Every now and then, something that should be completely obvious is investigated and announced to the world as if it were something new and surprising. Remember the news headline of “Men and Women are Different” of several years ago? What is clearly obvious to some is not so obvious to others.
Speaking of the obvious, the World Bank released a report on Oct. 8th, 2003, entitled “Doing Business.” The Wall Street Journal printed a short review of this report on page A2 the day before its release. The first paragraph of the article summarizes the new World Bank report as showing that “the least amount of business regulation fosters the strongest economies.” To quote Conan O’Brien, “Duh!” Let’s take a look at just how simple and obvious this finding is. Imagine you want to set up a new business selling widgets, which means getting a business license from the government. Here comes the test: would you rather set up the business in a country where it takes only two days to create a private company with no government fee, or in a country that requires 146 days and nine times the average per-capita income to start a company? Is it any contest? The two countries in this example are Australia and Angola. Is it any wonder that Australia is doing so much better than Angola in creating businesses? After all, a high level of government regulation is directly related to more unemployment, higher corruption, and less productivity and investment. Does it take a report like this one to point out that countries get less of what they regulate, and more of what they subsidize?
Don’t believe me? Well, America has subsidized illegitimate births for 40 years now, so what do we have? Let’s say it all together: More illegitimate births. Thanks to government involvement, there are places in the U.S. where married parents are the exception rather than the norm. And that’s not all. Heavy regulations are almost always associated with a highly inefficient bureaucracy. For every dollar of your tax money earmarked to support someone on welfare, less than 25 cents actually reaches the intended recipient. Everything else is sucked up by oversized bureaucracy. The solution is simple, but it is not what you will hear from the intelligentsia surrounding those in government. Their wrong-headed solution is to appropriate more tax money while still wasting three-quarters’ worth of it. The simplest way to put more money in the hands of the needy is to reduce government overhead. If we could reduce overhead by 50%, the needy would see a much greater amount of money reaching them–and it would not cost you, the overtaxed worker, a single dime in extra taxes.
If the burden of government regulation on business becomes too great, people will stop forming officially registered businesses and will switch to doing work on the black market. The government will never see tax revenues from these businesses, and these “freelancers” will have a hard time getting loans or the legal protection that the law grants to recognized businesses. At last estimate, over 80% of Bolivia’s businesses are run outside of government control. If one of these businesses has problems with its suppliers, the owners cannot appeal to the courts for redress. And since when do black market businesses like Bolivia’s offer worker benefits? Since liberals claim to be champions of the working poor, shouldn’t they also be champions of less government regulation? You would think so.
So far I have written about government regulations, but what about the property rights I mentioned in the title? As the Journal says, “[t]he report argues that improving property rights offers benefits to citizens, especially the poor.” From 1995 to 2001, the Peruvian government issued over 1.2 million property titles to urban-squatter households. Since these people now own the land they previously only squatted on, they have an incentive to improve their property and take better care of it. And since they no longer need to have someone on the property at all times to keep other people away, this single government act has allowed parents to find jobs. The former squatters now look to the police as friends and protectors, rather than threats. Now if someone breaks into their homes, they may call the police without fear of being evicted. In the past decade, work hours in Peru have increased by 20% and child labor has declined by 30%.
The more people feel safe about their property, the more they will be willing to work for more property. Countries where property rights are safeguarded tend to have stronger economies; places without these safeguards are centers of poverty. If someone owes you money, be grateful you do not live in Guatemala. The courts there can take over four years to resolve something as simple as a bill-collection dispute. How willing is a Guatemalan to loan money to others or start up a business venture if he knows it will take four years to get a loan issue resolved? In Burundi, you will have to jump through more than 60 legal and bureaucratic hoops before you can collect a debt. The top ten countries whose regulations make it easy to do business are (in alphabetical order): Australia, Canada, Denmark, the Netherlands, New Zealand, Norway, Singapore, Sweden, the United Kingdom, and the U.S. Did you notice that not one of these countries is poor? The five slowest countries to enforce business contracts are Guatemala, Serbia and Montenegro, Slovenia, Poland, and Ethiopia. None of these five are places you would think of as being first-rate wealthy countries. There is a direct correlation here. But do you think any of these countries will notice and change? I wouldn’t hold my breath waiting for it to happen.
As a country lowers the regulations governing business, and as it enforces the laws that protect property rights, that country will enjoy economic prosperity. Simeon Djankov, a co-author of the “Doing Business” report, said that legal systems which help companies collect debts are the single most important factor in attracting business. And as businesses increase and the economy booms, the government will see tax revenues increase, even if they have lowered the tax rates that businesses and people pay. After all, a smaller piece of a large, robust economic pie is better than a large slice of a weak, anemic economy. This is obvious to me and to many others, but what is obvious to some is not necessarily obvious to all.