Red Tape Reduction and Business Investment Exploring Global Best Practices to Support Economic Development in the Edmonton Metropolitan Region Edmonton Global S ummer 2023 Red Tape Reduction and Business Investment Edmonton Global Evan Walker Summer 2023 About Edmonton Global: The purpose of Edmonton Global is to radically transform and grow the economy of the Edmonton Metropolitan Region. We are a not-for-profit corporation representing 14 municipalities that make up the Edmonton Metropolitan Region. Our focus is attracting foreign investment, helping regional businesses export with the world, enhancing our region’s global competitiveness, and bringing our region together with a unified voice to attract the attention and interest of investors the world over. Disclaimer: The opinions expressed in this publication belong to the author and do not necessarily reflect the views of Edmonton Global’s board of directors, shareholders, staff, or supporters. For inquiries related to this paper, contact Kristen: kaspenes@edmontonglobal.ca © 2023 Edmonton Global. All rights reserved. Permission is granted to reproduce all or part of this publication for noncommercial purposes provided proper credit is given. About the Author Evan Walker is a Master's Student in the Department of Political Science at the University of Alberta in Edmonton. Before attending the University of Alberta, Evan completed his Bachelor's Degree with Great Distinction at the University of Lethbridge in Political Science and Economics. Evan’s work focuses on regional competitiveness, economic decline and growth, public policy, political behaviour, and human/economic geography. As a lifelong Albertan, Evan’s passion is to elevate Alberta to the forefront of economic innovation and change. Thanks to funding from Mitacs, Evan interned at Edmonton Global in 2022-23 and completed this project. 1 | Page CONTENTS Executive Summary ............................................................................................................................................. 2 Key Findings ..................................................................................................................................................... 2 Introduction .......................................................................................................................................................... 4 I. Defining Red Tape ....................................................................................................................................... 6 What Causes Red Tape? .................................................................................................................................. 8 II. The Impact of Red Tape on Foreign Direct Investment .......................................................................... 13 Methodology and Model ................................................................................................................................ 25 Results and Discussion ................................................................................................................................. 30 III. Approaches to Red Tape Reduction ......................................................................................................... 36 One-In-One-Out (OIXO) ................................................................................................................................... 51 OIXO Lessons and Barriers ........................................................................................................................... 65 IV. Alberta’s Approach to Red Tape Reduction ......................................................................................... 72 Broad Outcomes ............................................................................................................................................ 72 How is Alberta Measuring Red Tape? ........................................................................................................... 73 Digitization ...................................................................................................................................................... 76 Is There an RIA Process? ............................................................................................................................... 77 How Does Alberta Engage Stakeholders? .................................................................................................... 78 Cross-jurisdictional Coordination ................................................................................................................. 81 Smart Tape ..................................................................................................................................................... 82 V. Recommendations ........................................................................................................................................ 