Doing Business Blog - The World Bank Group

Another World is Possible, If

This week I am debating Susan George, a political scientist and a fierce critic of the World Bank, the IMF and the WTO. George refers to those as the three stooges of global capitalism. Recently she has added the OECD, making the reference passe. An alternative name suggested: the four baddies.

In essence, George's argument is that the Bretton Woods institutions (plus selected others) are the servants of global corporations. And since corporations can't think beyond their noses, nothing good can come out of that. A notable Susan George quote: "Markets can't think about anything beyond about three months. This is very long-term for markets, which is why the important things in life have got to be taken outside of the marketplace. " Lesson one: market institutions are bad for development.

Bhutan's Job Creation Plan

How do you go about persuading young people to take up jobs in the private sector when they all aspire to civil service positions? And how do you go about raising skill levels to fill private sector jobs?

This is the not uncommon dilemma the government of Bhutan has been struggling with for the past few years. Young people want only civil service jobs because of the better working conditions, higher starting salaries and perceived prestige of working in the civil service. Yet the civil service has been increasingly unable to absorb all of those who want a job.

Employers, for their part, prefer to hire foreign workers with more relevant skills. The number of unemployed youth in the cities was getting to the point where Bhutan's most important policy objective of Gross National Happiness was being endangered.

In cooperation with the Asian Development Bank, the government resolved to act, adopting the Labor and Employment Act of Bhutan in January of last year.

Kinks in Reform

A new paper by Daron Acemoglu (see picture) and co-authors finds what I have suspected all along: that policy reform works best in middle income countries, and/or countries with some level of democracy. Or put differently, in MIT speak, "it is at intermediate values of constraints that policy may be both bad, but also reformable."

Whether or not groups and individuals with political power can thwart reforms depends on the constraints on politicians and on the process of policymaking. In societies such as many in Africa or the Middle East, where there are only few constraints and checks on politicians and on politically powerful groups, policy reform is unlikely to be very effective.

Panama: Modernizing the Judicial System

Panama's economy grew by a historical 11.2% in 2007 (according to the Economist Intelligence Unit). This is mainly due to a boost in the financial and construction sectors, tourism and the commercial expectations put in the ongoing expansion of the Canal. The institutional framework, nonetheless, still lacks efficiency. It takes 686 days to solve a simple commercial dispute in court in Panama, in line with the backlog observed in the Latin America & Caribbean region. One might think that, with strong economic activity, the number of disputes would increase in Panama, leading to an even longer delay in the judicial system.

But Law 15 of 2008 might easily reverse this assumption. It all started 2 years ago with a devastating fire in the Maritime Courts in Panama City, where thousands of files were destroyed. Since every cloud has a silver lining, a discussion started to install a more efficient and secure judicial system. The result is Law 15, which introduces several important developments.

Paying Taxes: Easy in Bulgaria

Only 9.72% of managers in Bulgaria identify tax rates as a major constraint. Only 13.74% identify tax administration as a constraint. This are the results of the latest World Bank enterprise survey in Bulgaria, done in late 2007.

On these scores Bulgaria is far ahead of the rest of the region. Among East Europeans, nearly 30% still view tax rates as a major constraint. And as recently as 2005, over 20% of Bulgarian managers thought so.

The difference is a series of reforms on reducing tax rates and making it possible to pay taxes online. In this regard Eastern Europe has led the world over the last decade, with Bulgaria one of the top reformers. In Doing Business 2008, Bulgaria was named top global reformer in taxes. Businesses seem to agree.

The Friedman Prize goes to...

Yon Goicoechea (see picture), leader of the pro-democracy student movement in Venezuela that prevented President Hugo Chávez from seizing broad powers in a December 2007 referendum, has been awarded the 2008 Milton Friedman Prize for Advancing Liberty.

Mr Goicoechea is a 23-years old law student, a third of the age of the average previous recipient. Peruvian writer Mario Vargas Llosa remarked, "Freedom and complacency are incompatible and this is what we are seeing now in countries like Venezuela where freedom is disappearing little by little, and this has produced a very healthy and idealistic reaction among young people. I think Yon Goicoechea is a symbol of this democratic reaction when freedom is threatened."

When I first heard the news (the actual ceremony is on May 15 in New York), I was puzzled. In an earlier blog, I had predicted that the prize would go to either an East European (Vaclav KLaus or Leszek Balcerowicz) or a New Zealander (Roger Douglas or Ruth Richardson). These candidates fit the previous pattern of recipients. I had also suggested in a later blog that the committee should be more flexible and look at people who have recently made tremendous steps in advancing liberty. The committee went that way, so much so that even I was surprised.

Breaking the Male Cartel in the Workplace

The following excerpts are from an article featured in the Financial Times on Thursday, April 24, 2008 written by Helen Mees.

