Is low regulation actually bad for business?


I have just spent a couple of days in Paris. It was raining much of the time. But Paris is still Paris.

In my meetings here, the contrast with London could not be greater. Macron’s election has infused the normally grumpy and hyper-critical French with a sense of optimism. Macron has not done much yet, but investment is rising and business has a spring in its step. London, on the other hand is heavy with the weight of Brexit.

In both capitals, nobody can resist talking about Brexit. The British either with a sense of despair or with a sense of victory almost, but not quite, within reach – depending on which side of the fence they happen to be on. In France, there is an overwhelming sense of bewilderment. “How can such a mess be happening in a Britain that we have always admired for its stability and pragmatism” is the refrain. Trying to explain the Irish border and the DUP – and that might be what causes Brexit to unravel – was a bit of an uphill struggle, I must admit.

But visiting France also brought to mind another unexplained Anglo-French puzzle.

France has an economy that is fairly similar to Britain’s in that it is mainly services-based. Yet the productivity of the French economy has constantly outstripped that of Britain. This is ‘socialist’ France. The country that our business and economist communities look at with disdain with its 35 hour week, a ‘booklet’ of labour regulations that runs to over 1,000 pages, high social costs of employment and a generally highly inflexible labour market. All factors that, it is claimed, hinder business productivity.

True, France has a significantly higher unemployment rate that Britain. That is driven by very many factors. And some would argue that there is a trade-off between unemployment levels and productivity. But the equation is not quite so simple. We do not yet factor in under-employment and ‘precarious’ employment when we assess unemployment levels.

So here is a theory.

Many have been arguing for some time that low interest rates eventually damage overall productivity because they keep so-called zombie firms alive. Higher rates would force them either to improve or to go out of business. Might the same be true of de-regulation and what are euphemistically called flexible labour markets. Does a low level of regulation also give zombie firms the opportunity to survive when a tougher, more regulated environment would put them out of business.

I have long argued that a well-crafted regulatory regime (rather than the more common box-ticking type) can be useful to push business to be more disciplined and, in the longer term, more competitive, more productive, and more successful. It requires business leaders to up their game and to move forward more quickly.

It goes against the received wisdom embedded in UK thinking. But maybe low regulation regimes are actually bad for business after all. They might breed sloppy, complacent companies led by sloppy, complacent managers. A thought that may be worth exploring further.

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Radix is the radical centre think tank. We welcome all contributions which promote system change, challenge established notions and re-imagine our societies. The views expressed here are those of the individual contributor and not necessarily shared by Radix.


  1. Peter Arnold says

    A thought-provoking article. In my experience, the problem with the UK economy is that it is driven by short-term planning and attitudes. Very few businesses appear to plan for their long-term survival. This year’s profits seem to rule most decision-making rather than planning growth for the next five or ten year period. The structure and operation of company law also has a role to play here. It surely cannot be right that shareholder returns are the only raison d’être of a business enterprise. Fundamental reform appears to be required if genuine, long-term sustainability and success is possible.

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