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Investment Approach to Deregulation

Image: Red tape.

Image: Red tape.

Last week, the consulting firm Deloitte’s released a new report titled, Get out of your own way: Unleashing productivity as part of their ‘Building the Lucky Country’ series. One of the main results was that Australian businesses imposed more red tape on themselves than the government does. Deloitte’s quantified the annual cost of self-imposed $155 billion compared to $94 billion from government-imposed regulation. Furthermore, this cost is associated with the growing ‘compliance sector’ that replaced the back-office staff that had been shed as a result of improvements in technology. So Australian firms have effectively spent their productivity dividend on beefing up their compliance capacity rather than concentrating on core activities. Deloitte’s attributes the growth of the ‘compliance sector’ to the growing risk-aversion among large Australian corporates to avoiding ‘stuff ups’. I generally found it an interesting report, although I thought it brushed over an important point: imposing rules is an implicit investment decision. I want to go through this important point in more detail in this post.

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