83 Conclusion ......................................................................................................................................................... 85 Appendix: Post-Estimation Diagnostics ........................................................................................................... 87 Citations ............................................................................................................................................................. 90 2 | Page EXECUTIVE SUMMARY In deciding where to invest, business owners often concern themselves with the regulatory barriers or burdens which may expedite or inhibit doing business in a select economy. Red tape or “administrative burdens” can shape investment outcomes as entrepreneurial activity and spirit are often hindered when regulations become so onerous that they drag on stability or profitability. 1 Across most countries, the costs of market entry for investors tend to be high 2 ; the number of procedures, time investment, and construction costs alone are significant levies that must be confronted before a business can officially operate, never mind ongoing compliance costs. In recognition of this, the Government of Alberta has embarked on its own Red Tape Reduction (RTR) initiative since 2019 through a dedicated Associate Ministry of Red Tape Reduction. This paper examines global best practices in red tape reduction, investigates its impact on FDI, and briefly explores what procedures are being undertaken in Alberta at present. This paper is in part both academic and practical in orientation to help inform the policy-making process across jurisdictions. While it is by no means a prescriptive roadmap of what regulatory changes should be made, it does aim to comment on which procedural practices might generate better outcomes. In other words, this paper asks: what are our global competitors doing which might better our practices domestically? More importantly, how can Alberta reshape institutional practices going forward. KEY FINDINGS ● Quantitative modelling indicates a positive relationship between the overall efficiency of a country’s regulatory regime and foreign direct investment (FDI) inflow. Estimates find that a 1 unit increase in the Doing Business Index is associated with a 4.2% increase in FDI inflow. ● Reductions to business entry regulations and the ease of business startup remain the most significant predictor of FDI activity. Specifically, for every 1 unit increase in the ease of business entry, FDI increases by 2.65%. ● International approaches to reducing red tape are diverse. Nevertheless, standard tools include the use of Regulatory Impact Assessments (RIAs), expansion of E- Government initiatives, extensive user-group consultation, measurement instruments, and one-in-X-out policies (OIXO). ● OIXO policy success varies across countries. Most successful approaches are backstopped by a firm measurement policy which focuses on regulatory costs, institutionalized supporting entities that assist in cost estimation and reviewing proposed legislation, and flexible outcomes that allow cost savings to transfer across departments. 1 Simeon Djankov, Rafael La Porta, Florencio Lopez-de-Silanes, and Andrei Shleifer, “The Regulation of Entry,” The Quarterly Journal of Economics 117, no.1 (2002): 1-37. https://scholar.harvard.edu/files/shleifer/files/reg_entry.pdf. 2 Simeon Djankov, Rafael La Porta, Florencio Lopez-de-Silanes, and Andrei Shleifer, “The Regulation of Entry,” 14-16. 3 | Page ● Alberta has undertaken a form of red tape appraisal called the counting method. The counting method focuses on tallying up restrictive language across legislation, statutes, forms, directives etc., that impose a cost on businesses. To date, this has decreased the regulatory burden by ~30%. ● However, there is room to improve Alberta’s approach to red tape reduction. High- level interviews with government and industry stakeholders revealed a few deficiencies: 1. Alberta’s chosen RTR method primarily focuses on the number of regulations, not their costs. Doubtless, removing the number of regulatory requirements provides cost savings, and focusing emphasis on a cost-in-cost-out model (akin to the Netherlands) may allow for better tracking of the regulatory burden going forward. 2. Cross-jurisdictional coordination (provincial-municipal-federal) is still underdeveloped. During COVID-19, municipal funding packages were tied to municipalities taking steps forward to reduce red tape. Yet, industry stakeholders identified the presence of duplicative processes and significant delays. Efforts to streamline provincial and municipal overlap would be welcome. 3. Regulatory Impact Assessment (RIA), once pioneered by Alberta, has fallen behind. Interviews suggested that the RIA process is now primarily conducted at the cabinet level, and often informally; the formal process has fallen by the wayside. However, a robust RIA process is a cornerstone of many RTR processes internationally. Re-emphasizing the role of regulatory impacts may be essential for keeping the regulatory burden down in Alberta going forward. 