Chapter 1. Assessment and recommendations

This report identifies distortions to competition in the Portuguese legislation. It proposes recommendations for the removal of regulatory barriers to competition in the regulations of 13 self-regulated professions: lawyers, notaries, solicitors and enforcement agents; architects, engineers and technical engineers; auditors, certified accountants, customs brokers, economists; nutritionists and pharmacists. The benefits resulting from the removal of regulatory barriers will lead to increased entry and facilitate business conduct, thereby bringing about lower prices, more innovative and diverse services and greater choice for consumers, and the ability to better meet wide-ranging demand as new, more efficient professional firms enter the market or existing professional firms adopt innovative forms of production and delivery of services. Provided the recommendations are implemented, the OECD estimates that the positive impact on the Portuguese economy will be around EUR 128 million.

    

Laws and regulations are key instruments in achieving public-policy objectives, such as consumer protection, provision of public services and environmental protection. The regulations covering the liberal professions are particularly important in ensuring the protection of economic agents interacting in complex transactions; trust in legal outcomes and public works, and as guarantors of public health and safety among others. However, when they are overly restrictive or onerous and impose strict rules for entry into or exercise of the profession, they may hamper the good functioning of the economy and prevent economic agents from choosing for themselves the most efficient way to conduct their business. Consumers may suffer from needlessly high prices or sub-optimal services. Negative externalities may arise from time wasted on overly complicated procedures. A comprehensive review can help identify problematic areas and develop alternative policies that still achieve government objectives without harming competition.

The Competition Assessment of Laws and Regulations Project (the Project) has identified regulatory barriers to competition in 13 self-regulated professions, including regulations that restrict entry into a market, constrain professionals' ability to compete (e.g. by imposing exercise conditions), treat competitors differently (e.g. by favouring specific categories of professionals) or facilitate co-ordination among competitors. The methodology followed in this systematic exercise is summarised in Annex A, which also describes the stages of the Project and provides full references to the OECD Competition Assessment methodology. This report presents the resulting analysis and makes recommendations for legislative reform. These recommendations aim to either mitigate or eliminate those barriers while preserving the objectives pursued by the legal provisions.

The 13 professions included in this study are grouped as follows:

  • Legal professions: lawyers (advogados), notaries (notários), solicitors (solicitadores) and enforcement agents (agentes de execução);

  • Technical/scientific professions: architects (arquitectos), engineers (engenheiros) and technical engineers (engenheiros técnicos);

  • Financial-economic professions: Auditors (revisores oficiais de contas), Certified Accountants (contabilistas certificados), Economists (economistas) and Customs Brokers (despachantes oficiais);

  • Health professions: nutritionists (nutricionistas) and pharmacists (farmacêuticos).

These professions are all self-regulated within a broader regime of co-regulation of professional associations ("orders") in Portugal, and require of their members compulsory registration in the corresponding public professional association in order to practise their line of work. The access, exercise and conduct of professionals in these trades are subject to the regulatory and disciplinary power of those professional orders. The professions studied here were chosen because of their general contribution to the economy in the form of services to businesses.1

Broader, more over-arching regulatory matters, such as labour or tax law were excluded from the analysis. The regulation of the establishment, retail or commercial activities of professionals is also excluded from study. Also, any procedures or rules for the access to public careers or public tenders are excluded from the study. While our study also identified a number of purely administrative burdens that professionals or consumers must face within the provision of or access to professional services, these are not directly addressed in this study. They are however listed in the annexes of this report, by profession.

Table 1.1. Summary of the legal provisions analysed by profession

 

 

Pieces of legislation Analysed *

Recommendations (includes administrative burden)

Total number of provisions with restrictions

Legal professions

Lawyers

103

75

76

Notaries

168

63

65

Solicitors and enforcement agents

124

44

44

Financial

professions

Auditors

54

24

24

Certified accountants

74

12

12

Customs brokers

14

13

13

Economists

10

4

7

Health

professions

Nutritionists

14

20

22

Pharmacists

31

15

15

Technical/ scientific

professions

Architects

41

17

19

Engineers

15

16

16

Applicable to several

14

14

14

Technical engineers

19

21

22

Framework

14

10

14

Total

695

348

363

The following section presents the benefits of competition in the context of liberal professions, before giving the main findings from the Project, including the estimated benefits from removing the regulatory barriers.

1.1. The benefits of competition

Consumers’ ability to choose between different providers of goods or services benefits not only consumers themselves, but also the economy as a whole. When customers can choose, firms are forced to compete with each other, innovate more and be more productive (Nickell, 1996; Blundell et al., 1999; Griffith et al., 2006; Haskel et al., 2012; Aghion et al., 2004). Industries in which there is greater competition experience faster productivity growth. These conclusions have been confirmed by a wide variety of empirical studies, as summarised in OECD (2014a). Other important benefits of competition include lower consumer prices, thus allowing for more individuals to acquire the services; more consumer choice; better quality of products and services; higher employment; increased investment in research and development (R&D); and faster adoption of innovation.

