Assessment Tool 9

part2_tool9

Assessing the policy, legal, and regulatory framework

Purpose

This tool has been designed to guide an Employers’ Organization through the process of assessing the policy, legal, and regulatory framework for sustainable enterprise development.

How to use this tool

This Assessment Tool is designed for use by EOs. It is an illustrative guide. It is best used as a guide for employers and enterprise development specialists who will facilitate the assessment process with the EO and among other actors.

Introduction

The policy, legal, and regulatory framework is a key element of the enabling environment for sustainable enterprises (EESE). It deals with the range of policies, laws and regulations that affect firms and their business decisions.
The policy, legal, and regulatory framework is one element of what has been called the “business environment”, which is a subset of the broader investment climate.
See Box 1, below.

Box 1: The business environment
National Investment Climate
Constitutional Rights and Freedoms • Rule of Law • Political and Macroeconomic Stability • Open Markets
National Business Environment
Policy, Legal, and Regulatory Framework • Administrative Systems • National Organizational Arrangements
Local Business Environments Sectoral Business Environments
Source: Donor Committee for Enterprise Development: Donor guidance for business environment reform, 2008.


The three sub-components of the national business environment comprise the following:

  1. Policy, legal and, regulatory framework: this refers to the range of policies, laws, and regulations that affect business owners.
  2. Administrative systems: this refers to the ways in which policies, laws and regulations are enforced, and includes issues such as governance (public and private governance, corruption, etc.).
  3. National organizational arrangements: this refers to the ways in which government and business represent themselves and communicate with each other, and includes the issues of social dialogue and public-private dialogue.

The policy, legal, and regulatory framework provides the means by which government can manage the economy so as to achieve sustainable social and economic outcomes. Government develops policies, laws and regulations to achieve a desired purpose. Thus, The policy, legal, and regulatory framework protects and assists private enterprises by providing them with the legal space they require to operate to conduct their business. They are protected physically against the unlawful behaviour of others (e.g., theft, unlawful seizure of property), but also legally (e.g., protection against unfair competition). However, an enabling environment can take these functions further, such as by providing incentives to encourage entrepreneurship and job creation among small enterprises.

In the search for control, and in the desire to administer, some governments and their executives can overdo it. They can create a policy, legal, and regulatory framework that has the effect of reducing the capacity of private enterprises to grow and develop.

The figure on the following page shows three layers of government activity that shape the policy, legal, and regulatory framework.

The first, policies and laws, sets the directions and intentions of government. They underpin development efforts and influence the role that the enterprise sector performs in national, provincial, and local economies. Policies and laws provide the justification for programme and regulatory action. They can also establish a stable economic climate where the rule of law promotes transparent and enforceable transactions between government and enterprises, as well as in the commercial transactions of the private sector.

The second layer concerns regulations. These are a means through which policies and laws are implemented. Regulations represent the ‘tools’ that are used to enact such policies and legislation.

The third layer of activities is that of administration. This refers to the ways in which policies, laws, and regulations are applied, managed, and monitored. Whilst all three of these layers of government activity are important and independent in their own right, it must be remembered that there are connections between them.

The policy, legal, and regulatory framework in which businesses operates can be affected by factors that have been deliberately designed to do just that. However, it can also be influenced by factors that were not the primarily intended purpose. The above figure illustrates this point. It shows how the three different layers of the policy, legal, and regulatory framework each contain factors that are specific and non-specific in regards to enterprises. Whilst specific forms are designed with private enterprises in mind, non-specific forms were not, yet they can still affect the operations of an enterprise. The policy, legal, and regulatory framework can enable or promote business activity, it can restrain other types of business activity or prevent activity that is harmful to workers, society, or the natural environment. Thus, policies, laws, regulations, and administrative mechanisms can enable and they can restrict. They can do this intentionally, through specific measures, or unintentionally, through non-specific measures.

 

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The following steps provide an approach to assessing the policy, legal, and regulatory framework for sustainable enterprise development.