4. Time burdens which are a form of hidden red tape, are not well accounted for in Alberta. Permitting and land transfer backlogs convey high costs for would-be investors. Alberta and the municipalities should focus on establishing firm timelines that are well-measured and adhered to. 5. Industry could play a larger role in consulting with and informing the government. While Alberta has assembled multiple industry panels, some sectors are missing except for ad-hoc consultation (pharmaceuticals, finance), and their central role is to issue a “wish list” of regulatory changes. Expanding the industry panels to play a more active role by scrutineering proposed regulatory changes may assist in recognizing red tape before legislating changes. 4 | Page INTRODUCTION In light of the influence of the neo-institutionalist movement 3 on current public policy, bureaucracies across the globe have begun to emphasise the duality inherent to rules and regulations to act as both a business enabler or a business inhibitor. At the forefront of this movement are calls to reduce prohibitive red tape (also dubbed administrative burden) alleged to impose burdensome compliance costs on businesses, ultimately deterring investment that might have otherwise been undertaken in the absence of inhibitory regulatory requirements. 4 To some extent, the production of red tape is engrained in the natural functioning of the market economy, wherein legislators generate the conditions under which markets must function. Property laws, contract enforcement, taxation, and dispute settlement are all interdependent pieces of the regulatory framework which standardise and normalise market relations. Legislation also prevents (or corrects) market failures and imperfections via consumer law, environmental regulations, labour laws, anti-trust laws, etc. Naturally, different governments and their respective ideologies favour differential outcomes in setting socioeconomic policy; therefore, it is unsurprising 'red tape' tends to accrue throughout the natural turnover of governments as legislators pursue new corrective or enabling actions creating a cascade of rules which are often uncoordinated or unrevised, producing not just intentional burdens but unintentional burdens above and beyond what a well-maintained regulatory regime would produce. 5 This sort of bureaucratic churn and the log-jam effects it can conjure for both businesses and consumers has come under scrutiny in recent years. Since the turn of the 20 th century, the Organization for Economic Co-operation and Development (OECD) has called upon member states to evaluate their legislative landscape and take steps to adopt regulatory quality assurance programs designed to reduce barriers for domestic businesses and international investors in the global market. 6 To this end, deregulation policies such as one-in, one-out or aggregate reduction policies have become popular policy instruments among countries such as the Netherlands, Australia, and the United Kingdom, as a means to improve competitiveness in global markets. 7 The ultimate goal among these governments is to introduce systemic, government-wide practices that promote good housekeeping regarding regulatory decision-making. 8 Canada, and more specifically, Alberta, are no strangers to implementing such 'red tape' reforms. Most recently, in 2019, the newly formed United Conservative Party (UCP) committed to "reducing red tape by one-third", citing a build-up of burdensome 3 Neo-institutionalism refers to a school of thought dedicated to studying the ability of formal and informal rules to influence the behavior and decisions made by organizations and individuals. 4 Tim Keyworth, “Measuring and Managing the Costs of Red Tape: A Review of Recent Policy Developments,” Oxford Review of Economic Policy 22, no.2 (2006): 261, https://www.jstor.org/stable/23606891. 5 Wim J.M. Voermans. “The Sisyphus Paradox of Cutting Red Tape and Managing Public Risk: The Dutch Case,” Utrecht Law Review 4, no.3 (2008): 129. 6 See Organization for Economic Co-operation and Development, Cutting Red Tape: National Strategies for Administrative Simplification, Paris: OECD Publishing, 2006. 7 Dieter Helm, “Regulatory Reform, Capture, and the Regulatory Burden,” Oxford Review of Economic Policy 22, no.2 (2006): 169-185, DOI: 10.1093/ocrep/grj011. 8 Organization for Economic Co-operation and Development, Cutting Red Tape, 20. 5 | Page regulations hypothesised to impede investment and inhibit economic growth in Alberta. 