Competition stimulates productivity primarily because it provides the opportunity for more efficient firms to enter and gain market share at the expense of less efficient firms. Increased productivity from competition may arise as a result of both static and dynamic gains. Static gains follow from eliminating inefficiencies as the incumbents facing competitive pressures cease to live the “comfortable life”. Dynamic efficiency improvements arise, for example, because competition improves the ability of owners or the financial market to monitor managers, by enhancing opportunities for comparing performance, thereby enhancing the incentive to innovate to gain market share or because competition leads managers to work harder to maintain profits (Nicoletti and Scarpetta, 2003).

In addition to the evidence that competition promotes growth, many studies have shown the positive effects arising from more flexible product market regulation, the area most relevant for this project.2 The studies analyse the impact of regulation on productivity, employment, R&D and investment, among other variables. Differences in regulation also matter and can significantly reduce both trade and foreign direct investment (FDI) (Fournier et al., 2015; Fournier, 2015).3

There is a particularly large body of evidence on the productivity gains from introducing more flexible product market regulation. At firm and industry level, restrictive product market regulation is associated with lower multifactor productivity (MFP) levels (e.g. Nicoletti and Scarpetta, 2003; Arnold et al., 2011).4 This result also holds at the aggregate level (Égert and Wanner, 2016).5 Anticompetitive regulations have an impact on productivity that goes beyond the sector in which they are applied and this effect is more important for the sectors closer to the productivity frontier (Bourlès et al., 2013).6 Specifically, a large part of the impact on productivity goes through the channel of investment in R&D.

Innovation and investment in knowledge-based capital, such as computerised information, intellectual property rights (IPRs) and economic competencies, are also negatively affected by stricter product market regulation (Andrews and Criscuolo, 2013; Andrews and Westmore, 2014). Lifting barriers also enables innovative firms to combine more efficiently the resources needed to market new ideas and products. Pro-competition reforms to product market regulation are associated with an increase in the number of patents (Westmore, 2014).

Greater flexibility can also lead to higher employment. Cahuc and Kamarz (2004) find that after deregulating the road transport sector in France, employment levels in road transport increased at a faster rate than before deregulation.7 In another study (Criscuolo et al. 2014) the authors find that small firms that are five years old or less on average contribute to about 42% of job creation.8 As noted in OECD (2015a), “such a disproportionately large role by young firms in job creation suggests that reducing barriers to entrepreneurship can contribute significantly to income equality via employment effects”.

Within the professional services, a high level of regulation seems to be positively correlated with a smaller number of professionals but higher turnover per professional, implying rent-seeking behaviour (OECD, 2007). It is clear that “restricting competition causes harm to the many, while the profits generally go the few” (OECD, 2014b, p. 3).

Roper et al. (2015) report that the introduction of other forms of business models, such as “alternative business structures” (ABS) as they are known in England and Wales, leads to higher innovation in the provision of legal services. In particular, the Enterprise Research Centre (ERC) observed an increase in quality and a higher range of services provided. Additionally, as mentioned in the Dec 2016 Competition & Markets Authority (CMA) Final Report on Legal Services, in its July 2016 Report on innovation in the legal services in England and Wales, the ERC estimated that, all other things being equal, ABSs are 13% to 15% more likely to introduce new legal services. Moreover, the ERC found that the major effect on innovation in the legal services has been to extend the range of services, improve their quality and attract new clients.9 In particular, the most innovative group of provides were the unregulated group.

To sum up, regulations that restrict competition and hinder entry and expansion in markets may be particularly damaging for the economy because they reduce productivity growth, limit investment and innovation and harm employment creation. Several studies demonstrate the economic benefits of reform in the regulated professions (see Box 1.1).

Box 1.1. Benefits of reform in the regulated professions, selected studies
  • Gains to GDP: Paterson et al. (2007) carried out a comparative study about the regulation of four categories of professional services across the EU (legal, accounting, technical, and pharmacists) based on two indicators: entry and conduct regulation. This study demonstrates a negative correlation between the degree of regulation and productivity in legal, accounting and technical services (engineering and architects). Also, an empirical analysis of services regulation by Monteagudo et al. (2012) measured the results of regulatory changes on the barriers before and after the implementation of the Services Directive, and concluded that the implementation of the Directive has generated an extra 0.81% of EU GDP, ranging from 0.26% to 1.78%, depending on the Member State. The impact on the Portuguese GDP was 0.80%.

  • New professional entry and wages: The impact of regulatory entry restrictions is significant. A study carried out in 2015 by the European Commission (COM 2017a, 820 final) show that removing regulatory barriers can lead to increased entry of professionals into a specific market, by between 3% and 9%. The study also demonstrates that the presence of entry barriers lead to an average wage premium of 4%, which can go up to 19.2% in some specific professional groups. These differences in wage premium across professional groups suggests that entry barriers and reserved activities can distort relative wages, which, in turn, will be translated into higher prices for consumers of these professional services.

