Self-regulation of business: treatment or prevention?

30-10-2017

There are only 20 self-regulatory organizations in Ukraine. Some of them show no signs of life.

Everyone knows that prevention is better than cure. But in practice, few are involved in prevention: we are accustomed to deal with the consequences instead of eliminating the causes. And when the problem is already staring in the face, we are in a hurry to remedy the situation.

The regulatory activities of the state are carried out in the same way. Ukraine still does not have the standards of shaping public policies. We can not analyze, predict and plan effectively. Instead, we always catch up with the problems and take situational formal decisions, sometimes provoking even more complications. . As a result, consumers complain about producers, while producers complain about the excessive regulation and administrative pressure looking for alternative “cures” in the form of self-regulation. A patient no longer trusts a doctor, moreover – he is afraid of him and, therefore chooses self-treatment.

In civilized conditions, self-regulation as a model of interaction between business, professional community, government and consumers occurs naturally, based on market demand. Market participants set certain rules and standards for community activities, monitor their compliance and punish violations. This is like a preventive tool for the business environment: protects the market from harmful elements while clearing and improving it. That is, the model, when the “patient” independently cared about the state of his body, can be considered the best option for avoiding diseases. Moreover, this principle is one of the most effective methods of reducing government regulation and expenses on it.

In Ukraine, in spite of the lack of a systemic holistic approach to the introduction and implementation of self-regulation, it was partially imposed by the state. Dozens of amendments to the laws, by-laws adopted, many other regulatory documents without a clear purpose – this is the way the self-regulation is carried out in our country. As of today, the creation of self-regulatory organizations is allowed in 15 types of professional and entrepreneurial activities. The principles of their functioning are regulated by 39 legislative acts.

In fact, we have only 20 SROs in 5 types of activities, some of which show no signs of life. In many areas, self-regulation exists only on paper.

As a natural result, there are areas where self-regulation is inappropriate. For example, national security and defense, law enforcement and so on. But in some cases, the state officially “allowed” to implement the self-regulation by providing associations of market participants with the status of self-regulatory organizations. However, in some cases, they are “allowed”, but nobody knows “in what way”.

For example, the tourism industry, where powerful organizations and associations have been operating for more than one year, while being capable of implementing the self-regulation and exercising similar SRO functions, but in fact, can not obtain this status. We only have a provision in a special law, which indirectly states that self-regulation in this area is permitted, and… nothing else.

There are also enough problems in the areas, in which SROs are really functioning. Due to the lack of a reliable and systematic approach to regulating the activities of such organizations, the self-regulation sometimes becomes an instrument to eliminate competitors. In particular, the self-regulation in the construction industry, where exercising the functions delegated by the state to SROs gave a practical effect, is being actively discussed. Here, only the SRO, which, according to numerous complaints, refuses to citizens, who are not members of such an organization contrary to the law, or makes unreasonable demands for professional liability insurance, is entitled to allow carrying out professional activities, while in certain way, forming the “crony market”.

Of course, in such circumstances, the self-regulation can hardly be considered as an achievement, since it has little in common with deregulation or the improvement of the quality of goods/services. In individual cases, it implies that the state refuses to intervene in the market, that is, reducing the administrative pressure. Typically, we have the opposite effect. After all, the state does not analyze areas, in which the self-regulation is necessary, useful, reasonable, and does not monitor the results of its application and does not assess the consequences. Decisions are taken in individual cases, risks and benefits are not calculated and a lack of consistency leads to chaos and complications.

They have tried to adopt a single comprehensive law on self-regulation that would resolve all controversial issues over about a decade, but the initiative has failed every time. Why? Because if you started treating, then try to ask a patient what’s the trouble.

It is necessary to understand at least:

  • what problem we want to solve;
  • what results we want to achieve;
  • which of the alternatives will allow to achieve the desired results at optimum resource costs;
  • how to balance the interests of stakeholders.

Successful implementation of self-regulation will allow to reduce the cost of state regulation, exercise more professional control over the quality of goods and services and increase the responsibility of market participants. But the case when the next draft law is developed for who knows what and whom, adopted behind the scenes and post-factum introduced in the market can not be successful a priori. We should abandon such games now and for all time.

If we do not develop the standards of disease prevention, then we have a chance to learn how to treat it properly.

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