulations are enacted. Andthey certainly don’t consider their ownburden that they place on consumers.As individuals, we assume the cost ofeverything from filling out extensiveforms to apply for credit or a mortgage;to waiting at home for someone from autility or telecoms company for hourson end, only for them not to arrive. Webear these burdens because, perhaps,they are a necessity. Why shouldbusiness be any different?

The price to pay for a world without ‘redtape’ is high. And the price is paid by

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those least able to afford it. A study byCatherine Waddams Price of the Centrefor Competition and Research at theUniversity of East Anglia, on thederegulation of the energy sector in theUK, finds that there is little evidencethat competition has brought greaterbenefits, even to consumers who havechanged suppliers. “In general thisresearch does not indicate thatconsumers in aggregate have benefitedfrom the competitive process...measures of market power show nosign of becoming more favourable, andawareness of competitive opportunitiesseems to have fallen in the gas market.”More importantly, she notes thatamongst those who have switched,“there is little evidence that vulnerablegroups [to whom the regulators havespecial regard] have gained more than others.”22

After the recent increase in gas pricesby British Gas, the regulator urgedpeople to switch to other suppliers,rather than imposing price restrictionson providers. The outcome has beenother suppliers, rather than remainingcost-competitive, simply raised theirprices, too.

Another example lies in the obesitycrisis. With findings that obesity andobesity-related diseases are at an all-time high, the UK government hasthreatened to impose regulationrequiring the food industry to reducethe amount of salt and sugar that goesinto its food. The industry, unsurprisingly,has backed a voluntary initiative over aregulatory one.

According to the National Heart Forum,over 30% of deaths from coronaryheart disease are due to unhealthydiets. But while there is some individual responsibility for diet-relatedillnesses, the role of the foodprocessing industry is integral.Approximately 75% of salt consumed is

from processed foods, only 10-15% isadded by consumers and 10-15% isnaturally present in food, according tothe Food Standards Agency.

The costs of a self-regulated industryare high: coronary heart disease coststhe UK health care system about £1,600million in 1996. In the UK, however, weat least have a system that, for the timebeing, can pay for such costs. Indeveloping countries, health carebudgets spent on treating diseaseslinked to obesity-related illness cancripple a country’s budget. WHOstudies show that the costs of treatingthe complications of diabetes in thePacific Islands and Caribbean states,can reach 25% of total health budgets.23

The obesity crisis is reminiscent of whathappened when knowledge of theimpacts of tobacco-related illnessesemerged over twenty years ago. At thetime, the industry took a defensiveposition, producing research thatshowed no conclusive evidence aboutthe health impacts and arguing thatconsumption of their product was “anindividual choice.” Ultimately, it wasonly through aggressive regulation andtaxation that consumption, and thecommensurate impacts of tobacco havebeen reduced in the western world.

Nonetheless, in emerging markets,such as China, tobacco is only lightlyregulated, and consumption isincreasing rapidly. Through unregulatedmarketing, promotions, advertising orphilanthropy, the tobacco industry ismaking great gains in the developingworld. But the costs of this willultimately be borne by the individuals

The price to pay for a worldwithout ‘red tape’ is high.And the price is paid by thoseleast able to afford it.

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and health care budgets of countriestrying to come to grips with poverty anddevelopment. One study put theeconomic costs of health andproductivity of diet-related non-communicable diseases in China ashigh as $15.1 billion in 1995. As Chinahas been liberalised in the past tenyears, one can confidently estimate thatthis cost has increased exponentially.24

Finally, let’s take the case of climatechange, argued recently by PrimeMinister Tony Blair, to be“the world’sgreatest environmental challenge.”25

While the business community lobbiesfor market-based reform, rather thanregulatory reform, the evidencecontinues to mount that the costs of theimpacts of climate change, are rising.The Prime Minister’s speech summedup the evidence:

■ The number of people affected byfloods worldwide has already risenfrom 7 million in the 1960s to 150 million today.

■ In Europe alone, the severe floods in2002 had an estimated cost of $16billion. The 2004 European heat wave,which most scientists believe wasinfluenced by global warming,resulted in 26,000 premature deathsand cost $13.5 billion.