  • Productivity: In COM (2017b) 820 final, the EC also refers to a study carried out by the World Bank on liberal professions and so-called "reserved activities" (i.e. the fact that certain tasks are reserved exclusively for professionals that have obtained very particular qualifications) that suggests that "productivity could be raised by an estimated 5% if services barriers were reduced". For the Portuguese case, the World Bank Group (2016) points out that strict regulations in professional services are positively correlated with lower levels of total factor productivity and GDP per capita. Strong productivity gains can be expected from liberalising entry barriers.

The following chapter presents the context in which the liberal professions operate in Portugal, before discussing the main findings from the Project, including the estimated benefits from removing the regulatory barriers.

1.2. Main recommendations from the Competition Assessment Project

The access and exercise of liberal professions in Portugal remain restricted even though some attempts at liberalisation have been made. A part-liberalisation was timidly implemented in response to the EU Service Directives,10 and the recommendations in the 2011 Memorandum of Understanding (MoU)11 between the Portuguese government and the three creditor institutions (the International Monetary Fund, the European Central Bank and the European Commission), but numerous barriers to competition and exercise remain.12

Law 2/2013, the main framework law, which was adapted after the MoU. Art. 26, prohibits the fixing of professional quotas (numerus clausus) in gaining access to a profession. It designates the exceptional nature of the establishment of reserved activities as exclusive rights of a profession, and the need to assess the proportionality of some restrictive measures. This seems to indicate that the desire of the policy maker was to create better and more open regulation in this sector. Even so, many restrictions remain in the law. Moreover, several of the clauses in the bylaws adapted by the professional associations (re)impose those very same restrictions that Art. 26 seeks to eliminate. This report analyses those restrictions and proposes changes for further reform.

The following recommendations were developed after analysing the legislation and its impact on competition through the lense of the OECD Competition Assessment methodology. While most of the recommendations concern several professional groups, others are specific to one group or one profession.

1.2.1. Common legal framework

The professional associations exercise all regulatory and disciplinary functions over their members, and control access to and the exercise of the profession. This may lead to tension between promoting the well-being of the professionals and the broader public interest. We recommend a separation between the regulatory and the representative functions of public professional associations, especially within the legal profession. This separation will involve the creation of an independent over-arching supervisory body by sector or trade (e.g. legal professions) or the creation of a supervisory body inside the current professional orders (e.g. within each of the professional associations for lawyers, notaries and solicitors) with the necessary “Chinese walls”.

The independent supervisory body takes on the main regulations of the profession such as those regarding access to the profession. In the case of an internal supervisory body, the body could also deal with disciplinary complaints and conduct oversight and similar functions.

The board of the supervisory body will be composed of representatives from the profession itself as well as non-professionals, including high-profile, experienced individuals from other regulators or organisations, representatives of consumer organisations and academia. The introduction of outside oversight will encourage better regulation of the sector, and more incentives to innovate, to the benefit of clients. This mitigates the inherent conflict of interest in the self-regulatory system and protects the public interest.

To register with a professional association specific academic qualifications are required. We recommend that professions should be opened to potential candidates from other branches. For instance, the engineering professions should be opened to individuals with another background than an initial university degree in engineering. The new class of candidates may be required to hold a postgraduate degree or to take a conversion course in the specific professional subject, and should undergo the same training as other candidates, including the professional exam. This will open access to more individuals with different backgrounds, allowing for more diversity in the offer of services, and more innovation.

The professional associations should work with the legislator to set a transparent, proportional and non-discriminatory process for alternative routes to obtain the adequate academic qualifications for the exercise of a profession. In certain cases, such as customs brokers, the requirement of a university degree should be abolished.

Internships are intended to certify that candidates have acquired the professional and ethical training required for the proper exercise of a profession, and the duration is not supposed to exceed 18 months. The theoretical training offered during the internship should avoid duplicating the academic qualification. This would have a beneficial impact on the duration and cost of internships. The final evaluation of the internship should be conducted by a board, independent of the professional association, which may include members of the latter, but must also include other professionals of recognised merit.

Along with the requirement of registration to obtain the professional title, some professions reserve activities for specific categories of qualified professionals (e.g. lawyers, auditors or engineers). This means that only registered and entitled professionals can perform those acts. Reserved activities for professionals should be reduced to be proportionate, necessary and adequate to the objectives of the professional regulation in question.

In general, reserved activities or tasks for specific categories of professionals should be abolished in cases where: (i) the protection is disproportionate to the policy objective because the tasks may already be performed by other well-qualified professionals or are not a danger to public safety; (ii) there is strong and well-regulated protection of the professional title which guarantees the quality of the professionals that are allowed to work; or (iii) the restriction is no longer required owing to legal, societal or professional developments that make the restriction obsolete by its objective.

