Doing Business Blog - The World Bank Group

Real Sign of Success

Georgia has been a top reformer in the last four doing business reports, ever since the Saakhashvili government took office.

Since then, annual growth hovers around ten percent each year, and investment has increased six-fold. Georgia now has more business per adult population than all countries but New Zealand and Singapore.

But the real signs of success are these: in 2007 the number of births increased 3.1 percent relative to 2006; and the number of deaths fell by 2.5 percent. This resulted in a population growth of 8,109 people: higher than any year since 1992. One of the reasons is this: average household income went up by 9.5 percent, while average household expenditure grew by 7.3 percent.

In other words, the standard of living is going up, and with this families decide to have more children. (Interestingly, Bulgaria - another top-10 reformer last year - also registered its first positive population growth since 1985).

The conclusion: if you want your population to grow, reform.

Why Foreign Investors Get a Bad Name

I am vacationing in Bulgaria and had a first-hand experience in how foreign investors get a bad name. Half-way through my second day in Aprilzi, a mountainous town in central Bulgaria, the electricity went off. I called the electricity company, to report the problem. "Not a problem," the company representative said, "we disconnected you."

The rest of the conversation is not fit for posting. The gist is that the electricity distribution in this region was recently acquired by CEZ, a Czech company. The company instituted a free replacement of all electricity meters--with one catch. If you don't take up the offer, you get disconnected. You get connected after you paid a fine - but with a 3 day delay!

After some frantic calling and pulling decades-old strings, I was told that if I drove super fast and caught a particular official just about to leave, some small money would do the trick. So I did.

The office of the official, call him the electricity gatekeeper, was full with 8 other just-disconnected people. They all were cursing CEZ and all foreign owners. "This never happened before these expletive expletive came in." I started defending the Czech investors, to no avail. The fellow disconnected simply disregarded me.

And then it struck me: this truly never happened before. The state electricity company never disconnected anyone. It was inefficient, but friendly. The Czechs are very efficient, including at disconnecting.

Most people seem to prefer the former.

Ideas42 Is Born

"Never again," cried the man, "never again will we wake up in the morning and think: Who am I? What is my purpose in life? Does it really, cosmically speaking, matter if I don't get up and go to work? For today we will finally learn once and for all the plain and simple answer to all these nagging little problems of Life, the Universe and Everything!"

"Tell us!"

"Alright," said Deep Thought. "The Answer to the Great Question..."

"Yes...!"

"Of Life, the Universe and Everything..." said Deep Thought.

"Yes...!"

"Is." said Deep Thought, and paused.

"Yes...!"

"Is."

"Yes...!!!...?"

"Forty-two," said Deep Thought, with infinite majesty and calm.

"Forty two?!" yelled Loonquawl. "Is that all you've got to show for seven and a half million years' work?"

"I checked it very thoroughly," said the computer, "and that quite definitely is the answer. I think the problem, to be quite honest with you, is that you've never actually known what the question is."

This is the origin of 42, from The Hitchhiker's Guide to the Galaxy, a novel by Douglas Adams. Deep Thought is the most brilliant computer, tasked with finding what the meaning of life is; Loonquawl is a mouse who presides over the Day of the Answer.

Inspired by the idea of asking the right questions, Harvard University and the IFC today established Ideas42, a new think-tank on development issues. It is housed at the institute for quantitative social studies at Harvard.

More to come on what Ideas42 will be doing...

Mighty Books

In the June issue of Forbes, its founder - Steve Forbes - praises Doing Business:

"The World Bank's reputation has plummeted in recent years because of alleged cover-ups of extensive corruption and growing doubts about how effective its projects have been in helping countries develop economically. But one of its undertakings is having an enormously positive influence on the global economy--and its cost is a nanofraction of the routine infrastructure undertakings that can end up costing billions of dollars.

