Improving the local business environment
This post looks at how local governments can improve the local business environment. Local reforms will improve the conditions for business and economic growth.
Local governments are at the frontline of the economic growth agenda. While national and state governments set the broader conditions, it is at the local level where many of the practical challenges of the business sector are faced.
There is an expanding body of national and international best practice that councils can draw from to create local conditions that are conducive to business development and inclusive economic growth.
This is the final post in the series. It briefly explores the ways local governments can improve the local conditions for business and economic growth. This is a very non-exhaustive coverage of the options available to local councils. There are many new and effective practices in this field and councils should tailor their reform efforts to address the priority concerns of local businesses within council’s own resource and capacity constraints.
Also see the two earlier posts in this series:
Part 1: The Role of Local Government
Creating a competitive policy framework
Improving the local business environment is a continuous process involving a systemic review and reform of the local conditions.
The first way local governments can improve the local conditions for business and economic growth is to ensure there is a framework for competition. Local competition drives growth and innovation.
Councils can adopt policies and strategies that respond to the needs, challenges and opportunities facing the local business and investor community. This may include a broad economic development strategy, in which local assets and resources are identified and built upon for the benefit of the whole community in terms of jobs, services and quality of life. It may also include specific sectors or sub-sectors of the business community that require special attention, such as agriculture and agribusiness, tourism, homebased businesses, advance materials, and many others. The identification of key industry clusters is also important in this regard.
This requires a strategic approach by council; one in which the economic base of the area is assessed and where there is close and regular engagement with the business community. Not all the problems faced by local businesses can be addressed by council, but council can work with business in a strategic manner to enhance the competitiveness of local businesses, clusters and industry sectors.
Key challenges for local government in business-related policy and strategy include:
- Formulation of a local economic development strategy in which the role of council is clearly presented and monitored according to results achieved;
- Policy support for small business and special business niches as appropriate to the local economy (e.g., home-based business, high-tech, manufacturing);
- Government procurement policy in which councils give preference to local suppliers; and
- Introducing e-government initiatives, including the use of single online entry points for the input of personal and business information and credentials.
Introducing smart regulations and reducing red tape
A critical way local governments can improve the local business environment is through local regulatory reform.
Doing regulation better is a first-order priority for local government. The intention is to improve the efficacy and efficiency of local laws and regulations. Often over-simplified as ‘red tape reduction’, smarter regulation is about redesigning regulation to ensure it is fit for purpose.
There has been a lot of research and policy advice provided on this topic in the last decade. For example, in the UK Sir Philip Hampton’s 2005 review of administrative burdens found that the regulatory system imposed too many forms, duplicate information requests and multiple inspections on businesses. Hampton recommended introducing risk assessments, by reducing inspections and cutting the number of forms sent to businesses. A measured approach to risk assessment would help target non-compliant businesses more effectively and reduce the burden on those businesses that do comply.
Regulatory best practices are characterised by ﬁve core principles:
- Proportionality: regulation should only be used when necessary. Remedies should be appropriate to the problem and costs should be identiﬁed and minimised.
- Accountability: regulation must be justified and subjected to public scrutiny.
- Consistency: government rules and standards must be harmonised and implemented fairly.
- Transparency: regulations should be as simple and user-friendly as possible.
- Targeting: regulations should be focused on the problem and minimise side-effects.
More recently in Western Australia, the Small Business Development Corporation has developed the Small Business Friendly Local Governments initiative to recognise local government authorities that are committed to actively supporting small businesses in their local area. Local governments are encouraged to sign a Small Business Friendly Local Governments Charter to show they have committed to work with, and support, small business. For an example of the Charter see the Small Business Friendly Local Governments Charter for the Town of Victoria Park.
Some of the local government initiatives designed to improve the local business environment that the Corporation encourage include:
- Adopting a policy to pay invoices from small business suppliers within 30 days;
- Regularly meeting with and consulting members of the local small business community to improve their understanding of its needs; and
- Introducing and promoting a timely and cost-effective process to manage any disputes arising between council and small business clients.