Regulations should be adapted to become more output-focused and less prescriptive. The aim should be to ensure that the outcome (a building standard, for instance) is of the desired quality, rather than trying to restrict those allowed to work on the building. This will mean that several professionals with similar but not identical qualifications should be allowed to compete for the same work, subject to scrutiny by the professional association. In the case of the technical professions this may be done through a special regime of case-by-case evaluation of their curricula based on objective and transparent criteria (such as previous experience and training).

A different regulatory structure is also required to encourage the use of online and internet services and to prepare the professions for the future use of modern information technology, such artificial intelligence and blockchain, in service provision. The current regulatory system is ill-equipped to deal with radical or innovative technologies in the professions. A more open regulatory system will also help to bring professionals closer to consumers’ needs and increase transparency on rules for access and exercise of the profession.

Portuguese professional firms face restrictive rules on partnerships, shareholding, management and associations among different professionals. We recommend that the ownership and partnership of all professional firms be opened to other professionals and non-professionals. We also recommend that other professionals and non-professionals be allowed to hold a majority of a professional firm’s social capital, together with a majority of voting rights. For instance, the number of partners in a notarial firm should be opened to notaries without a licence, and not limited to any maximum number. The management structure and team should be freely chosen by the firm’s owners or shareholders without restrictions of professional association other than ethical considerations such as possible conflicts of interst and similar matters.

The prohibition of multidisciplinary practice in professional firms should be removed, particularly in the case of the four legal professions, where the “professional partnership model” is the only model allowed for the practice of the profession in a collective way.

The creation of such "alternative business structures" will enable different forms of business models to emerge within the market, to cater for different types of market players, whether innovative start-ups, one-person cabinets or traditional professional firms. The interaction of many different players in the market will make the sector more dynamic, more innovative and offer a broader range of services, thereby allowing for better, cheaper and easier access to legal services and legal advice for businesses and consumers.

1.2.2. Legal professions

Registering with a legal professional association requires a university degree in law or in solicitor’s practice. The respective professional associations should consider alternative routes to qualifying as a lawyer or solicitor, including if one does not hold a first university degree in law. Various ways of doing so, such as a conversion course, should be considered by the professional associations. Candidates may also obtain the required academic qualification through other higher university degrees, with possible specialisation in law at the postgraduate level (e.g. studies in economics or philosophy with postgraduate studies in law). This solution would open the possibility for other graduates to access this activity, after undergoing the same training as other legal trainees, including passing the exam of the professional association. It is not uncommon in other countries for postgraduate studies to pave the way for professional practice.

In relation to reserved activities, we recommend that the profession of lawyer should review all its reserved activities with a view to opening the exercise of as many of them to the other legal professions under due supervision, by using codes of conduct for instance. Such a review could use, among other things, an assessment of the extent of risk to the public interest from current restrictions to determine whether the restriction should remain in place. We also recommend opening the market of legal advice to professionals other than lawyers and solicitors (i.e. legal experts) and entities for whom they work that want to provide legal advice on a regular basis under due supervision of the professional association or the new supervisory body. This will broaden the offer of legal services, facilitate access to legal advice and spur competition between providers, eventually leading to more innovative services and possibly also lower fees for some standard services.

The exercise of the notarial profession in Portugal is subject to a dual licensing regime, including a geographic segmentation of notarial offices. The establishment criteria (quotas and territorial limitations) for notaries should be abolished to allow for competition between notarial offices. A technical study should be carried out to reassess the demand for notarial services (in urban areas, on the coast, in touristic areas) and the viability of notarial offices. Based on the identification of such high-density, high-demand areas, areas of free establishment should be created where demand and economic activity are high. Access would remain controlled in rural and weakly populated areas where the viability of notarial offices is reduced.

1.2.3. Technical and scientific professions

Architects, engineers and technical engineers are responsible for determining the strength and safety of a construction. The procedure for awarding contracts should be competitive, through a tendering (competitive award) procedure. This will encourage those who are included in the lists of professionals suitable for the task to compete with each other and will, consequently, generate incentives to save cotsts or improve services for potential customers.

Engineers, technical engineers and architects are currently required to hold certain specialisations and a minimum number of years of experience to perform certain reserves of activities. We recommend the creation of a special regime to be applied on a case-by-case basis that would take into consideration the professional’s work experience and any relevant specialised training, so as to open reserves of activities exceptionally to other technical professionals that meet the required technical knowledge and practice.

1.2.4. Financial/economic professions

Auditors must regularly send operational and confidential information to the Professional Association of Auditors where it may be seen by competing auditors. This increases the risk of collusive behaviour, or discrimination owing to the sharing of information on markets and other sensitive information. The provision should be eliminated and instead the bylaws of the professional association should stipulate that monitoring of the auditors’ compliance with their legal obligations is carried out by an independent body (made up of auditors and, in particular, whose members are not auditors), that is competent and impartial.

