## **<mark>Box 3: What the PMR survey means by “command and control” regulation</mark>**

The contrasting use of “command-and-control” and “incentive-based” regulation appear to have been brought into <mark>common usage by Schultze who wrote in a 1977 lecture about economic efficiency: “We tend to see only one way of intervening – namely removing a set of decision from the decentralized and incentive-oriented private market and transferring them to the command-and-control techniques of government bureaucracy” (page 6)</mark> In this context, the PMR attempts to measure the extent to which the cost of new regulation is assessed, and whether <mark>alternatives are considered before implementing new regulations. About half of the indicator weights are allocated to the following two questions:</mark>

**Regulators are required to assess alternative policy instruments (regulatory and non-regulatory) before** **<mark>adopting new regulation. (Current answer: yes).</mark>**

**Explanation.** The use of a wide range of mechanisms for meeting policy goals, not just traditional regulatory <mark>controls, helps to ensure that the most efficient and effective approaches are used. Approaches may include green taxes and subsidies, voluntary agreements, information programs such as eco labeling, self-regulation, permittrading schemes, and performance-based regulation (where a sector or industry must comply with a standard but can broadly choose how to meet it).  Note that the question only refers to whether the obligation exists as a specific provision in a specific legislative act, not whether the spirit of it is in fact respected.   A positive answer to the question would require the existence of a normative act explicitly ruling out regulation as the default option</mark>

## **Guidance has been issued on using alternatives to traditional regulation. (Current answer: no).**

**Explanation.** The regulatory process is governed by a standard procedure, outlining the steps to be taken to issue <mark>new regulation. For instance, the procedure may include binding ex ante regulatory impact assessment (RIA).</mark>

# **3.2 BARRIERS TO ENTREPRENEURSHIP**

The second regulatory domain covered by the PMR is ‘barriers to entrepreneurship’ which measures administrative transparency and government’s efforts simplify its communication with the public, administrative burdens for new firms at the economy-wide and industry level, and barriers to entry in specific sectors. Since the beginning of the transition period, Romania has made significant progress in reducing legal barriers to entrepreneurship, thus placing the country in a good position in terms of official regulation relatively to its European peers (Figure 11). For example, since 2001 the government has adopted an annual action plan to remove regulatory barriers for businesses, which led to a significant decrease in transaction costs for firm entry and operation. A great impetus for these reforms was the prospect of EU adherence. In 2007, the year of Romania’s accession, the country was classified by Doing Business as the second most active reformer.<sup>19</sup> However, progress has stalled in recent years. The implementation of the simplification agenda has been negatively impacted by a lack of institutional coherence and political support (World Bank, 2011). In 2012 Romania achieves the 72nd place for overall ease of doing business, down from 65th in 2011.

> 19 News release: “Doing Business 2007: Eastern European economies lead worldwide momentum for regulatory reform” (International Finance Corporation and World Bank, September 6, 2006).

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