Each year the World Bank issues a book entitled Doing Business. It surveys 178 economies--from Afghanistan to Zimbabwe--in regard to their regulations that affect how businesses are started and conducted. Countries are judged in ten categories that span the life of an enterprise, from its launching, to coping with licenses, obtaining credit, paying taxes, enforcing contracts and dealing with bankruptcy or dissolution of the entity.

This book is no mere academic exercise. Governments read it. The other day I ran into an important U.S. official who pointed out that there's now something of a competition in a number of developing countries to see which one can improve most in the Doing Business annual survey."

This made me think: what other books have stirred excitement in development? Here is a first list - readers, please add suggestions.

1. Hernando de Soto's The Other Path ushered in an understanding of the cost of burdensome regulation, namely the exclusion of many people from the formal sector.

2. Amartya Sen's Development as Freedom. As countries go richer, they also become more democratic. Or the other way round?

3. William Easterly's The Elusive Quest for Growth brought to the fore the discussion on development effectiveness.

4. Paul Collier's The Bottom Billion highlights civil wars, corruption and bad regulations in Africa.

5. Andrei Shleifer and Dan Treisman's A Normal Country focus on Russia in transition. We should have studied this transition more closely.

Helpful Governments

Do businesses perceive their government to be "very helpful, mildly helpful, neutral, mildly unhelpful or very unhelpful?" This question is asked in the World Bank enterprise surveys.

A recent paper by Mohammad Amin uses these data to find that "most regulatory measures lower a firm’s perception of how helpful the government is. Hence, it is unlikely that heavier regulation is an efficient or desirable response from the firms’ point of view to disorder."

It is not all that surprising that businesses consider the government to be a drag on their activity, a skeptic may say. After all, the governments make businesses pay taxes and go through all kinds of administrative hoops.

True, but this is the case for businesses in every country. Yet Amin's study sees different levels of satisfaction with the government across countries. So the analysis captures a relationship between the level of regulation and the satisfaction of businesses; not just that businesses are prone to complaining.

Cities of Global Commerce

MasterCard has just published its second annual ranking of the top-75 cities of global commerce. Sofia (Bulgaria) - my home town - is not among them.

London beats out New York for the top spot, followed by Tokyo, Singapore and Chicago. Bangkok, at #42, is the top-tanked city from an emerging economy. Bogota (Colombia), Ryadh (Saudi Arabia), and Cairo (Egypt) entered the list for a first time. That Beirut makes it, at #74, may raise some eyebrows. The United States has the most entrants, 12, followed by China, with 5.

The ranking scores seven areas: legal and political framework, economic stability, ease of doing business, financial flows, business center, knowledge creation, and livability. These carry different weights, with financial flows judged most important (22% weight), followed by ease of doing business (20%); while livability and economic stability have a weight of 10% each. Excitingly, the Doing Business indicators are heavily relied upon. They constitute 60% of the legal and political framework index; and 70% of the ease of doing business index. In other words, a fifth of the overall rank is based on the Doing Business project.

This may explain why Sofia hasn't made it yet.

The Pendulum Swings

In a recent forum on Africa, Paul Collier advances a novel idea: Africa is growing faster than ever before because (you guessed it) it has made many mistakes in the past. The full argument goes as follows:

"But the growth we are seeing today is not just a result of commodity booms. There is a process at work that does not depend on democracy and is so simple that analysts generally miss it: learning from mistakes. Since 1970 African societies have accumulated a huge stock of experience in how not to manage an economy. For example, from the mid-1970s until the mid-1980s Tanzania adopted regulatory policies that proved to be ruinous. The knowledge they gained through failure is valuable. Tanzania is now one of the best-managed of all Africa’s economies. The European society with the best record of containing inflation over the past sixty years is Germany. It has the best record because it used to have the worst: the experience of hyperinflation immunized Germans from macroeconomic folly." Read the whole comment here.