To become a member of their professional, customs brokers must hold a university degree in several different academic fields. Until very recently a university degree was not considered necessary, and problems arising from the absence of a degree requirement were not well documented. We recommend that the requirement of a university degree be revoked. This will open the market and also allow for entry into the profession for candidates without a university degree, but who may meet other criteria for the profession, including moral and financial criteria.

1.2.5. Health professions

Draft-law 34/XIII currently in parliament reserves a set of acts for the holders of an academic degree in nutritional sciences, in dietetics or in dietetics and nutrition. We recommend that the proposed reserved "acts of nutritionists" should not be reserved only for nutritionists, as other health qualifications should be considered suitable for giving advice on nutrition. Allowing this restriction would exclude a large number of health professionals from providing nutritionist advice (such as school nurses, general practitioners, and so on). It would create a quasi-monopoly to the detriment of consumer welfare, leading to higher prices and more restricted access to dietary advice.

The same draft-law establishes a list of reserved activities for pharmacists. We also recommend revisiting the scope of reserved activities for pharmacists with a view to open them to other healthcare professionals, except in cases where public health might be at risk. This will allow for more entry into the market.

1.3. Horizontal findings

1.3.1. Obsolete legislation

Frequently, provisions superseded by more recent legislation have not yet been explicitly removed from the body of legislation. In its overview of Portugal, the OECD notes that “repealing old laws which are no longer necessary is not common practice” (OECD, 2015b). Obsolete, inactive or redundant legislation can act as a regulatory barrier by creating legal uncertainty and potentially raising regulatory and compliance costs facing suppliers and market players, notably increasing legal costs.

The OECD recommends that superseded legislation be explicitly abolished. By removing obsolete legislation from the body of legislation and the online legal libraries of competent authorities, market participants and potential entrants face a more transparent, less complex and more certain business environment, ensuring that both operation and entry are facilitated. Preferably, legislation should be streamlined in the context of codification of the sectoral legislation.

1.3.2. Regulatory quality

The regulations reviewed in this Project are often scattered across several legal texts and sometimes repeated across many different pieces of legislation. In order for businesses and consumers to have a comprehensive picture of the legislation applicable to a specific economic activity, they need to identify the relevant provisions in many separate texts and understand how these provisions interact with each other. In addition, subsequent modifications to core pieces of legislation result in further fragmentation and a lack of clear rules.

The streamlining and codification of the legislation in some areas would be especially beneficial to new entrants, who are less familiar with the legislation, and smaller competitors, for whom compliance costs are likely to be relatively more important than for larger companies.13

The implementation of regulation in a transparent way is one of the key tenets of regulatory quality. Transparency and accountability to the public are among the requirements for the sound governance of regulators (OECD, 2014), while transparency enhances accountability and confidence in the regulator. In addition, transparency helps regulated firms understand regulators’ policies and expectations, and anticipate how these will be monitored and enforced. Transparency helps consumers, too. For instance, decisions on product recalls can affect consumers and public health, and should be published.

Since 2016, the Portuguese government has strengthened the “Simplex +” Programme, which aims, among others, to reduce administrative burdens and improve the quality of regulation. This programme includes the “Revoga +”, “Unilex” and “quanto custa” (how much it costs) projects. The first one is aimed at systematic and sectoral reduction of the legislative stock, and at this date resulted in the identification of 1 589 legal provisions that fell into disuse. In the framework of “Unilex” all new draft regulations are subject to a legislative consolidation test, and when possible new proposals for consolidation and unification of related legislation are adopted. Finally the last project (quanto custa) aims to quantify the costs to the private sector of any new regulations and measures those costs against the expected benefits. Within the framework of the latter, an ex-ante regulatory impact assessment is made before the adoption of any new piece of legislation.

Box 1.2. What is regulatory quality?

Regulations are the rules that govern the everyday life of businesses and citizens. They are essential but they can also be costly in both economic and social terms. In this context, “regulatory quality” is about enhancing the performance, cost effectiveness and legal quality of regulatory and administrative formalities. The notion of regulatory quality covers process, i.e. the way regulations are developed and enforced, which should follow the key principles of consultation, transparency and accountability, and be evidence-based. The concept of regulatory quality also covers outcomes, i.e. regulations that are effective at achieving their objectives, efficient (do not impose unnecessary costs), coherent (when considered within the full regulatory regime), and simple (regulations themselves and the rules for their implementation are clear and easy for users to understand).

Building and expanding on the Recommendation of the Council on Improving the Quality of Government Regulation (OECD, 1995), it is possible to define regulatory quality by regulations that:

  1. 1. serve clearly identified policy goals, and are effective in achieving those goals;

  2. 2. are clear, simple and practical for users;

  3. 3. have a sound legal and empirical basis,

  4. 4. are consistent with other regulations and policies;

  5. 5. produce benefits that justify costs, considering the distribution of effects across society and taking economic, environmental and social effects into account;

  6. 6. are implemented in a fair, transparent and proportionate way;

  7. 7. minimize costs and market distortions;

  8. 8. promote innovation through market incentives and goal-based approaches;

  9. 9. are compatible as far as possible with competition, trade and investment-facilitating principles at domestic and international levels.

