Doing Business 2007: How to reform

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In the fourth annual Doing Business report released Wednesday, Singapore edged New Zealand out for top honors. Reform is the theme this year, with examples of how the reform process works and how much it costs - from both the political economy and technical perspectives. The office is buzzing with excitement about the report launch, so if you'll indulge me in a bit of PR, here are a few highlights from the report:

  • China jumped 15 places up the list (from 108 to 93), making it one of the 10 best reformers. The government sped business entry, increased investor protections and reduced red tape in trading across borders. China also established a credit information registry for consumer loans, and now 340 million citizens have credit histories.
  • Georgia, the top reformer this year, has new labor regulations that have brought a host of benefits - mobility for workers, lower social security contributions for employers, government revenue gains through increased tax collection, and a drop in unemployment by 2 percentage points. Georgia also set up specialized commercial courts, which make a huge difference in the business environment. Perhaps the biggest difference between rich countries and the rest is the quality of the judicial system.
  • Yemen eliminated a 10% production tax that businesses paid each time they sold their products to other businesses. Now that a 5% sales tax exists at the consumer level only, Yemen's total tax rate fell from 79% to 48%.
  • Rwanda eliminated a colonial-era law that allowed only one (!) notary for the entire country. Three dozen notaries now work across the country.

The report shows that 85% of reforms on the ease of doing business take place within a new government's first 15 months.

Upon hearing this, I immediately thought of the implications for election-happy Latin America. Just 2 of the region's countries (Chile and Mexico) are in the top 50, and more countries than not slid down the rankings this year. I'm hopeful that we'll see a big improvement in Latin America's position on the Doing Business rankings next year for two reasons. 1) With new administrations in Argentina, Bolivia, Chile, Costa Rica, Honduras, Mexico,and Peru, plus several elections yet to come, lots of governments are entering the honeymoon period when reforms are most likely. 2) Mexico and Peru, two of the top 10 reformers overall, were able to enact reforms this year - in the last year of those administrations. Plus, if Latin American countries make these regulatory (aka microeconomic) changes, they might finally reap huge gains in economic growth - since the hard work of macroeconomic reform has largely been accomplished.

In yesterday's presentation to Bank staff, Simeon Djankov, an author of the report, predicted that an "Eastern European miracle" is not far off. The transition countries have worked diligently on reform for a decade - partly while chasing the European Union carrot. Plus they've benefited from, and contributed to, the emergent global best practices on regulatory issues such as property registration and administrative simplification reforms. One item the Doing Business report doesn't cover is the payment of bribes (next year?), but Eastern Europe has made progress on the anti-corruption front too.

The report and full data set are available on the Doing Business website, not to mention pictures of all my Doing Business colleagues. The biggest site update is the Law Library, billed as "the largest free online collection of business laws and regulations".

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