Collier's argument makes sense, even outside of Africa. Eastern Europe rivaled Africa in economic mismanagement until the 1990s. Now, the majority of top reformers in Doing Business come from that region.The rationale is simple: people get fed up.

If so, let's predict the top reformers of the future: Zimbabwe, Venezuela, Turkmenistan, who else?

The Next Singapore?

Georgia's government won a decisive victory at the polls this week - the parliamentary election yielded 120 seats (of 150) for the ruling party.

This is a great success for reform too. Previous Doing Business analyses suggest that in transition economies (those that started from central planning) two terms are needed for reforms to count. Examples include Slovakia's reforms under Ivan Miklos (1998-2006); and Estonia under Mart Laar who served as prime minister in 1992-94 and again in 1999-2002).

Now Georgia has the chance to repeat the success of Estonia and Slovakia. The government should have a higher goal, however: to overtake Singapore as the easiest place to do business in the world.

Top Reformer Votes Today

Georgia, the top reformer in Doing Business 2007, and also the country that has improved the most on the ease of doing business since 2003, is busy voting Wednesday.

The ruling party is expected to win a majority. A second term will cement the big advances in the business environment made during the first mandate.

The theme of the campaign is job creation. The economy has grown at a brisk pace - over 9% in each of the last 4 years. Yet the number of jobs has increased by less: mainly because the large job increases in the private sector were pitted against reducing the size of government and government employment. Also, new technology in some sectors, for example in wineries, allow for a more capital-intensive process.

As the economy continues its growth, the services and agriculture sectors are growing too and more jobs are opening. The banking sector creates the most opportunities for high-paying jobs, and many young graduates go there.

The new prosperity has allowed the government to finance large infrastructure projects, linking regions that were previously hard to do business with. This brings more road construction jobs to poorer regions. Most importantly, it will bring other employment once the roads are opened.

Still, a lot remains to be done and a second term in office will be as busy as the first.

How to Spot a Reformer?

I had a presentation in The Hague on May 14. Someone in the audience asked: how do you recognize committed reformers? I didn't have a good answer.

After working on regulatory reform for the last six plus years, I have met many people interested in reform. And many who were not.

I can list a number of people who instantly struck me as committed reformers: Ivan Miklos (Slovakia), Gerrit Zalm (The Netherlands), Kakha Bendukidze, Zurab Nogaideli and Mikhail Saakashvili (all Georgia), Paul Kagame (Rwanda), Mahmoud Mohieldin (Egypt), the whole government of Macedonia (which is facing elections in 2 weeks), Alvaro Uribe (Colombia), Antoinette Sayeh (Liberia - see picture). And I have met some successful past reformers who were instantly recognizable for their reform zeal: Leszek Balcerowicz (Poland) and Vaclav Klaus (The Czech Republic).

So what makes them reformers? Most importantly: the circumstances. In each case, there is a crisis, of sorts, and someone steps up.

This answer is not very satisfying: why hasn't a committed reformer appeared in, say, Jordan? Or Germany? Or Armenia? Or Burundi?

I don't know the answer, but intend to find out.

Mighty Fuel Tax Holiday

Consumers worldwide have been feeling the heat of rising prices: rising food prices, escalating interest rates, mounting energy costs, and, most notably, sky-rocketing fuel prices. Although it remains a chicken-and-egg question, it is undeniable that when the price of fuel rises, prices of most commodities quickly follow. We are all too familiar with the food riots that have become commonplace, from Cameroon to Haiti, where high food prices partly cost the Prime Minister his job.

Against the background of an economic slowdown (some would call recession), inflation, and a weakening dollar, many Americans have been forced to join the belt-tightening taking place in many other countries. A majority of the electorate this year has highlighted the economy as their top concern. This has naturally presented an opportunity for potential presidential candidates to showcase their creative problem solving skills.

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.

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.