Source: Reproduced from OECD (2015), OECD Regulatory Policy Outlook 2015, OECD Publishing, Paris, http://dx.doi.org/10.1787/9789264238770-en.

1.4. Benefits of lifting barriers and prioritisation of recommendations

The OECD Competition Assessment Projects focus on laws and regulations relevant for the sectors under analysis. The emphasis is strongly on legislation and not its enforcement. This matters because changes in regulation can only have an impact if regulation is enforced. There are many reasons why regulation in practice may be less growth friendly than intended (O’Brien, 2013). Business environment is also important. Complementary to this analysis, there are measures of administrative burden and the ease of doing business, which capture these broader issues, such as the OECD’s Product Market Regulation index and the World Bank’s Ease of Doing Business indicator.

The recommendations in this report address specific restrictions identified in the legislation: their impact is directly linked to lifting those restrictions and the consequent positive effect on competition in the relevant sectors. It was not possible to quantify the effects of all the individual restrictions identified, either because of lack of data, or because of the nature of the issue under regulation as some aspects of professional life do not lend themselves easily to quantification. Therefore the OECD has considered whether the recommendations for the professions would be expected to have an impact on either consumer benefit, through lower prices, or on economic activity, in terms of higher efficiency and additional revenue. Overall we find that provided they are implemented, the recommendations can lead to sizeable economic benefits and to an increase in consumer welfare. These economic benefits will result from better allocation of resources, productive efficiency, and dynamic efficiency over time.

For the purposes of quantifying these benefits, we group together the different professions in four professional sectors, i.e., legal, technical and scientific, and financial and economic. However, because of a lack of data we leave out the health professions – nutritionists and pharmacists – from the economic benefit assessment. The assessment is based on the methodology developed by the OECD Competition Assessment. When the methodology is applied to self-regulated professions, some assumptions have to be made, as the supply of professional services has some particular features that distinguishes it from the supply of most other goods and services (see Annex A).

We take a conservative approach, as there are many variables that will be simultaneously affected by the implementation of the recommendations, and which are not captured by the estimates here. We define several scenarios under which those economic benefits are estimated. Each of these scenarios is characterised by an expected percentage reduction in the prices/fees of the services offered by the different professions following the implementation of our recommendations.14

Using 2015 data from OECD, including its description of the different professional activities within each sector, the three professional sectors, legal, technical/scientific and financial/economic employed around 144 000 people (roughly 3% of total employment), and generated a GVA of almost EUR 4.1 billion, or 2.3% of GDP. In terms of services rendered to enterprises, according to national data, the three professional sectors accounted for a volume of services of around EUR 5 billion.

Table 1.1 summarises the annual estimated benefits to the economy from implementing the different recommendations that are discussed throughout this report. These benefits may tend to decrease over time. For lack of reliable data, we only take into account the three professional sectors defined above, representing 9 professions of the initial 13: lawyers, notaries, solicitors, enforcement agents, engineers, technical engineers, architects, auditors and certified accountants. We estimate that total benefits from implementing the recommendations can reach EUR 128 million per year.

1.3.3. Output multiplier effects

In Canton et al. (2014), the authors find that legal, accounting, architectural and engineering professional services15 have a significant role in the economy which goes beyond their shares in value added and employment, as they act as key inputs in the businesses and firms in the form of knowledge intensive services. This means that they have a significant multiplier effect in the economy as a whole.

The authors calculate the output multipliers from input-output tables from the World Input-Output Database (project) dataset. As reported in their work, EUR 1.00 extra of final demand for architectural and engineering activities generates EUR 1.9 of gross production in the whole economy. Similarly, EUR 1.00 of final demand for legal and accounting activities generates EUR 1.8 of gross production.16 According to calculations carried out by the OECD Project Team, with contributions from the CEGEA (Católica Porto Business School, a consultant) we estimated the multiplier effect in the case of legal and accounting activities at 1.4. This means that EUR 1.00 of additional final demand for legal and accounting services leads to an increase of EUR 1.49 in Portuguese GVA.17

Table 1.2. Synthesis of economic benefits to the economy by item, 2015 (‡)

Self-regulated

professions

Rendered services

EUR million

(2015)

No. provisions

with recommendations

Estimated annual benefits to the economy (*)

(EUR million)

[Demand elasticity = 2; Price reduction = 2.5%](‡‡)

Legal services

1 245

182

32

Technical/scientific services

1 724

68

44

Financial/economic services

2 044

53

52

TOTAL(***)

5 013

303

128

(‡) The values in this table come from estimations carried out in the three chapters covering each of three professional areas: legal; technical/scientific; and financial/economic. Taking into account the description of the rendered services provided by the financial/economic professions, available at INE (see link above), several type of services were excluded from this quantification as they seem to be provided mostly by other professionals than the financial professionals under analysis (auditors, certified accountants, custom brokers, and economists). Hence, it was only considered the following services: (i) financial auditing services; (ii) accounting services; (iii) tax advice; (iv) strategic management consulting; and (v) consultancy in financial management, except tax consultancy.