9 Given the time and effort by the Government of Alberta towards enacting red tape reduction, including the creation of a dedicated ministry, it is vital to evaluate a series of questions inherent to red tape reduction both in general and in the Alberta-specific context (Box 1). Keeping these questions in mind (Box 1), this study proceeds in several sections . First , by drawing on the regulation literature, we conduct a conceptualisation and theoretical review of regulatory policy, neo- institutionalist perspectives on regulation, and how to distinguish red tape reduction from other malignant forms of deregulation. Second , we present a least- squares multiple regression model which estimates the statistical impact and elasticity of regulatory simplification on foreign direct investment using the World Bank's Doing Business Indicators. Creating this model allows us to test the hypothesis that a 'business-friendly' regulatory environment within a country positively impacts the decision-making of foreign investors. A robust series of controls will also be utilised to control for spurious relationships. Third , a brief review of red tape reduction methodologies, approaches, measurement, and which approaches tend to be effective. Particular emphasis is placed on the role of one-in-one-out rules. Fourth , we conduct and present the findings from a series of personal interviews with business stakeholders throughout the Edmonton Metropolitan Region (EMR) to evaluate the extent to which the Government of Alberta's red tape reduction strategy has had any sizeable impact since its inception. Furthermore, we gauge the extent to which 9 United Conservatives, 2019, Alberta Strong & Free: Getting Alberta Back to Work, https://www.unitedconservative.ca/wp- content/uploads/2020/07/Alberta-Strong-and-Free-Platform-1.pdf. Box 1: Key Questions 1. What is meant by red tape reduction and what is the theoretical case for both regulatory simplification, and regulatory build-up? When it comes to the former, what are the global trends when it comes to policy instruments, institutional practice, and outcomes? 2. To what extent is regulatory simplification, and the creation of a business enabling environment significantly associated with foreign direct investment, economic growth, and other vital business indicators? 3. How problematic is red tape for businesses in the Edmonton Metropolitan Region? To what extent has the Government of Alberta succeeded in reducing the regulatory burden on businesses? What barriers are still overlooked? 4. How closely aligned is Alberta with international best practices? What institutional instruments might improve the current red tape reduction process, and how should regulation be approached going forward? 6 | Page regulation matters to these businesses and how it matters while asking what changes might be implemented to enhance Alberta's regulatory competitiveness. Fifth and finally, a red-tape reduction procedural framework is proposed along with a series of policy recommendations for legislators to use as a point of reference. Overall, this research seeks to provide not just deeper insight into the rationale for improved regulatory housekeeping but how we can apply innovative practices from our global competitors at the provincial, municipal and federal levels. In doing so, we aim to inspire improvements to the legislative process, enabling present and future Alberta governments to implement durable red tape reduction strategies across multiple jurisdictions. To our knowledge, this research is relatively novel in the literature; few at the academic or organisational level have attempted to appraise red tape reduction processes in Alberta. Nor, to our knowledge, have international techniques been deployed to reflect on the ongoing red tape reduction practices by the Government of Alberta. The discussion within this research bridges this gap, providing timely insight and policy recommendations for how the Government of Alberta and the municipalities within the EMR can learn from abroad to offer a competitive, more responsive regulatory environment. I. DEFINING RED TAPE Before proceeding further, it is essential to define what the term 'red tape' means. In popular usage, red tape manifests as a term used pejoratively to disparage any form of rules and regulations perceived as inconvenient, burdensome, or constraining at either the individual or organisational level. 10 As Herbert Kaufmann, a pioneer in the study of red tape puts it: "no one wants to be told to do what we do not want to do, [nor do we] want to be prohibited from what we strongly want to do." 11 As a result, red tape often is utilised as an ambiguous catch-all term dependent on each individual's and organisation's perceptions rather than any external objectivity of what is burdensome and necessary and what is not. 12 Conceptualising red tape in such a vague manner is unhelpful and exposes the regulatory environment to advancing ideological and partisan objectives based on what political party happens to be in vogue. Moreover, it overlooks the potential benefits derived from rules and regulations, particularly in the social realm. Instead, the best way of thinking about and understanding red tape can be derived from Barry Bozeman's theoretical reasonings, which define red tape as follows: Red tape : rules, regulations, and procedures that remain in force and entail a compliance burden for [any given] organisation/stakeholder but have no efficacy, and/ or serve no objective goal valued by any given stakeholder group. 