Chinese Tales

Andres Oppenheimer's latest book, Chinese Tales, advances a basic proposition: Latin America is falling behind the rest of the world in competitiveness. He gives many examples, from the declining share in global trade to the rapid relocation of the headquarters of many Latin American businesses to Miami.

I am reading the book while on vacation in Fort Lauderdale, Florida. Oppenheimer's argument is especially obvious in this city. Here is how.

This is my first visit to Fort Lauderdale and I was surprised to see the big build-up in hotels and housing. Ever the economist, I have been asking around why. The answer: Miami is getting very expensive and vacationers and retirees are moving looking further north. Only a 20-minute drive from Miami, Fort Lauderdale is benefiting from this migration. There is a new Hilton (I am staying here and like it), new Sheraton, and a nearly-completed Trump Tower. Many new condo buildings too.

The Friedman Prize, Again

Yesterday's blog talked about the upcoming selection of the biennial Milton Friedman prize for advancing liberty. I gave the most obvious choices to win it this year. The write-up got me thinking on something else.

There should be an additional criterion on who gets the prize. Two criteria, in fact. The first one is that the nominees should still be active, in the sense that the prize can help them further pursue their work. On this criterion, the first and second winners (Peter Bauer and Hernando de Soto) have failed. Peter Bauer's untimely death only weeks after he received the Friedman prize made it impossible for him to raise its profile. Hernando de Soto has also done little to advance the cause of economic liberty since 2004. The only winner who fits this criterion to-date is Mart Laar, the 2006 winner.

The Friedman Prize

On May 15, Cato Institute will announce its biennial selection for the Milton Friedman prize for advancing liberty. Previous recipients include Hungarian-born Peter Bauer, Peruvian Hernando de Soto and Estonian Mart Laar.

The choice for the 2008 recipient is straightforward: select either a New Zealander or an East European. In the past 25 years, these are the only two places where economic liberty has been significantly advanced. The choices are: Vaclav Klaus, the Czech president; Leszek Balcerowicz, who just recently finished his term as president of the central bank in Poland; Roger Douglas and Ruth Richardson, both former finance ministers in New Zealand.

The Age of Milton Friedman

Andrei Shleifer (Harvard) has recently finished a short paper with this title, forthcoming in the Journal of Economic Literature. In it, he reviews two recent books: A collection of papers edited by Leszek Balcerowicz and Stanley Fischer; and a volume by Joseph Stiglitz, Jose Antonio Ocampo, Shari Spiegel, Richardo French-Davis, and Deepak Nayyar. Shleifer's article also pores over large amounts of recent data to come to the following conclusion: "In the Age of Milton Friedman, the world economy expanded greatly, the quality of life improved sharply for billions of people, and dire poverty was substantially scaled back. All this while the world embraced free market reforms."

What do the two books say about the age of Milton Friedman? Balcerowicz-Fischer conclude: "reliance on market forces within an open economy in a stable macroeconomic environment, with assured property rights, are the keys to rapid economic growth." Milton Friedman - as Professor Shleifer notes - would have put it better, but with the same idea.

The Age of Turbulence

On a long trip to Kyrgyzstan, I read Alan Greenspan`s autobiography The Age of Turbulence. It made the trip seem longer.

After 11 must-read chapters on his life and career, the former Fed chairman shares his insights into international economic issues, such as Russia`s economic prospects, China`s growth, and globalization, in 14 further chapters. Cliche follows cliche, with some ramblings in-between. There is one constant - central bankers are good people.

I still learned some things. First, if you predict something long enough it is bound to happen. In the case of the equity bubble in the US, Greenspan was 5 years off. Second, having regular breakfasts with smart people makes you smarter. Greenspan had such a routine with Rubin and Summers and says this was his favorite part of the job. And third, if your plane gets canceled it helps to be in high government. A special plane is sent to pick you up.

Here is my Greenspanesque prediction. Georgia will be richer than Russia by 2020. It has been the biggest reformer in Doing Business since 2004, and the economy is growing in double digits.