(*) The “Estimated benefits to the economy”, in EUR millions, do not account for a loss of revenue to firms rendering these services, due to a drop in price.

(‡‡) The values assumed for the direct demand elasticity are absolute values.

(***) The estimated total annual benefits may decrease over time along a trajectory towards a new equilibrium. Hence, we caution against assuming annual benefits will add up, unchanged, year after year.

https://www.ine.pt/xportal/xmain?xpid=INE&xpgid=ine_destaques&DESTAQUESdest_boui=281447433&DESTAQUESmodo=2– see Excel table.

Source: National Statistics Institute/Instituto Nacional de Estatística (INE), Portugal: Data on “Services rendered to firms” (“Serviços Prestados às Empresas”, or SPE). The class “Services rendered to firms” which, according to INE, and despite its name, includes services rendered to households, comprises eight types of services: (i) IT, (ii) legal, (iii) accounting, auditing and consulting, (iv) architecture and engineering, (v) technical testing and analysis, (vi) advertising, (vii) market research and opinion polling, and (viii) employment activities.

The implementation of the different recommendations is expected mostly to lead to a decrease in prices, which will then contribute to an increase in the provision of the professional services. The total effect on turnover will depend on whether the value of the elasticity of demand is higher or lower than 1. If higher than 1, turnover (in EUR) will increase, as the demand for professional services will more than compensate the decrease in prices. This additional turnover will then be multiplied throughout the economy, as it will be spent on other goods and services. If the elasticity is lower than 1, turnover (in EUR) of the corresponding sector will decrease, but the volume of the professional services provided will increase. This additional production of services will be multiplied throughout the economy, as firms will increase their outputs in response to an increase in the demand for their goods and services. In both cases, the impact on the economy is likely to exceed the estimated benefits to the economy shown above in Table 1.1.

An alternative way of viewing this multiplication effect is via productivity gains. As regulatory barriers are reduced, one can expect productivity gains across the different self-regulated professions – there is good evidence that such linkages hold (see for instance Paterson et al., 2007). These productivity gains will be amplified throughout the economy given the ubiquity of professional services as intermediate goods for firms in general, also known as the forward linkages of professional services (Coruego and Ruiz, 2014).

Box 1.3. Administrative burden

In some cases we found multiple layers of regulation, which may indicate a risk of duplication or multiplication of regulations over the same objective or activity, or unjustified or excessive administrative “red tape” for services consumers.

The administrative burden has been identified as being a concern of Portuguese legislation on several occasions.

The 2011 Memorandum of Understanding (MoU)

In the MoU there is a reference to the administrative burden on the services sector particularly affecting the regulated professions: According to the MoU, Portugal should continue the simplification reform effort by making Points of Single Contact (PSC)/one-stop shopping more responsive to small and medium-size enterprises (SMEs) needs, extending online procedures to all sectors covered by the Services Directive.

In addition, Portugal should make the “Zero authorisations” project that abolishes authorisations/licensing fully operational and substitute them with a declaration to the PSC for the wholesale and retail sector and restaurants and bars. The project should include all levels of administration, including all municipalities.

Furthermore, Portugal should extend the PSC to services not covered by the Services Directive and extend the Zero authorisations project to other sectors of the economy.

OECD/ Country Fact Sheet/Portugal at a Glance 2017

According to the OECD, Portugal has made significant efforts to reduce administrative burdens and is now working to improve its broader regulatory policy. The “Simplex+” programme has made relevant contributions to reducing administrative burdens and modernising public administration.

Yet, there is still potential to improve the use of impact assessment (for primary laws) and consultation to inform the development of new regulations so as to close the gap with other OECD countries (average 2.08 and 2.07 out of 4, respectively).

Portugal has recently overhauled its impact assessment framework through the “How much?” (quanto custa) programme but would benefit from assessing more systematically whether regulations actually achieve their objectives.

Source: http://ec.europa.eu/economy_finance/eu_borrower/mou/2011-05-18-mou-portugal_en.pdf, https://www.oecd.org/gov/gov-at-a-glance-2017-portugal.pdf, https://www.oecd.org/gov/regulatory-policy/Portugal-web.pdf.

In sum, the full implementation of the recommendations set out in this report is expected to deliver positive long-term effects on employment, productivity and growth in the sectors under analysis. The cumulative and long-term impact on the Portuguese economy of lifting the restrictions identified should not be underestimated provided that the recommendations are implemented fully. The further rationalisation of new legislation across the wider economy through the “quanto custa” programme, if fully implemented across all sectors, will also positively affect the operating environment of businesses.