“…Women have become the engines of global growth over the past decade, according to the Economist magazine.  This is especially true in east Asia... In the Philippines, 89 percent of companies have women in senior management positions.  China, Hong Kong, Indonesia, Taiwan, and Singapore follow closely in terms of women in top jobs.  Even in India, where more than half of all girls and women are illiterate, a higher share of women hold senior management positions than women in countries such as Germany, the Netherlands and Portugal.  In Europe, the percentage of women on corporate boards remains in single digits and the same applies to female professors and government officials. 

Honduras: Modern Property Registry System

Let’s imagine that you want to buy and register a warehouse in the industrial area of the city of Comayagua, in the north-west of Tegucigalpa, Honduras. Suppose that you have identified the owner.

First, you have to travel to Comayagua and visit the registry’s office. You have to check if the house is registered under the name of the person who claims to be the owner. It is also recommendable to check for any encumbrances (lien or restriction on use).

Second, you might also visit the office of the cadaster located at the Municipality to check the map of the property and cross-check its size and boundaries with the information obtained at the registry.

This is a costly process. But luckily, this is no longer necessary. Due diligence can now be done on-line from any computer in the world. The city of Comayagua was a pioneer in integrating the register and cadastral information on a single digital support ten years ago. The same reform is currently being introduced in Tegucigalpa.

Mozambique: On Reform Path

Recently, the Doing Business team visited Mozambique, and saw first-hand its path of reform and new policies to ease doing business. Last year Mozambique climbed 6 spots on the global Doing Business ranking, from 140 to 134. In 2006 a new commercial code was implemented. The new code increased minority shareholders protection and made it easier to hold directors and controlling shareholders liable for misconduct. In SADC, only South Africa has better regulations for protecting minority shareholders.

Mozambique also recently passed a new labor code. This is likely to have a positive change to its ranking on the Doing Business employing workers indicator.  The maximum duration of term contracts was extended to 72 months (that is a term contract of up to 2 years renewable twice), allowing workers and employers increased employment options. Mozambique is slowly making its labor market more flexible.

Privatization of Building Control Proceedings

The Dealing with Licenses indicator of Doing Business measures the administrative hurdles associated with building a new warehouse in the main economic center of 181 countries. Every year the Doing Business report records reforms in countries around the world that make it easier for builders to get their new constructions approved faster.

Over the last decade, building control systems in Europe have undergone significant changes. In the past, public building offices were the only ones allowed to establish building standards and issue building permits, perform inspections, and issue completion certificate if new constructions were in compliance with these standards. Fiscal constraints of municipalities and dissatisfaction with lengthy processes initiated a trend towards liberalization of aspects of building control proceedings.

Red Ribbon vs Red Tape

Have you seen the red ribbons on ads, cars, or as a big banner on the outside of the headquarters of the World Bank during the first week of December? It showed support for the global HIV/AIDS campaign. Other than for such limited purposes, red tape is rarely a positive contribution to anything.

The Doing Business report is published once a year in the fall. Each year, more and more governments and institutions realize what red tape is not doing for their country. The EU has created a work program to speed up the diminishing of rules and regulations for its citizens. In January 2008, the European Commission’s Action Programme for Reducing Administrative Burdens reported its results at its first anniversary. In 2007 savings were €500 million Euros.

President Says...

When a country is ranked badly on some indicator, the first instinct of government officials is to blame the indicator's methodology, source, bias, or all of the above. Some government officials take a long time to move beyond this point and engage in constructive discussions on reform ideas.

Morocco is an example in Doing Business - the last 3 years have been spent in debating minute details on methodology instead of outlining reform priorities.

How refreshing then that at a recent cabinet meeting in Baku, the president Aliyev (see picture) told his ministers: "If Azerbaijan is ranked badly on an indicator, it's either because you haven't reformed enough or because you have failed to provide sufficient information on reforms. Either way, the burden is on you."

With this kind of attitude, one can be optimistic about improvements in the business environment in Azerbaijan. With the support of the IFC, several reforms have already taken place since Doing Business 2008 was published. Most important among these: the creation of a single-window for business start-ups.

Economics of the Rule of Law

The Economist issue of March 15th 2008 includes an article on the relationship between economics and the rule of law. Among other things, the article addresses the issue of what the concept of the rule of law is really about and to what extent growth and development are directly related to it.

Despite ongoing debates, key actors in the “business” of development are increasingly including the rule of law under different forms and shapes in their agenda. Breaking down the concept of rule of law can be an interesting exercise.

Sometimes When the TV Blows....

Electricity is needed everywhere –sometimes giving rise to corruption and inefficiency in the electricity sector. It ranges from petty corruption at the level of meter readers and linemen, to grand larceny by the political executives who award lucrative concessions or require state-owned utilities to sign unfavorable power purchase agreements (PPAs). Utility managers are often in the middle, getting their share from suppliers and contractors.

Doing Business is currently developing a new indicator on the importance of electricity for businesses in countries across the world, and its findings might provide incentives for governments to enact necessary reforms to improve transparency and efficiency in the electricity sector.

Theft of underground electric cables in Zimbabwe took a toll on households in Harare's Kambuzuma suburb, damaging domestic appliances worth billions of dollars. Households lost electrical appliances, including television sets, decoders, radios, stoves and refrigerators after a sudden surge in voltage.