■ Insurance company Swiss Re hasestimated that the economic costs of global warming could double to$150 billion each year in the next 10years, hitting insurers with $30-40billion in claims

Yet the industries which directly have an impact on this outcome continue togrow without adequate control bygovernments. Aviation, for example, isone of the fastest growing sources ofcarbon dioxide pollution and one of the main causes of climate change. Air travel emissions are alreadyresponsible for 3.5 per cent of man-

made climate change and it isprojected that this rate will go up to 15 percent by 2050, on current trends.Friends of the Earth report that in 2003the Royal Commission onEnvironmental Pollution wrote to theGovernment and noted that “even withthe most conservative figures forgrowth in air travel, by 2020 aviation willbe contributing 10 per cent of the UK’scarbon dioxide emissions.”26

Many in the aviation business recognisethis challenge, and have extensivepolicies regarding climate change. Butthe ‘precautionary principle’ is onlyheeded in words. British AirportsAuthority’s (BAA) insistence on theneed for airport expansion, for example,puts full faith in technological advancesthrough market innovation alone. Whilemarket innovation, as discussed earlier,does have a role to play, it must bestimulated by regulation.

Meanwhile, despite the compellingevidence that more rather than lessregulation is needed, the businesscommunity continues to offer anti-redtape arguments. The Prime Minister’sspeech notably sets ambitious targetsfor achieving carbon reduction, buturges business to invest in newtechnologies to meet them. Policythrough restrictive regulation, it seems,is no longer an option in a competitiveglobal economy.

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Conclusion: from Red Tape to Road Signs “Better Regulation does not always meanless regulation.” World Bank.27

The CORE coalition is calling forchanges in the law that would makebusiness more accountable for theirsocial and environmental impacts.These proposals comprise overarchingprinciples, such as transparency and aduty of care principle that wouldlegitimately require business to take amore active view of the impacts theyhave on society and the planet. Eitherthrough their production methods,pricing or lobbying on governmentpolicy, business should see regulationas an opportunity rather than a threat.

Many businesses find that, in acompetitive economy, they are unable t odrive forward social and environmentalinnovation with ease. Investments thatrequire a longer-term turnaround arenot often welcome by shareholders, andso are usually scrapped in favour ofshort-term gain. At the same time,unpredictable threats by NGOs or themedia, when a business causes harm,can do damage to both the reputationof a company and ultimately, to thebottom line. Regulation, by contrast,can help to stabilise the operatingenvironment by clarifying expectations,whilst simultaneously stimulating newbusiness opportunities at the same time.

For developing countries, the need forsuch regulation to be put in place atboth the domestic and trans-nationallevels is even more critical to enablethem to build stable economies whileprotecting the most vulnerable

members of their societies. This requirement has even been recognisedby the UK government’s Department forInternational Development, which notedthat: “Effective governments are neededto build the legal, institutional andregulatory framework without whichmarket reforms can go badly wrong atgreat cost – particularly to the poor….effective regulation remains essential –for instance, to promote financial sectorstability, to protect consumers, tosafeguard the environment, and topromote and protect human rights,including core labour standards.” 28

‘Red tape’ should be redefined, andlooked at as an opportunity tocontribute to better communities and ahealthy, sustainable environment.Instead of competition based on a race-to-the bottom approach, countriesshould look to build a commonframework for both domestic and cross-border business interaction, whichprovide companies with greater clarityand transparency about the rules ofbusiness, and prevents bottom-feedersand free-riders from looking to make anextra buck at the expense of society.

The CORE coalition is proposing thatbusiness and regulators change theirthinking about progressive regulationfrom ‘red tape’ that obstructs businessto ‘road signs’ that provide companieswith clear signposts towards ethicalpractices that will deliver sustainabledevelopment objectives. Theresponsibility of different actors –including government, business and the media – is to weigh up the actualcosts and benefits of proposedregulation for all.

‘Red tape’ is not the enemy; anunregulated society, on the otherhand, is.

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1 Collins English Dictionary2 Herbert Kaufman. Red Tape: Its origins, uses and

abuses. The Brookings Institution, Washington DC: 19773 ibid, page 34 Delivering for the Environment: a 21st Century

approach to regulation: Environment Agency, London:2004

5 World Economic Forum, Global CompetitivenessReport 2003-2004, Oxford University Press

6 According to the Institute of Directors, SRI Media,16 June 2003. http://www.srimedia.com/artman/publish/article_630.shtml

7 Phil Waller, City Staff, PA News, 7 March 048 Western Mail, July 7, 20049 Terry Macalister, Guardian, Pg. 24, 8 March 200410 “Cry Wolf: predicted costs by industry in the face of

new regulations”, International Chemical Secretariat,Brussels: April 2004

11 Peter D. Bailey, Gary Haq and Andy Gouldson. “Mindthe Gap! Comparing Ex Ante and Ex PostAssessments of the Costs of complying withEnvironmental Regulation.” European Environment,12: 2002, 245-256

12 Unravelling the Red Tape Myths, TUC, Feb 200313 ibid.14 “Review of the National Contact Points for the OECD

Guidelines, for the period June 2003-June 2004”.RAID, SOMO and OECD Watch, August 2004.