13 10 Barry Bozeman, “A Theory of Government Red Tape,” Journal of Public Administration Research and Theory 3, no.3 (1993): 276-277. 11 Herbert Kaufmann, Red Tape: Its Origins, Uses, and Abuses. (Washington: Brookings Institutions Press, 2015), 1. 12 Herbert Kaufmann, Red Tape, 5. 13 Barry Bozeman, “A Theory of Government Red Tape,” 283-284. 7 | Page By defining red tape in this manner, we get a better sense of what red tape is and what it is not. Red tape is not merely taking stock of the number of rules and regulations in place. Nor is it synonymous with rules and regulations that are annoying or frustrating. Rather red tape can be thought of as rules and regulations that have lost their efficacy; they are redundant, irrational, or are unbeneficial to the functioning of the market, society, or industry. Put more simply, red tape is anything that imposes a high compliance burden without fulfilling any social benefit or goal. 14 To be clear, this idea is distinct from the removal of formal regulations such as those protecting our environment, emissions, food, or other manners of public safety. Rather, red tape, as conceptualized here, aims to address the administrative burdens that impose real costs on businesses, citizens, and other public organizations. 15 Of course, within this definition, there is room for subjectivity in interpreting red tape between organisations. This is a nearly impossible conundrum to avoid in any given definition of red tape as there is bound to be disagreement between what any individual thinks is red tape and what is not, even amongst informed stakeholders operating in the same industry. What is red tape to one actor may be an important safeguard to another. 16 One connotation of this relationship is that deriving a comprehensive picture of what specific pieces of legislation are universally considered red tape to all relevant stakeholders can be a nearly impossible task. 17 However, by viewing red tape under Bozeman's definition above, we can derive a helpful rule of thumb for thinking about red tape itself; in any proposed piece of legislation (or legislation set to be repealed), policymakers need to ask whether the legislation is first, efficacious , and second, whether or not it serves an objective goal among key stakeholders (or society more generally). When either of these conditions cannot be satisfied, any proposed legislation will likely manifest as burdensome red tape. For this paper, we utilise this rule to think about red tape reduction as removing regulatory burdens that serve no crucial goal or objective and/or display a lack of efficacy in achieving desired results while preserving necessary and important safeguards; in short, it is about preserving government responsiveness and eliminating redundant regulatory build-up. Nor is it partisan; removing unnecessary regulations is not inherently synonymous with changing policy objectives. It is also worth distinguishing between economic red tape and street-level red tape. The former refers to regulatory burdens associated with business operations and broader macroeconomic regulatory conditions that shape the overall investment and business climate. These operate at the organisational level and primarily affect the experiences of investors and business stakeholders. However, the latter is associated with the experiences of the individual. 18 Street-level red tape applies to the citizen in terms of accessing government programs or general day-to-day activities. Examples might include 14 Ibid., 294. 15 Cass Sunstein, “Sludge and Ordeals,” Duke Law Journal 68, no.8 (2019): 1882, https://scholarship.law.duke.edu/dlj/vol68/iss8/6. 16 Herbert Kaufmann, Red Tape, 1. 17 Ibid., 285. 18 Rik Peeters, “The Political Economy of Administrative Burdens: A Theoretical Framework for Analyzing the Organizational Origins of Administrative Burdens,” Administration and Society 52, no.4 (2019): 566-592, DOI: 10.1177/0095399719854367. 8 | Page the number of procedures required to access social assistance, wait lists, personal documentation requirements, or other policies restricting the individual. Often, these might be thought of as personal inconveniences, and while reducing these barriers is also important, it is less so the focus here. For this paper, we refer to red tape through its economic impacts at the organisational/business level and its macroeconomic implications. WHAT CAUSES RED TAPE? The source of regulatory build-up is far from simple; instead, 'red tape' stems from multiple institutional features of Canadian governance and even from business stakeholders themselves. It is more helpful to think of regulatory governance as emerging from the natural interplay of several different arenas, driven by diverse contenders, each looking to shape the nature of the regulatory landscape itself. 