Deregulation is back in vogue on both sides of the Atlantic. It is a major plank of US President Donald Trump’s agenda, with one executive order requiring government agencies to eliminate ten regulations for every one they introduce. It is also a priority for the European Commission, which has pledged to reduce “administrative burdens” by at least 25%. And it is all over the media, including the cover of The Economist. But is deregulation really the boon for economic competitiveness that its proponents claim?

The quest to lessen the burden of regulation faced by businesses is hardly new. Almost every US president can claim to have taken steps to this end. For example, Barack Obama’s executive order on “Improving Regulation and Regulatory Review” sought to identify the “least burdensome tools for achieving regulatory ends”. Similarly, the European Union introduced a “better regulation agenda” already in 2001.

But today’s deregulatory zeal goes much further, fuelled by the belief that, despite past efforts to reduce red tape, regulation has become increasingly cumbersome in recent years. Those touting this narrative can usually cite areas where rules have become more stringent or complex; they might even highlight a rule that seems manifestly absurd. But while one can always find examples of burdensome regulations in a large, advanced economy, there is no evidence that regulation has become systematically heavier over the last decade – at least not if one trusts the indicators of the premier global financial institutions.

Start with the World Bank. In 2004, the bank pioneered a “regulatory intensity” metric for its Doing Business index, based on hundreds of factors, such as the number and cost of permits needed to start a construction project or incorporate a new enterprise. So convincing was this index that major economies, such as China, designed reforms with an eye to improving their score. But the indicator eventually became a victim of its own success, with the emergence of data irregularities – and the resulting political pressure – forcing the World Bank to abandon it in 2021.

That does not mean that the World Bank’s regulatory intensity indicator is not useful. In fact, the data irregularities concerned very few countries, and no major developed economies. So, the assessments of Trump’s first presidency, in 2016-20, remain relevant. The bottom line is that Trump’s deregulation agenda had very little impact. One must scour the detailed sub-indicators to find marginal improvement in a few areas.

The OECD also has a system for measuring regulatory burdens. According to its “product market regulation” indicators – also based on dozens of sub-indicators – the regulatory situation has remained broadly unchanged in the US over the past quarter century ( as of 2023 ), including during Trump’s first presidency and under his successor, Joe Biden. Most EU countries, meanwhile, have improved in this domain.

One might argue that these indicators must fail to capture reality, because they do not align with companies’ complaints and the popular narrative. If this is true, the deregulation agenda has another problem: if not even the largest international organizations, with all their resources and manpower, can reliably measure the burden of regulation, the task is probably impossible. This means that we have no way of measuring the scale, let alone the impact, of deregulation.

Without a reliable metric, headline deregulation goals become virtually meaningless. If the Trump administration wants 10 regulations eliminated for each new one that is introduced without a way to quantify the impact of each option, agencies can meet their quotas with minor rules, guidance documents, or memos. And if the European Commission wants to reduce the cost of regulation by 25%, it needs to know what that cost is.

Deregulation also can be misused to shape the economy in short-sighted or otherwise problematic ways. Much of the Trump administration’s deregulation push has focused on the energy sector. At first glance, this might seem to make sense: since the sector is heavily regulated, it stands to benefit considerably from deregulation. This should, in principle, include progress on the green energy transition, given that regulatory barriers, such as lengthy permitting processes, are often blamed for impeding the rollout of renewables.

But, so far, Trump’s executive orders use deregulation to boost the fossil fuel industry, while blocking progress on renewables. The National Energy Emergency Declaration expediates approvals for “energy projects,” but excludes renewables from its definition of energy. Meanwhile, Trump has halted offshore leases for wind projects on the Outer Continental Shelf and paused approvals of the use of federal land for renewable-energy projects.

As is often the case with Trump, the measures are largely symbolic. Only a small fraction of renewable energy projects are located on public lands, and offshore wind contributes little to overall power generation in the US. But they will increase uncertainty, especially since the Trump administration has also suspended the disbursement of renewable-energy subsidies. Even if existing green subsidies are ultimately confirmed – after all, they benefit Republican-dominated states the most – the risk premium on renewable-energy projects in the US will rise.

Europe provides a counterexample of useful deregulation, as a combination of legislative changes and coordination across bureaucracies has cut permitting delays for wind power installations, leading to a record year for new installations in Germany.

A populist revolt against regulation would be unlikely to yield substantial benefits in the best of times. In cases where deregulation is guided by a bias toward special interest groups – as seems likely under Trump – it is likely to do more harm than good.

Daniel Gros is the director of the Institute for European Policymaking at Bocconi University.

Copyright: Project Syndicate