I may be a few years off...

Metro and Doing Business Commonalities

Picture this: you are standing on a platform full of people looking up at a screen which usually shows the train schedule. Alas, instead of the train destination and time, it only tells you that a train will be coming – not where to or when. If you happen to live in Washington D.C. and took the red line on the metro this weekend, this pretty much sums up the experience – followed by a 30 to 40 minute wait. Forget planning.

So what does this have to do with regulation or the investment climate? Well, every entrepreneur has to interact with government officials to comply with regulations in operating a company. Doing Business tracks some of these transactions through its indicators on, for example, starting a business, transferring a property title or enforcing a contract through the courts.

Tax Haven or Evasion

Good fences make good neighbors. But, in this era of large-scale cross border transactions, no fence, real or virtual, can keep funds from flowing into so-called tax havens. However, matters become much more complex when the tax haven is your neighbor, and you need their unforthcoming cooperation to seal the tax evasion loopholes.

A case in point is the recent tax evasion scandal that has rocked Germany, involving its neighbor, Liechtenstein. It is widely reported that Germany paid an informer about €4m for details in a mammoth tax evasion investigation of funds held by German nationals in a Liechtenstein bank. The information obtained led to arrests of luminaries, with more heads expected to roll in due course.

How to be a President? Study Economics

In a new display of the power of economics, two economists are battling for the presidency of the Czech Republic.

Vaclav Klaus, the incumbent, was the first post-communist minister of finance and then a prime minister for much of the 1990s. Klaus was behind the mass-privatization reforms in Czechoslovakia and later in the Czech Republic. Jan Svejnar, the challenger (see picture), is an economist at the University of Michigan.

Their wives are economists too. Katherine Terrell, Svejnar's wife, teaches labor economics. She was also this blogger's PhD thesis advisor. Livia Klausova is a former president of the Czech Economics Association.

After three rounds of voting, the last one yesterday, neither Klaus nor Svejnar have reached the required majority. Voting resumes next Friday. Whoever wins, economics thinking will be brought into politics in Prague for another 5 years.

This gives me pause. You see, my wife is an economist too.

Declaring Assets, Liabilities and Babysitting

Asset and business interest disclosure for policymakers is an area of ongoing research of the Doing Business team. In the course of obtaining information on national legislation, I came across an interesting article on Colorado’s disclosure law for public officials. It is a good illustration of some of the challenges of disclosure legislation and entails useful lessons for both regional and national legislations across the world.

At first glance, the law looks like a textbook example. It requires officeholders to disclose their sources of income, financial assets, real estate, directorships and business interests. The disclosures must be submitted on an annual basis and are made available to the public. Transparency at its best, or so you might think!

How To Help Entrepreneurs

A recent NBER conference on International Differences in Entrepreneurship brought together two dozen researchers in this rapidly expanding field.

One of the most interesting papers at the conference was presented by Silvia Ardagna (Harvard) and Annamaria Lusradi (Dartmouth). The paper looks at what makes people decide to become entrepreneurs. In terms of personal characteristics, entrepreneurs are more likely to be male, to have a higher level of education and income, and to have more confidence in their skills and abilities and less fear of failure than other (salaried) respondents. These results are consistent with the evidence from other studies, for example a study on Brazil.

Stealing Electricity - Risky Business in India

In India, as in many other countries, there is a nexus between power company employees and those (often commercial establishments) who would steal electricity (either through tapping of overhead transmission lines, meter tampering or under-billing). In the past, most of these culprits, with or without political and financial clout, used to get away with it. Not so anymore. Stealing power has now become a punishable offense in India, and power utilities are now pulling out all the stops to prosecute the culprits.

Electricity theft has long been rampant in most parts of India (the annual losses due to electricity theft is estimated to be US$ 4.5 billion, about 1.5% of GDP) and the capital city of India, Delhi is not far behind.