19 The interplay of these arenas tends to generate 'red tape,' producing rules that can be inconsistent, conflicting, redundant, or congestive. 20 This section briefly reviews these arenas, their underlying rationales, and functional purposes to present a broad picture of Canada's regulatory environment and the context in which red tape reduction initiatives must operate. A. Regulation Demand in the Private Sector: Interest Groups and Industry The first source of regulation stems from a perhaps unlikely source: the private sector itself. In this case, industry actors intentionally seek out regulation by lobbying across multiple levels of government. The theoretical and empirical research underlying this work draws from the seminal work of George Stigler, Richard Posner, and Sam Peltzman, who proposed and refined the economic theory of regulation. The logic is simple, any industry/firm/or occupation with sufficient political power to control market entry will seek to limit rival firm entry, which might otherwise erode profits. 21 This is because there is a benefit associated with shaping the initial form any proposed regulation may take, as established players can craft favourable rules. 22 By extension, there is usually some form of demand within any given industry for regulatory change, as regulation tends to control the rate of entry for new firms by increasing entry costs--established players are more likely to be able to absorb new regulatory requirements. 23 For example, suppose a government seeks a regulatory change to an industry. Initially, there is likely to be a backlash to any proposed changes, followed by a gradual 19 Bruce Doern, Michael J. Prince, and Richard J. Schulz. Rules and Unruliness: Canadian Regulatory Democracy, Governance, Capitalism, and Welfarism. (Montreal: McGill University Press, 2014), 65-66. 20 Bruce Doern et al., Rules and Unruliness, 71. 21 George Stigler, “The Theory of Economic Regulation,” The Bell Journal of Economics and Management Sciences 2, no.1 (1971): 5, https://jstor.org/stable/3003160. 22 Richard H. Posner, 1974, “Theories of Economic Regulation,” NBER Working Paper No. 41, Centre for Economic Analysis of Human Behavior and Social Institutions, New York, N.Y., 17. 23 George Stigler, “The Theory of Economic Regulation,” 6-10. 9 | Page acceptance and desire to define the new regulatory status quo. Sam Peltzman provides the example of railroad deregulation in the United States under President Ford; when policy change became inevitable, railroad executives shifted their tone from opposing deregulation to opposing re-regulation. 24 The root cause for the change in tune Peltzman identifies as consistent with the economic theory of regulation: if a change is to become inevitable, any industry or firm has the incentive to define the new regulatory policy. In this case, railroad executives simply recognised an inevitable change and sought out a new favourable regulatory environment. 25 The lesson we can take from this is that typically most industries have some demand for government regulation, as it is in their best interest to shape legislation that safeguards profits. 26 Where demand for deregulation occurs, it is usually within the context of political change, and once again, there will be an innate desire by industry to shape how the new regulations will operate. The only bulwark to prevent any industry from achieving these ends is the extent to which political decision-makers acquiesce. 27 Beyond the domestic scale, there is also mounting evidence within the foreign direct investment literature that some multinational firms might prefer robust regulatory environments. This goes against arguments perpetuating a 'race-to-the-bottom' narrative among multinational investors who seek to exploit and circumvent low regulatory barriers. A growing portion of the literature is now finding the opposite. For example, Kirkpatrick and Shimamoto found that among Japan's primary polluting multinational industries, there is a preference to invest in regions with stringent as opposed to relaxed environmental regulations. 28 These findings have been echoed by numerous studies which confirm the relative absence of a regulatory race to the bottom, and a preference for greater regulation, ironically often among polluting industries or firms with a sense of social responsibility. 29 At face value, this relationship may seem counterintuitive; however, as Stephen D. Cohen notes, the desire for regulatory robustness is innate to MNCs; clear and honest regulatory rules provide a degree of predictability and enforceability of physical assets and intellectual property. It also ensures a set of firm ground rules in which a company may operate. 