15 “Unanswered questions: Companies, conflict and the Democratic Republic of Congo”. The work of theUN Panel of Experts on the Illegal Exploitation ofNatural Resources an Other Forms of Wealth of theDRC and the OECD Guidelines for MultinationalEnterprises. RAID, March 2004.

16 “Greenwash + 10: the UN’s Global Compact,Corporate Accountability and the Johannesburg Earth Summit”. Corporate Watch, January 2002

17 http://www.dti.gov.uk/ewt/whitepaper.htm18 OECD Guidelines for Multinational Enterprises,

Revision 2000, Ministerial Briefing19 Simon Caulkin and Joanna Collins, “The Private Life

of Public Affairs”. Green Alliance, London: August 200320 Hamilton, K., Brewer, T., Aiba, T., Sugiyama, T.,

Dreshage, J.: “The Kyoto Marrakesh System: aStrategic Assessment, Module 2: Corporate engagement in US, Canada, the EU and Japan andthe influence on domestic and international policy.Imperial College Centre for Energy Policy andTechnology” ICCEPT Briefing Papers, 2003http://www.iccept.ic.ac.uk/a5-1.html

21 Kaufman, page 422 Catherine Waddams Price. “Spoilt for Choice? The

Costs and Benefits of Opening UK Residential EnergyMarkets, Centre for Competition and Regulation andSchool of Management”, University of East Anglia.CCR Working Paper CCR 04-1

23 Yasmin von Schirnding and Derek Yach. Unhealthyconsumption threatens sustainable development, RevSaude Publica 2002:36(4) 379-82. www.fsp.usp.br/rsp.

24 Yach, D., Beaglehold, R. and Hawkes, C.“Globalisationand noncommunicable diseases” published inPromoting Health: Global Issues and Perspectives,Angela Scriven and Sebastian Garmen, eds. Palgrave: 2004

25 Speech to Prince of Wales Business and Environment Programme, 14th September 2004. http://www.number-10.gov.uk/output/page6333.asp

26 Friends of the Earth. See: www.foe.co.uk/resources/briefings/ukplc_baa.pdf

27 World Development Report, pg. 72, cited in“Regulatory Impact Assessment in DevelopingCountries: Research Issues”, by Colin Kirkpatrick,Institute for Development Policy and Management,University of Manchester, Working Paper Series NO. 5, October 2001

28 DFID, Eliminating World Poverty: MakingGlobalisation Work for the Poor, White Paper,December 2000. pp. 24-25.

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About CORE

Basic human rights and the environment are being put at risk bythe impacts of some companies. The Corporate Re s p o n s i b i l i t yCoalition (CORE) is pressing for binding rules in order toaddress this and protect the interests of vulnerable communitiesand the environment.

The CORE Coalition believes the following must be enshrinedinto law:

■ M a n d a t o ry Re p o r t i n g : Companies shall report against acomprehensive set of key social, environmental and economicp e rformance indicators with which they can benchmark (andultimately better manage) their operations and performance –here in the UK and abroad.

■ Directors' Duties: Expanding current directors' duties toinclude a specific duty of care for both society and theenvironment, in addition to their current financial duty toshareholders.

■ Foreign Direct Liability: To enable affected communitiesabroad to seek damages in the UK for human rights andenvironmental abuses committed by UK companies or theiroverseas subsidiaries.

The CORE Coalition’s steering group is made up of Action Aid,Amnesty International, Christian Aid, Friends of the Earth, NewEconomics Fo u n d a t i o n, Tr a i d c r a ft and WWF. The Coalition itselfincludes over 100 unions, faith-based groups, charities andacademic institutions.

For further details on how to support CORE’s work, contact Brian Shaad, CORE Co-o r d i n a t o r, CORE Coalition, 26-28 Underwood Street, London N1 7JQ, United Kingdom Telephone +44(0) 207 566 1665. w w w. c o r p o r a t e -r e s p o n s i b i l i t y. o r g

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