Untangling the Web of Bureaucracy and Regulation

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Israel’s ranking on international indices of regulatory and bureaucratic burdens has been far from flattering - a closer look reveals the difficulty in complying with the demands of the complexity and inefficiency of Israel’s bureaucracy and regulatory system.

Flash 90

For years, Israel’s ranking on international indices of regulatory and bureaucratic and on the ease of doing has been far from flattering.

A closer look at these indices reveals the difficulty in complying with the demands of the complexity and inefficiency of Israel’s bureaucracy and regulatory system. As a result, compliance with relevant laws is declining; as is equality of opportunity among different types of businesses. In addition, there is a growing sense of a lack of equity among the business community, in light of the gaps between small and large businesses in their access to information. All the above encourage many to resort to middlemen and “operators” (“machers”) for doing business, and increase the likelihood of corruption. At the same time, Israeli government officials often note their concern regarding “personal responsibility”, which increases their tendency to protect themselves by requiring a multitude of certifications and permits, perpetuating excessive and burdensome bureaucracy and regulation.

This situation is not new. Last year’s (2017) Eli Hurvitz Conference on Economy and Society included a session on this subject. The discussion focused on the importance of easing regulatory and bureaucratic burdens, and was based on a comprehensive document prepared by researchers at the Israel Democracy Institute which presented a multi-year action plan for achieving this goal.

Many of the projects described in the work plan were launched or implemented over the past year, including the project on a regulatory roadmap for investors interested in establishing a manufacturing plant in Israel. Over the course of the conference, we will discuss the project’s main components and present our recommendations for improving the current situation.

The regulatory roadmap project was launched under the joint leadership of the Israel Democracy Institute and the Ministry of Economy and Industry’s Division for Promotion of Foreign Investment, and with the active participation and cooperation of the members of the steering committee, which includes representatives of the Division of the Accountant General in the Ministry of Finance, the Division for Improving Regulation in the Prime Minister’s Office, the Strategy Division in the Ministry of Economy, the Manufacturing Association of Israel (MAI), and the consulting company, BDO-Kev Project.

Over the course of the past year, the Israel Democracy Institute has also engaged in discussions with relevant government units on how to improve regulation and reduce bureaucratic burden, with an emphasis on implementing behavioral economic methods and “soft” regulation. In this context, an Institute research team conducted a survey to examine the attitudes of the business sector towards soft regulation. Findings indicated significant support for such interventions in a variety of governance areas, and are presented in this booklet as the basis for our discussion in the session on regulation.

In addition, as part of the implementation of the Institute’s multi-year work plan, we assisted the government in strengthening their connection with organizations conducting international rankings, and particularly with the World Bank. Our assumption is that strengthening this connection will create a fruitful dialogue and more precise measurement of Israel’s situation. In this context, IDI’s researchers conducted a sensitivity analysis of the World Bank’s “Doing Business Report”, which identified the most problematic aspects of doing business in Israel. We analyzed means of improving Israel’s ranking, both on each sub-index, and within Israel’s overall ranking, and presented the findings to relevant government agencies. The report’s main findings will be presented at the session on regulation.

We believe that the adoption of our recommendations will enhance the transparency of the processes which the business sector must undergo in its interface with the government, and as a result, will strengthen equality of opportunity among businesses and reduce the motivation and the opportunities for corrupt behavior. Furthermore, we believe that implementation of our recommendations will provide a strong incentive to both local and foreign investors to establish and expand industrial plants in Israel, thus increasing the volume of employment and accelerating the growth of the Israeli economy.