30 Ensuring certainty will always spurn investment in any area. It also serves to level the playing field across firms by ensuring one firm cannot economically gain by skirting the rules. Moreover, regulation raises the possibility of stimulating innovation. Take, for example, environmental law, where the overarching goal (reducing pollution) 24 Sam Peltzman, “The Theory of Economic Regulation After 50 Years,” Public Choice (2022): 6-8. https://link.springer.com/article/10.1007/s11127-022-00996-0. 25 Sam Peltzman, “The Theory of Economic Regulation After 50 Years,” 7-8. 26 Richard H. Posner, “Theories of Economic Regulation,” 21-22; George Stigler, “The Theory of Economic Regulation,” 10. 27 George Stigler, “The Theory of Economic Regulation,” 11-13. 28 Colin Kirkpatrick and Kenichi Shimamoto, “The effect of environmental regulation on the locational choice of Japanese foreign direct investment,” Applied Economics 40, no. 10-12 (2008): 1405-1406. DOI: 10.1080./00036840600794330. 29 Maoliang Bu and Marcus Wagner, “Racing to the Bottom and Racing to the Top: The Crucial Role of Firm Characteristics in Foreign Direct Investment,” Journal of International Business Studes, 47, (2016): 1053-1054, DOI: 10.1057/s41267-016-0013-4; Maoliang Bu, Zhibiao Lu, and Marcus Wagner, “Corporate Social Responsibility and the Pollution Haven Hypothesis: Evidence from Multinationals’ Investment Decisions in China,” Asia-Pacific Journal of Accounting and Economics 20, no.1 (2013): 85-99. DOI: 10.1080/16081625.2013.759175. 30 Stephen D. Cohen, Multinational Corporations and Foreign Direct Investment: Avoiding Simplicity, Embracing Complexity, (Oxford: Oxford University Press, 2007), 158. 10 | Page typically requires innovative approaches across firms to abate their negative externalities. This exerts pressure to innovate and produce new "offsets", which lower the cost of keeping up with the regulatory framework, creating not just an advantage for the firm domestically but also an advantage over international competitors. 31 In this manner, regulation can trigger greater productivity in an industry and its host region while strengthening firm competitiveness, conferring benefits across private business interests and society more generally. Given the above, it is unsurprising that private industry invests plenty of resources into lobbying and consulting with policymakers to try and influence the trajectory of regulatory change (or retain the status quo). This creates a source of regulatory demand driven by business-sponsored interest groups which engage in rent-seeking behavior to derive economic benefits from the regulatory environment. 32 The onus is for policymakers and regulators to engage with these players and deliberate on introducing or removing regulatory rules. While this process is natural to the democratic process, it is also prone to producing a cascade of rules and regulations, procedural mazes, and stacks of paperwork. 33 Even if most interest groups concern themselves with a relatively small sector of the economy, the sheer multiplicity of actors and diversity of interests can quickly contribute to government red tape without the necessary safeguards. At this point, the build-up of regulations becomes counterintuitive and becomes business- inhibiting and, at worst an economic drag. 34 In other words, governments ought to be mindful of the existing rules and regulations by keeping the regulatory process efficient and evolving alongside industry needs instead of endlessly piling up new regulations aimlessly. While there may be demand for regulation from industry, it is conditional on maintaining efficiency. B. Fed eralism and Policy Conflicts Another source of red tape comes from the nature of Canadian federalism itself. Constitutionally, the federal system creates divides and sometimes overlaps between the national, provincial, and territorial governments' regulatory responsibilities, which can create conflictual or cooperative action. 35 For instance, take trade regulation and commerce, which are primarily a federal responsibility in Canada in that only the federal government has the authority to ratify international trade agreements. 36 However, Canadian provinces not only have the right to intervene in international trade matters “[relevant] to provincial jurisdiction,” 37 but they also have control over property and civil rights regarding the “regulation of contracts in 31 For full discussion on this dynamic see Michael E. Porter and Claas van der Linde, “Towards a New Conception of the Environment- Competitiveness Relationship,” Journal of Economic Perspectives 9, no.4 (1995): 97-118. 32 Bruce Doern et al., Rules and Unruliness, 67. 33 Herbert Kaufmann, Red Tape, 25. 34 John W. Dawson, “Regulation and the Macroeconomy,” Kyklos 60, no.1 (2006): 15-36. 35 Bruce Doern et al., Rules and Unruliness, 66. 36 The Constitution Acts, 1867-1982, Statutes of Canada 1982, s.91(2), https://laws.justice.gc.ca/eng/constrpt/page-13.html. 37 Christopher J. Kukucha, Federalism matters: evaluating the impact of sub-federal governments in Canadian and American foreign trade policy,” Canadian Foreign Policy Journal 21, no.3 (2015): 226. DOI: 10.1080/11926422.2015.1074926. 