The rest of the report describes the results of the assessment in each of the 13 professions, first by looking at the regulatory restrictions that are common to all or most of the professions, then grouped by family of services (legal, technical, financial and health).

Annex A to the report describes in detail the methodology followed in the process, both to screen the laws and regulations, and to assess the harm to competition.

Annex B provides the full list of all the potential barriers identified, by sector, and of the recommendations.

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Notes

← 1. In agreement with the Portuguese Competition Authority, most of the liberal health professions were not included in the Project as they were not seen as directly contributing to business services.

← 2. The methodology followed in this project is consistent with the product market regulations (PMR) developed by the OECD, see OECD (2014), Box 2.1, page 67. To measure a country’s regulatory stance and track reform progress over time, the OECD developed an economy-wide indicator set of PMRs in 1998 (Nicoletti et al., 1999). The indicator was updated in 2003, 2008 and 2013, and a new set of indicators will be published in 2018.

← 3. Fournier et al. (2015) find that national regulations, as measured by the economy-wide PMR index, have a negative impact on exports and reduce trade intensity (defined as trade divided by GDP). Differences in regulations between countries also reduce trade intensity. For example, convergence of PMR among EU Member States would increase trade intensity within the European Union by more than 10%. Fournier (2015) studies the impact of heterogeneous PMR in OECD countries. He finds that lowering regulatory divergence by 20% could increase FDI by about 15% on average across OECD countries. The paper investigates specific components of the PMR index and finds that command-and-control regulations and measures protecting incumbents (antitrust exemptions, entry barriers in networks and services) are especially harmful in reducing cross-border investments.

← 4. Arnold et al. (2011) analyse firm-level data in 10 countries from 1998 to 2004 using the OECD’s PMR index at industry-level, and find that more stringent PMR reduces firms’ multifactor productivity (MFP).

← 5. The author investigates the drivers of aggregate MFP in a sample of 30 OECD countries over a 30-year period.

← 6. The study of 15 countries and 20 sectors from 1985 to 2007 estimates the effect of regulation of upstream service sectors on downstream productivity growth.

← 7. Employment growth increased from its level of 1.2% per year between 1981 and 1985 to 5.2% per year between 1986 and 1990. Between 1976 and 2001, total employment in the road transport sector doubled, from 170 000 to 340 000.

← 8. The sample includes 18 countries over a ten-year period.

← 9. See CMA Report, p. 94. However, note that this same report concludes that the introduction of ABSs has not yet changed the story on innovation – see pp. 95 ff.

← 10. See https://ec.europa.eu/growth/single-market/services/services-directive_pt.

← 11. See at https://www.imf.org/external/np/loi/2011/prt/051711.pdf. .

← 12. This is mentioned in the recital of Law 2/2013.

← 13. OECD (2015c) defines administrative burdens as “the costs involved in obtaining, reading and understanding regulations, developing compliance strategies and meeting mandated reporting requirements, including data collection, processing, reporting and storage, but not including the capital costs of measures taken to comply with the regulations, nor the costs to the public sector of administering the regulations”.

← 14. Data on "Services rendered to firms" (Serviços Prestados às Empresas - SPE) were collected from the National Statistics Institute (INE) and from the Eurostat Structural Business Statistics. The INE class of “Services rendered to firms”, includes not only services rendered to businesses but also services rendered to households. Data on SPE comprise eight types of rendered services, among which we select data on (i) legal services, (ii) accounting, auditing and consulting services, and (iii) architecture and engineering services.

← 15. See Canton, E., et al., 2014.

← 16. For a discussion of input/output matrices methodologies see the document (in PRT) “Sistema Integrado de Matrizes Simétricas Input-Output, 2013”, available online in: https://www.ine.pt/ngt_server/attachfileu.jsp?look_parentBoui=294445743&att_display=n&att_download=y; For the data in the matrices themselves, calculated for the year 2013, see: https://www.ine.pt/ngt_server/attachfileu.jsp?look_parentBoui=293112845&att_display=n&att_download=y Contrary to Canton et al, we calculate the multiplier effect on Total GVA, or GDP, and not on gross production.

← 17. For a discussion of input/output matrices methodologies see the document (in PRT) “Sistema Integrado de Matrizes Simétricas Input-Output, 2013”, available online in: https://www.ine.pt/ngt_server/attachfileu.jsp?look_parentBoui=294445743&att_display=n&att_download=y; For the data in the matrices themselves, calculated for the year 2013, see: https://www.ine.pt/ngt_server/attachfileu.jsp?look_parentBoui=293112845&att_display=n&att_download=y.Contrary to Canton et al, we calculate the multiplier effect on Total GVA, or GDP, and not on gross production.

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