Other activities encouraged by the Corporation are:
- Surveying local small businesses to assess their needs;
- Accepting online payments;
- Introducing deemed approvals;
- Simplifying processes and forms;
- Providing more small business information on the council’s website;
- Improving communication and customer service; and
- Offering contracts to local small business suppliers.
There have been a number of public discussions in recent times regarding the ways in which local licenses and permits can be improved.
In Western Australia for example, John Carey, the State Member for Perth and former mayor of Vincent, has been calling for the abolishment of al fresco dining fees: ‘We need to reduce red tape. One obvious way is to abolish al fresco dining fees; that removes a hurdle for business activating the streets’. Indeed, the Committee for Perth in 2012 argued for reduced ‘red tape’ to better enable Perth to implement, ‘quicker, lighter and cheaper’ approaches to development and place making – such as alfresco dining, street food, and innovative public spaces and places.
The City of Vincent has just announced a new online self-assessment and self-approval system that will provide local businesses with free and instant permits to set up outdoor eating areas and display their goods and signs on footpaths. CEO Len Kosova describes the new way of thinking he and his councillors are doing:
“What if our Local Law rules relating to alfresco areas and display of goods and signs on footpaths remained the same? What if we no longer had to assess, issue and renew permits ourselves? What if we just made the rules clearer? What if local businesses could assess and issue their own permits, whenever they wanted – fast and for free?
“The new system provides freedom and flexibility for local businesses to use the public space in front of their premises without the delay or expense of having to navigate a traditional local government approval framework. The system has been road-tested with local businesses before going ‘live’ and has been refined to make it as quick and easy as possible for businesses to use.”
Key challenges for local government in regulatory reform include:
- Reducing administrative arrangements that are unnecessarily costly, time-consuming or burdensome––simplifying processes and forms and reducing processing times;
- Assessing the cost and benefit of regulation on the business sector and the economy as a whole before it is introduced so that the relative merits of new regulation can be objectively determined;
- Reviewing the current stock of regulations to determine if these are still necessary and how they may be updated or otherwise improved;
- Digitizing council administrative arrangements as much as possible and supporting improved access to relevant and up-to-date data by local businesses;
- Improving government procurement regulations by streamlining and reducing tendering and insurance requirements for small business, increasing the flow of information on procurement opportunities to local businesses and ensuring all suppliers are paid in full within 30 days; and
- Improving local dispute resolution processes between council and businesses.
Improving the local business environment will involve a range of actions, some big, others quite small. Sometime, simply improving the information about the current legal and regulatory requirements is significant. Other times, a more substantial reform of the legal, regulatory and administrative framework is required.
Improving the planning and zoning system (including parking)
Planning and zone issues directly affect business and investment decisions. Improving the local business environment typically involves close coordination with the planning and zoning system.
In 2011, Productivity Commission described how land use planning, including zoning and activity centres policies, affects competition by restricting business entry and allowing businesses to constrain the activities of their competitors. While planning restrictions are generally aimed at improving amenity for the community, they also limit the number, size, operating model and product mix of businesses and thus restrict competition (e.g., prescriptive zones and complex use conditions such as floor space limits, highly prescriptive descriptions of businesses allowed in particular zones).
Councils often give consideration to the impacts of proposed developments on the viability of existing businesses or centres than on the economy-wide benefits. Thus, while there may be benefits in preserving the character of certain centres, restrictions aimed at protecting existing businesses are unnecessary and unjustifiably restrict competition.
Where planning and zoning systems are inflexible, business entry or expansion often requires complex development approval processes or land rezoning. Planning systems in these areas tend to impose business-specific modifications which create uncertainty and are inefficient and anti-competitive.
In addition, the regulation of parking can be a major issue for certain kinds of local businesses. This includes the common practice of paying fees to council in lieu of providing the required parking on site. In some cases, these payments are justifiable, but the process of administering them and the actual amount of the payments may require review. In other cases, there is very little justification for this. Indeed, there is rarely evidence to show the calculations used for these parking allocations are correct and, indeed, there are strong arguments for a reconsideration of parking policies, regulations and practices. While the cost to business is only one consideration, the broader impact of parking policies and regulations have a broad impact across the local economy. Moreover, the influence of parking on transport in general and the promotion of sustainable cities should not be overlooked.
