Emergic: Rajesh Jain's Blog

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Fewest Rules Foster Strongest Economies

October 8th, 2003 · No Comments

WSJ reports on a World Bank survey, which not suprisingly, finds “that the least amount of business regulation fosters the strongest economies.”

The bank, in cooperation with academics, management-consulting firms and law firms, measured the costs of five basic business-development functions in 130 nations. Titled “Doing Business,” the report analyzes how regulation and legal systems affect companies’ ability to register with the government, obtain credit, hire and fire workers, enforce contracts and work through bankruptcy courts.

The least regulated and most efficient economies are concentrated among countries with well-established common-law traditions, including Australia, Canada, New Zealand, the United Kingdom and the U.S. On par with the best performers are Singapore and Hong Kong.

Joining the leaders are Denmark, Norway and Sweden, social democracies that recently streamlined business regulation.

Legal systems that help companies to collect debts are the single most important factor in attracting business, said the World Bank Group’s Simeon Djankov, co-author of the study.

The report uses its comparisons to advance the thesis that heavier regulation is usually associated with more inefficiency in public institutions, causing longer delays and higher cost. The consequence often is more unemployment and corruption, and less productivity and investment.

The most onerous systems cause businesses to avoid registering altogether, creating underground economies.

The comments on China and India:

Among recent success stories, China has successfully overhauled much of its economic system in the past few years to attract foreign investment — and U.S. manufacturing jobs. Mr. Djankov said China has undertaken “tremendous reforms in the areas of enforcing regulations, resolving commercial disputes and making it easier to start businesses.”

In contrast, India, which has been attracting high-end U.S. technology jobs, has business regulations that are enforced unevenly in the country’s various states and provinces.

“India has the worst bankruptcy system. It takes about 10 years to go through the process,” Mr. Djankov said.

Will India’s politicians, ministers and bureaucrats learn? It is so much easier to do the right thing (remove regulations), and yet…

Tags: Emerging Markets

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