A Woman for All Women

Women from government, public and private sector congregated in London on April 2 for the Women of the Future Economic Empowerment Summit where a dialogue among global female leaders began to discuss the importance of women’s role in the economy. Pinky Lilani – founder of the Asian Women of Achievement Awards and author of the Indian cookbook Spice Magic – founded and coordinated the Summit.

During the event she noted: “I wanted to get people of influence and people who can make a difference to come together to discuss issues that basically effect women deeply, but I wanted men involved in the situation because really we can’t do much without them, and the objective is to begin a conversation which I hope will become louder and will engage more and more people on issues like climate change, leadership styles, and entrepreneurship. It was really to get women together and make a difference.”

Regarded as one of the world’s most powerful businesswomen, Indra Nooyi (see picture of Indra and me), the CEO and chairman of PepsiCo, gave an inspirational keynote address. Indra candidly spoke about how her success did not come without a struggle. She outlined three important aspects of progress for women in the workplace:

Bloomberg Markets: India Needs a Bureaucracy Buster

Interesting excerpts from a commentary written by Andy Mukherjee from the May 2008 issue of Bloomberg Markets magazine:

"From earth sciences and public grievances to social justice, urban poverty and the diaspora, the Indian government has a ministry for everything and everyone.  Forming a new agency is its way of legitimizing an activity or an interest group by saying, "We care about you."

...Of course the number of ministries--there are 48 of them, plus "independent departments" of atomic energy and space--also reflects the compulsion of running a coalition government. 

...Including junior ministries, 79 politicians currently hold high office in the federal government.  State governments replicate many of the federal ministries and have some additional ones besides.  Uttar Pradesh, the most populous state, has a minister for gardens.

Amid this plenitude, the office that's badly needed and remains missing in India is the Ministry for Doing Business...  India needs a minister for doing business to reduce the clutter and confusion businesses face when dealing with a very large, and growing executive branch.  Not only that.  The further one moves down the chain of command--from federal to state governments and then to civic management--the denser the web of control becomes, even as the responsiveness of the officialdom turns less predictable.

Oral Justice

I just came back from a visit to Bogota. The Doing Business reform team (see picture) was there this week to learn about progress with business regulatory reforms in Colombia. Several positive reforms are taking place: in trading across borders, in registering property, in taxes, and in enforcing contracts.

The most impressive reform is happening in the courts. The main feature is moving to oral presentation of evidence in commercial (and other civil) disputes. This is done to reduce delays. If reforms in other countries like Mexico (2005) and Georgia (2007) are any indication, Colombian litigants are in for a major improvement.

What's the big deal? Well, now every piece of evidence has to be presented to the judge in writing. Each party to the commercial dispute writes and submits to the judge and their opponent. They, in turn, take time to read and respond. And so it goes.

Who came up with such crazy system? The Spanish colonizers. But that's another story.

The Small Islands Example

Last week I was invited to speak at the Small Islands Developing States (SIDS) roundtable, sponsored by the Government of Iceland. SIDS are 51 small economies facing similar sustainable development hurdles, including shortage of human and natural resources, remoteness from major markets, susceptibility to negative effects of global warming and dependence on international trade.

32 SIDS are included in the Doing Business report. While SIDS share common environmental, financial and geographical challenges their performance and ease of doing business vary greatly. If your company were to comply with all tax requirements in Jamaica, it would take 72 separate payments and 414 administrative hours per year. The same firm would make only 1 payment in Maldives. And if you needed to take a customer to court in Timor-Leste, resolving the dispute would take an average of 1,800 days. If you were opening a new business in Guinea-Bissau, the startup procedures would take 233 days. In Mauritius, it takes only 7 days. Mauritius, the best performing SIDS economy, ranks 27th on the ease of doing business, while Guinea Bissau is at 176 out of 178 countries.

Wikigender

Wikigender made its debut in Paris right in time for International Women’s Day (March 8). The new online portal modeled after the online encyclopedia, Wikipedia, was introduced by the OECD Development Centre to share and exchange information on gender equality.

The international community is becoming increasingly aware of the link between legal, social and cultural norms on the status of women and economic progress. Quite often women find themselves forced into the informal sector in countries that do not strive to achieve gender equality in education and other sectors and where the female population is underutilized as an available human resource.

When Women Went on Strike...

On October 24, 1975 women of Iceland went on strike. "They refused to work, cook, clean, and look after their children" and husbands. Icelandic society was almost paralyzed that day.

It was meant to be a wake up call about the role women play in society, their lower than men's pay, and the low value placed on their jobs in their homes and work places. That day was later referred as "a very long Friday" by Icelandic man. The strike sent the whole of the Nordic community reeling and paved the way for the election five years later of Vigdis Finnbogadottir (see picture), the first democratically elected female president in the world.

Having a female president in the office did not resolve gender issues overnight. Although 90% of Icelandic women worked outside the home, still, responsibility for housework and childcare remained overwhelmingly on their shoulders - at the expense of their careers.