Until 2002, Delhi's power supply came from Delhi Vidyut Board (DVB), a state-owned power enterprise, which was known for its less than robust customer service and inefficient staff. This was in addition to transmission and distribution losses of 50% thanks to a large number of un-metered and illegal customers, under-billing and poor collections.

Can Electricity Be Weighed in Gold?

There are very few businesses that do not depend on electricity. Shoe-shiners and rickshaw drivers are such rare exceptions. Pretty much every other business needs electricity. Some businesses, however, need enormous amounts of electricity: aluminum smelters, for example, or mines.   

In South Africa, the gold and platinum mining industry alone accounts for 15% of the national electricity consumption. On January 25th the sector experienced a huge shock when the state-owned electric utility Eskom informed the big mining companies that it could only provide for 50% of the mines’ usual needs for the months to come. The consequence? Mines had to be shut down. You don’t want your miners stuck hundreds of meters deep below the surface and see the light suddenly go off.

Repercussions could also be felt outside the country. South Africa being the largest producer of platinum in the world and the second largest gold producer, prices for those two metals went through the roof at the Bullion Market in London.

Shattering the Glass Ceiling

For many women in the developing world, it’s not the glass ceiling that prevents them from making it to the C-suite, but rather the obstacles they face along the way. The Global Entrepreneurship Monitor (GEM), which provides an annual assessment of entrepreneurial activity at the national level worldwide, found that overall there are higher rates of female entrepreneurship in developing countries than developed countries. But this distinction is borne of necessity.

The main challenges that women face are social inequality, lack of education and trouble in securing funding. A recent study by PricewaterhouseCoopers made an interesting finding; women in developing countries find it easier to break through the glass ceiling than their colleagues in the west. Samuel DiPiazza, the company’s global head said, “In some countries such as Germany and Switzerland, there are cultural and social perceptions of women that make advancement much more challenging. Whereas in the developing world, there is a huge cry for talent, where there is enormous growth, you must be able to adjust to these norms faster.”

The Devil In the Detail

Thinking, talking and writing about regulatory and institutional reform is one thing. Implementing those reforms is a different thing. And when it comes to reform implementation, the devil is often in the detail. A Belgian devils story - not related to its national soccer team - illustrates this point.

Project “Fenix” was an ambitious project to introduce e-courts in Belgium, which would allow lawyers and court personnel to access case files online. Court cases would be transferred electronically as they travel from first instance to appeals and to the Supreme Court. Lawyers would be able to submit their court briefs by e-mail, instead of hand-delivering hard copies to the court.

Even in a small country like Belgium, more than 800,000 court decisions are passed every year. Around 40% of all the country's paperwork is generated by the justice sector.

Project Fenix started as a simple technical harmonization project, but developed into a much more ambitious undertaking. If the project had become a success, it would have served as an example to the rest of Europe.

Let the Public React

As fighting corruption is heralded as a main panacea of economic development, increased involvement of families in the politics of many countries may, at first blush, appear to increase chances of conflicts of interest. Kaczynski in Poland, Kirchner in Argentina, Abe and Fukuda in Japan. Also, the candidates: Clinton, Royal...

Corruption can be prevented through imposing restrictions, supports one approach. The World Bank, for example, prohibits employment of close relatives. It allows, however, employment of spouses/partners, as long as one of them does not report to the other.

The Doing Business approach to preventing corruption advocates disclosure of

Is Your Burger A Clone?

Consumers tend to prefer the right to choose. Citizens may feel the same. Access to clear and simple information tends to be the quickest path to achieve both. Making sure that it is delivered may require regulation. For example, how would you feel about eating cloned food and not even knowing about it?

As I walk down the aisles of the supermarket, and browse the different variety of products I realize I really have no idea what I am eating. So maybe I start looking at ingredients, polysorbate 60, sodium stearol lactylate, modified corn starch, calcium sulphate. What do they mean? Who knows. So I come home later and decide to run a search on Google on what I am actually going to put into my body. I discover that calcium sulphate would be transformed into plaster without the water, or phosphorus is also used to make tracer bullets glow. Tasty. What happened to simplicity?