The Commission presents examples of improvements to planning and zoning systems that could encourage competition:
- Reducing the prescriptiveness of zones and allowable uses;
- Creating room flexibility, such as when applying for change-of-use within specified activity zones;
- Facilitating more ‘as-of-right’ development processes;
- Eliminating impacts on the viability of existing businesses as a consideration for Development Approval and rezoning approval;
- Considering the impacts on the viability of centres only during the metropolitan and strategic planning stages;
- Limiting anti-competitive objections and appeals, with controls on their abuse; and
- Preparing clear guidelines on alternative assessment paths.
Furthermore, the Commission proposed the use of sunset clauses within specific legislation or bylaws, or applied more broadly across classes of legislation.
Establishing platforms for regular, direct dialogue with the business community
A better business environment can only be created by monitoring change in the local business community. This requires regular public-private dialogue or PPD.
PPD has been defined as ‘bring together the government, private sector and relevant stakeholders in a formal or informal process to achieve shared objectives and play a transformational role for a particular set of issues’.
It is important to see this dialogue as a two-way process and not the typical one-way process local governments often engage in. There are three ways in which the local business community typically engage with government:
- Consultation: this is usually initiated by government and on government’s terms. For example, council has a policy or strategy it wishes to adopt, and it consults with business before doing so. This engagement is narrowly framed only focused on a single topic.
- Advocacy: this is where business approaches council with a specific concern it wants addressed. Again, in most cases, the engagement is around a single topic.
- Dialogue: this is when government and business interact in a more balanced manner, in a broader discussion about the issues they both face.
Many councils have established Business Advisory Groups as a mechanism for PPD (see a case from Belmont). However, these usually are a one-sided form of consultation in which the group comments or advises on draft policies, laws or regulations before they are considered by council.
Facilitating local entrepreneurial ecosystems
An entrepreneurial ecosystem refers to the conditions that helped to bring people together and foster economic prosperity and wealth creation. Local councils are only one of the actors in a healthy entrepreneurial ecosystem, but they can play an important role.
Councils can work with the local business community to facilitate the participation of other important actors, such as other tiers of government, academia and other research and teaching organisations, and other industry groups and clusters. They can encourage a top-down and bottom-up approach in which common local business issues are addressed and development initiatives are devolved to local networks and organisations.
Entrepreneurial ecosystems are influenced by local conditions: local strategic position, business and industry capacities, market access, labour market capabilities, access to business and financial services, and, of course, an enabling business environment.
What does a conducive local business environment look like?
There is no blueprint for this kind of work. A conducive business environment in one area, will look different to another. Moreover, the context can also vary: a large urban local government area is different to a small rural town, yet both can improve the business environment inclusive growth.
Despite these variations, there are common characteristics that help to focus reform efforts and to develop a vision for improving the business environment:
- Local policies, laws and regulations are well designed and efficiently enforced;
- Local plans and zones do not unnecessarily hinder innovation and growth;
- Council regularly assesses the impact of its decisions, laws and regulations on the business sector and the economy as a whole (rather than on a few existing ‘noisy’ businesses);
- The local economy creates better market conditions for business by reducing the cost of doing business, reducing risks and increasing local competition;
- Local governments are responsive to the needs of their business customers;
- Council establishes platforms for regular dialogue with a diverse range of local businesses and monitors any agreements that are reached;
- The local business community is well organised and able to represent diverse views to the local government;
- There is a clear way in which the local business community can participate in the design, review and reform of business-related laws, regulations and administration arrangements.
In this post, I’ve described how local governments can improve the local conditions for business and economic growth. Please remember to check out my earlier related posts: Part 1: The Role of Local Government and Part 2: What to Measure
Creating a better business environment is a continuous process. Global, national and local markets are constantly changing, and businesses are required to respond to these changes and even anticipate them, if they are to remain competitive. Thus, local government should regularly engage business and monitor these changes; it should identify new and emerging reform priorities and determine the reforms it can introduce to keep its economic and job creation engine in good shape.
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If this post deals with issues of interest to you or you want to talk more about how to make your business environment more conducive to local business and economic growth, then feel free to get in touch.
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Economic Growth | Business Development | Job Creation