11 | Page which international trade is conducted.” 38 This has led to an expanded role for provincial governments at international negotiating tables, such as during the development of the Canadian-European Comprehensive Economic and Trade Agreement and Canada-U.S. Free Trade Agreement, primarily as consultants on trade barriers or advocates for protectionary interests. 39 However, the implementation of said treaty legislation and passing supporting regulations to comply with any trade treaty impacting areas of provincial jurisdiction lies with the provinces themselves. 40 In this instance, making a regulatory/legal change to trade arrangements requires extensive coordination across multiple levels of government, wherein the process is exposed to the drafting of conflictual rules by regional actors or policy incongruence that only complicates the regulatory landscape. 41 Similar conflicts over the division of powers persist in other policy arenas, such as Aboriginal governance, environmental and energy regulation, and internal trade matters. 42 As a result, red tape can impede economic or political outcomes when constitutional powers are vague, overlapping or of de-facto shared authority (such as trade). Multilevel regulatory dynamics mean that all levels of government should strive to harmonise the regulatory landscape wherever possible and work to build consensus across their respective jurisdictions. C. Regulation and the Social Sphere The final source of regulation demand emerges from the social or civil sphere, and the obligation government must look after the interest and general well-being of their citizens. Regulation is often ‘demanded’ from the social sphere as a protectionary initiative against the self-interest of market forces, which often does not make space for broader social concerns or generates negative externalities such as pollution. 43 In situations that threaten the broader well-being of society, governments often intervene and engage in some form of paternalism designed to protect individuals. In general, regulators tend to adopt some form of cost-benefit analysis when deciding the extent to which to intervene and which restrictions to put in place. 44 Governments face trade-offs regarding how much risk can reasonably be embraced and which worst- case scenarios must be definitively regulated. 45 However, as the economy grows and new 38 The Constitution Acts, 1867-1982, Statutes of Canada 1982, s.92(13), https://laws.justice.gc.ca/eng/constrpt/page-13.html, 39 Christopher J. Kukucha, “Federalism matters,” 220-229; Ali Tejpar, “The Challenge of Federalism to Canada’s International Trade Relations: The Canada-European Union Comprehensive Economic and Trade Agreement,” International Journal 72, no.1 (2017): 115- 117, DOI: 10.1177/0020702017691312. 40 Anthony J. Vanduzer, “Could an intergovernmental agreement increase the credibility of Canadian treaty commitments in areas within provincial jurisdiction?” International Journal 68, no.4 (2013): 538. DOI: 10.1177/0020702013509315. 41 It should be noted the Federal government can invoke legal provisions set out under international trade law to resolve disputes. See: Ali Tejpar, “The Challenge of Federalism to Canada’s International Trade Relations,” 115-117. 42 Bruce Doern et al., Rules and Unruliness, 66. 43 Herbert Kaufmann, Red Tape: Its Origins, Uses, and Abuses, 67-68. 44 Cass R. Sunstein, “Maximin,” Yale Journal on Regulation 37, (2020): 942. 45 Cass R. Sunstein, “Maximin,”941-943. 12 | Page industries emerge, risk considerations to the social sphere multiply in turn such calls on regulators to take on a “representation role” and a “constitutive role.” 46 Representation in terms of market operations calls upon the regulator to focus on market failures or structural imperfections that threaten ‘good’ market outcomes. For example, in the case of businesses with monopoly or near market monopoly share, the regulator's role is often to mimic the effects of market competitors to prevent the undue upward spiralling of predatory prices. 47 All the same, regulators tend to take action when consumers are unable to advocate for themselves (collective action problem) to act in the best interest of those without a voice—regulations attend to what is necessary to protect the market interests of those without a voice, or those unable to act in their own “best interest.” 48 In fulfilling a constitutive role, regulators must go beyond mere market considerations and towards reconciling social objectives with the market, recognising that human behaviour is prone to abusing market structures. This constitutive role is typically achieved by establishing the overall preconditions for the market to function, how pricing is set, and how contracts are adhered to. Frank Vibert gives the example of fracking in the United Kingd