Sometimes simple really is best

Editor's Note: Alan Johnson is a Senior Private Sector Advisor in the World Bank's Investment Climate Advisory Services Group

I’m always interested in situations where tools that are aimed at developing countries are applied to their high income counterparts. A recent post in the New York Times’ small business blog provides an excellent example. The author, Scott Shane, refers to the 2008 World Bank Group Entrepreneurship Survey, which gathers internationally comparable data on business creation, and applies it to the United States.

The results of the survey show that, after accounting for differences in per capita income, countries with easier and less expensive procedures for registering new businesses have higher rates of new business creation. This conclusion is reached by examining the relationship between the number of new business registrations (entry rate density) and the “ease of starting a business” indicator in the Doing Business report.

So why does this matter? First, entrepreneurship has important links with growth and job creation.  Second, common programmes to support entrepreneurship such as peer-to-peer business linkage schemes, clusters, regional economic development plans, and tax and health insurance incentives tend to get complex and expensive very quickly. In light of these difficulties, Shane argues in favor of focusing on the simple factors that influence the rate at which people start companies, such as making the business registration process easier. 

In other words, go after the “low-hanging fruit”.