The Latvian Radio program “Open Files” his week shed light on several absurd cases, as well as exploring whether it is possible to reduce bureaucracy – as the government has promised.
In the fall, the LTV program “4. studija” reported that all fabric stores must verify or remeasure their rulers every two years. This requirement has been in effect for many years, and shopkeepers are forced to comply with it.
Measuring rulers is often mentioned in discussions about unjustified bureaucracy, and sounds like something from the pen of Jonathan Swift. Latvian Radio went to a fabric store to see what these rulers were like. The store in question had seven wooden rulers that needed to be remeasured – by means of another ruler.
Marina Blašķe, Director of the Internal Market Department of the Ministry of Economics, said that the requirement has been in effect since 2006. The ruler is not the only tool that needs to be verified.
One ruler to rule them all
The requirement for the state to verify that the ruler is in compliance at the time of purchase stems from a European Union directive. However, each country could decide whether to re-measure its rulers. For example, in Lithuania, like in our country, they are verified every two years, but in Estonia and Finland there is no such requirement.
“If we talk about costs, then currently the re-evaluation of one metal metric ruler with the CE marking, which is already in place, costs 13 euros once every two years. That is, for the entire monitoring period, for all 18 years, the entrepreneur [had to pay] 117 euros for the ruler at today’s prices. For a wooden one – 54. For 18 years. Such was this disproportionately large requirement,” Blašķe said.
She said that over the past three years, traders have verified 264 rulers, and the inspectors did not find any discrepancies at all. All rulers, it turned out, were as long as they claimed to be. Therefore, officials reviewed the list of measuring devices to be checked and decided that this requirement could be lifted. It was once introduced to prevent fraud.
“If we agree as a society that everyone is responsible and acts honestly, then we can certainly refuse these requirements. That’s clear. Well, for example, if we were talking about something else, such as taxi meters, there would hardly be those who would support us refusing verification,” Blašķe said.
Although the Ministry of Economics decided a long time ago that the requirement to verify rulers should be abolished, the amendments to the Cabinet of Ministers’ regulations are stuck in inter-ministerial discussions. The official does not know when they might come into force. Along with rulers, verification will also be abolished for weights, tape measures and multi-dimensional measuring devices.
The Latvian National Development Plan, adopted five years ago, identifies bureaucracy as an obstacle to the country’s development. Currently, business organizations are trying to put pressure on the government to reduce bureaucracy. The most painful areas are construction and public procurement.
Boundless bureaucracy
Procurement Monitoring Bureau (IUB) Director Artis Lapiņš pointed out that interests are different: businesses want to conclude a contract as soon as possible, but on the other side there is society, which wants efficient and transparent use of funds.
Entrepreneurs don’t want to participate in lengthy procurements that require reams of paperwork, also want to get an order done quickly.
Reducing bureaucracy in procurement is possible, but it is not easy. Lapiņš gives an example – in order to participate in a tender, an entrepreneur must not have tax debts. The threshold is very low, 150 euros, and this small debt is the main reason for excluding entrepreneurs from a tender. Currently, experts are considering the possibility of leaving the decision of the customer to admit a tax debtor to the tender.
“It’s not so clear-cut, because for the customer, its flexibility actually means an additional decision. Should I use it and then still be able to explain to the public that in this particular situation I entered into an agreement with a company that had a debt, but it was for a specific purpose?” Lapiņš said.
One possible solution is to allow the entrepreneur to pay outstanding taxes by the time the contract is signed. This is just one of the proposals that experts are discussing and where opinions differ on whether it is necessary and how large the tax debt can be. Therefore, changes are unlikely to be expected soon.
Compared to the European Union, Latvia doesn’t actually look so bad, Lapiņš says. He agrees with the entrepreneurs that the system is indeed becoming more and more complex. But it’s not just the fault of Latvian laws.
“We just looked at the EU level. Two years, around 40 pieces of legislation containing procurement rules. Starting from specific battery regulations, clean transportation, to regulations related to gender equality on boards and councils – there are procurement regulations in there too,” Lapiņš pointed out.