Recovering the Most When Going Bust

Designing regulations regarding bankruptcy is not an easy task. The legislator has to balance several traditionally opposing objectives: on one side protecting creditor rights; on the other, maximizing the firm value by preventing the creditors from liquidating the firm prematurely. Countries across the world have found different solutions to this delicate balance.

Davydenko and Franks (2006) analyzed how three countries (France, Germany and the UK) addressed this issue. Using data on firms that defaulted on their bank loans in those countries from 1984 to 2003, the authors find that bankruptcy codes do matter for bank recovery rates and firm outcomes. Contrary to the traditional view, they find that protecting creditor rights and maximizing firm value are not necessarily opposing objectives. In the most creditor-friendly country of the three, the UK, both bank recovery rates and firm value are higher than in the less creditor-friendly country, France.

Politically Exposed Persons

Denis Christel Sassou-Nguesso, son of the Republic of Congo’s President, knows a good bargain. In June 2007, British NGO Global Witness published documents that appear to show that he may have spent hundreds of thousands of dollars on shopping sprees in Paris and Dubai. The documents show that in August 2006 alone, $35,000 on purchases from designers such as Louis Vuitton and Roberto Cavalli were charged to his credit card. This when 70% of Congo's population lives on less than a dollar a day.

Few would have heard of this case except that Mr Sassou-Nguesso's lawyers tried to block the public display of the credit card receipts on Global Witness's website. The court ruled in favor of Global Witness and the story hit the main news.

Why Is Easy Entry Good

In The Other Path, Hernando de Soto shows that the prohibitively high cost of establishing a business in Peru denies economic opportunity to the poor. In 1983, de Soto’s research team followed all necessary bureaucratic procedures in setting up a one-employee garment factory in the outskirts of Lima. Two hundred and eighty-nine days and $1,231 later, the factory could legally start operation. The cost amounted to three years of wages—not the kind of money the average Peruvian entrepreneur has at his disposal.

"When legality is a privilege available only to those with political and economic power, those excluded—the poor—have no alternative but illegality," writes Mario Vargas Llosa in the foreword to de Soto’s book.

More recently, Djankov et al (2002) has attracted the attention of researchers and development experts to the field of measuring entry regulation. Following de Soto's work, it records the number of procedures, time and cost to start a business in 85 countries. The main finding: "heavier regulation of entry is generally associated with greater corruption and a larger unofficial economy, but not with better quality of private or public goods. Entry is regulated more heavily by less democratic governments, and such regulation does not yield visible social benefits."

Taxes – A Necessary Evil?

Yes, we do need taxes to live in a society. There are goods (such as roads, security) that due to their public nature most people agree should be provided by the state. And of course the state needs to finance them through taxes. Therefore, taxes are needed. But do they need to be evil (i.e. distortionary and resulting in bad economic outcomes)?

No, they don’t. In fact, countries across the world vary dramatically in their tax policies and in economic outcomes. Furthermore, countries with lower taxes are not necessarily the ones that have worse public goods. New research on taxes by Djankov et al (2008) finds that countries with high business taxes have lower investment, lower foreign direct investment and lower business entry.

Getting Credit Without Loss of Generality

One of the 10 Doing Business indicators concerns the ease of getting credit. The second question of the legal rights component of the Getting Credit survey asks: "Does the law allow for general descriptions of assets, so that all types of assets can be used as collateral?" But what does this really mean? And what determines whether a country receives a score of 0 or 1 on this question?

People who read this question tend to focus on the term "general", i.e., whether collateral can be described generally. But in asking this question, Doing Business is interested more in substance than in form; the focus is not so much whether a lending agreement can describe assets generally