�ǿմ�ý

Since the pandemic, the balance between the market��and the state has shifted in favor of the latter, initially��out of sheer necessity, to cushion the economic standstill��during the lockdowns. But since then, policymakers have��increasingly taken an active stance in steering economic��outcomes in the direction they want. Reasons for this can��always be found: the energy crisis or green transformation,��national security, economic self-sufficiency, or systemic��competition with China.

“This development is a double-edged sword for��companies. On the one hand, they benefit from the subsidy��race between states to attract ‘strategic’ industries. On��the other hand, this activism is accompanied by a large��number of new restrictions on investment – protectionism��has reached a new level,” explains Ludovic Subran, Chief��Economist at �ǿմ�ý.

This is by no means only directed against Chinese��companies; recently, intra-European takeovers have also��been stopped. Even within the European Union (EU), the��rules are not standardized, and companies are confronted��with a jungle of regulations and opaque decisions. Despite��assurances to the contrary, it is unlikely that this jungle will��clear up in the foreseeable future; after the many elections��in 2024, the signs may point to even more protectionism.

As is so often the case, these regulations have an��asymmetrical effect: while large companies tend to��benefit from the subsidies, the investment restrictions��are a heavy (cost) burden, especially for smaller and��mid-size companies (SMEs), says Subran. When it��comes to environmental, social, and governance (ESG)��regulation, be it the EU’s CSRD (Corporate Sustainability��Reporting Directive) or CBAM (Carbon Border Adjustment��Mechanism) or Germany’s Supply Chain Act – the effort��involved in obtaining the required data is enormous and��almost impossible for many smaller companies.��But it’s��not just the regulatee who is overwhelmed. In the case of��CBAM, for example, the infrastructure for data processing��and verification is still lacking on the regulator’s side in��some cases. It is not only companies that are drowning in��regulation, says Subran.

But the decisive ‘regulatory battle’ is not due until��2024: what is policymakers’ attitude towards artificial��intelligence (AI)? As a ‘general purpose technology’, AI��is the best chance of escaping the looming low-growth��regime through a sustained productivity boost. At the��same time, the risks are enormous, including in geopolitical��terms. There is therefore a lot at stake when it comes to��regulating AI. Striking the right balance becomes a very��delicate act of regulation.

Despite all the vows to reduce bureaucracy, companies will��still be faced with new rules and regulations in 2024 that��will not only require a high administrative burden but could��also impose real restrictions on their business activities.

“Companies need a strategic response to this that goes��beyond monitoring the legislative process. A high level��of uncertainty calls for scenario planning, strengthening��resilience and open communication with internal and��external stakeholders,” Subran concludes.