However, the procurement system still has not got rid of two mandatory procurement websites that are not connected to each other and the same data must be entered in both. One is the tool maintained by the IUB, which is needed to announce the procurement, and the other is the Electronic Procurement System or EIS, where bidders can submit offers. Lapiņš indicated that an optimal solution is being sought, as the idea of combining the systems – which to the layman looks like an obvious solution – did not receive support.
The public procurement system was audited by the State Audit Office last year. The auditors concluded that the system was inefficient.
The State Audit Office recommends that the Ministry of Finance assess the impact of the Public Procurement Law and create regulatory amendments that would promote competition, reduce bureaucratic burdens, and simplify the system. The auditors also recommend centralizing procurement, as well as training and more generously rewarding procurement specialists.
Latvian Radio attended a conference on December 19 last year dedicated to obstacles to real estate development. Viktors Valainis, Minister of Economics from the Greens and Farmers’ Union, said: “In the spring, we approved a plan to reduce bureaucracy in construction, which includes 60 different activities. 80 percent of them involve various changes to Cabinet regulations, 20 percent involve legislative changes.”
The minister promises that if the government and the Saeima adopt his plan, construction deadlines will be reduced by up to 70 percent. However, he has an excuse if his promises are not fulfilled. The blame will be on his political rivals, who are already beginning to hinder his plans.
Obstacles to growth
Preparing amendments to the law is one thing, getting them through the legislative corridors is another. This was stated by Ints Dālderis (New Unity), the head of the Real Estate Developers’ Alliance (NĪAA) and advisor to Prime Minister Evika Siliņa (New Unity). According to him, the results of the reform will be felt only after two to three years.
The entrepreneurs and association leaders who gathered at the conference expressed skepticism about whether the construction reform that has been initiated will achieve its goals, as new bureaucracy is already appearing in construction.
Those present are particularly angry at municipal building boards, which interpret the laws in their own way and impose unreasonable requirements. During the discussions, businessmen began to mention examples of bureaucracy that are only remotely related to construction.
The most striking was about identifying the ultimate beneficial owner of companies, which was shared by Intars Dīcmanis, the head of the company Mitek Baltic.
“We had a situation where we wrote the entire chain [of businesses involved], and then the bank sent it back. And the same story was with the Register of Enterprises – could you send a copy of the passport of the beneficial owner?”
This was practically impossible to do, because at the end of the corporate chain was one of the richest people in the United States and the world – renowned investor and entrepreneur Warren Buffett.
Dīcmanis said: “Imagine if a branch of some company from Latvia sent a request – Mr. Buffett, we need a copy of your passport so we can work in this country!”
Cutting red tape?
Another high-level event dedicated to bureaucracy took place on December 11, opened by Prime Minister Siliņa. Her government’s declaration promised to reduce bureaucracy. A study on public administration reform was presented at the Government House by the think tank “LaSER”, founded by entrepreneurs.
Siliņa, who as prime minister is responsible for the executive branch, complained that the country is mired in a regulatory mess that is hindering development. Siliņa has been in politics for many years. The National Development Plan, adopted during the government of her party member Krišjāns Kariņš, promised to eradicate bureaucracy.
Entrepreneur and investment banker Ģirts Rungainis mentioned in his presentation that if the government is committed to reforming public administration, then much more needs to be done than working groups and amending regulations. The mindset in public administration needs to change.
“This cannot continue, because we will simply end up with no country!” Rungainis said.
In a study by the think tank “LaSER”, the worst indicators for the Latvian bureaucracy are the evaluation of the work of civil servants and politicians. Experts refer to a 2022 OECD study, in which only 24.5% of respondents expressed trust in the government.
The researchers have also prepared proposals for what the government should start with to reduce bureaucracy, as outlined in this recent commentary piece for LSM.
“A short-term recommendation is to conduct a comprehensive audit of state functions,” said Malvīne Stučka, a researcher at the LaSER think tank.
This happened in 2010, when the government had to cut spending due to an economic crisis. Then it managed to save 78.8 million lats, or about 110 million euros. When the crisis subsided, governments forgot about limiting bureaucracy.
“Our proposal is that the audit of these functions would be carried out by the Deputy Prime Minister, […] so that there is political accountability,” Stučka added.