Sarah Hogg: Regulation must foster enterprise

From a lecture by the chairman of 3i Group and Frontier Economics, hosted by the Said Business School
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"Enterprise", so my dictionary tells me, began life with political and pejorative leanings. The word seems to have sobered up when it entered commercial life, but its essence did not change. An enterprise involves risk.

Encouraging enterprise means improving the risk-taker's chance of success. Companies in which the key people are outward-looking, focused on markets, customers and pricing, succeed more than those in which they are inward-looking, focused on process, technology and costs. And that's a message to those who set the climate for enterprise as well as those who seek to survive in it.

So what's the lesson for government? One, make sure that regulation is market-focused. Much is in fact anti-competitive. (If you find incumbents in enthusiastic support of government intervention, beware barriers to entry.) This government has decided to review the impact on competition of all proposed regulation. Excellent. But ministers keep forgetting lesson two: even if regulation looks market-focused, complexity defeats the purpose.

The complexity of Budget measures blunts incentives. The complexity of national regimes for venture capital limits entrepreneurial ambition in our supposedly single European market. Utility regulation is riddled with examples of the unanticipated side-effects of complexity.

So a good question to ask, at all stages from design to implementation, is: will this regulation encourage executives to spend more time in the market-place, or on internal processes, controls, form-filling and "gaming" the regulator? Of course companies need strong internal disciplines, but let's remember: entrepreneurial success goes not to navel-gazers but to market navigators.