Simplicity in Legislation Creates Productivity


By Peter Strong . On 20-Nov-2012


This is an article written by John Strong, sovaldi a Self Employed Financial Adviser

Complex legislation and process inhibits productivity.  This is a fact known by most policy makers and either ignored or immediately forgotten by the same people.

Last year Dunn and Bradstreet produced a report entitled “Workplace Productivity Stifled By Government Regulations”. It showed that large businesses devoted no more than four hours and on average less than one hour a week to compliance. Small business devoted seven hours a week. This massive difference shows that the compliance system is designed for large business. What we are also seeing is the large capacity gap in a small business’s ability to cover all compliance.

So why do we have a system that makes full compliance difficult if not impossible for the smallest business players in the economy?

If you look to systems management theory for an answer it shows you cannot control a system unless you have a greater capacity than the system.  This means for a government regulator to exert control over corporations it needs to have a greater capacity to do so than corporations have to work around those controls.

The capacity of regulators then comes down to the number and quality of public servants writing the legislation matching the number and quality of corporate experts working on getting around the legislation.  As a result the complexity of the legislation controlling Australian business is set to the level of complexity that exists in our largest corporations. Without this matching of complexity every one of our larger corporations are potential Enrons.

So we have PhD vs PhD, cheap MBA vs MBA, seek barrister vs barrister, large HR and accounts departments with multiple decades of experience face off against treasury and tax departments equally populated and experienced.

Unfortunately the capacity of the legislation to control the corporations is not matched by the capacity of the Government to police that control.  The number of public servants available to regulate corporations is limited as it is too costly.  To overcome this gap in capacity the legislation is very punitive.  This allows a public display of drastic consequences for those who are discovered.  The publicity multiplies the effectiveness of the small number of public servants available to monitor and control the system.

The small business person is also covered by this complex legislation and threats so it shouldn’t be hard to understand why they are overwhelmed by this red tape.  We fail when we write legislation aimed at corporations who are defended by hundreds of specialists in law, accounting, tax and compliance and then apply it to the local butcher.  This is of course a nonsense, but that is what we do.

Why can’t a simple answer to this problem be found?  It should be obvious that if something is impossible it won’t happen. The reason legislators don’t understand how they can create an impossible nonsense for small businesses occurred to me after being involved in the Stronger Super consultations for COSBOA.  The people we worked with were very experienced. There were CEOs, actuaries, lawyers, HR experts and union negotiators as well as senior ATO, Treasury and ASIC dons.  All were professional experts and the complexity they discussed was deep and intricate. These people were process driven and the term “employer” was just a part of the process. To see an employer as an individual without the capacity to achieve their aims made the process fail and that was not their goal, so they ignored the problem.  Even when we pointed out as starkly as possible that they were talking about the local café owner or hairdresser they would nod understandingly and go straight back to discussing the impossible accomplishments expected from those very people.

The problem is not these government and business experts who are professionals doing the best job they can, the problem is that they are the wrong people to be designing process for small business.  To help small business we need to have a simple process that matches an individual’s capacity, rather than a process that requires a team of specialists. An example of how simplicity can be a good thing for everyone is the massive amount of red tape that disappears in COSBOA’s superannuation proposal. Their simple concept of folding super payments into tax payments makes many pages of legislation and penalties obsolete and dramatically simplifies the process for the small employer as well as creating greater transparency for the fund member.

Small business people are a large and important part of our economy. On any economic measure if this section of the community was more confident and focussed on creativity and innovation the country’s productivity would be given a huge boost.

Why does this matter? It matters because productivity needs innovation and innovation needs time and the time of over two million potential innovators is being used up by compliance.

About the author

Peter Strong

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