[stop-imf] WBank: Dangers of Too Much Regulation

[Robert Weissman]

Excerpted from:
World Bank's Press Review for Oct. 7, 2003

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Heavy Regulation Seen as Obstacle: World Bank
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The World Bank, hoping to spur officials in developing countries to
consider reforms, plans to release a new survey finding that the least
amount of business regulation fosters the strongest economies, reports The
Wall Street Journal Europe.

The bank, in cooperation with academics, management-consulting firms and
law firms, measured the costs of five basic business-development functions
in 130 nations. Titled Doing Business, the report analyzes how regulation
and legal systems affect companies' ability to register with the
government, obtain credit, hire and fire workers, enforce contracts and
work through bankruptcy courts.

Legal systems that help companies to collect debts are the single most
important factor in attracting business, said the World Bank Group's
Simeon Djankov, co-author of the study. The report uses comparisons [of
developed and developing countries] to advance the thesis that heavier
regulation is usually associated with more inefficiency in public
institutions, causing longer delays and higher cost. The consequence often
is more unemployment and corruption, and less productivity and investment.
The most onerous systems cause businesses to avoid registering altogether,
creating underground economies.

In Africa, poverty rates have increased in the past three decades, with
more than 40 percent of the population now living on less than one dollar
a day, according to the report. Two decades of economic reform in Latin
America haven't slowed the rise in poverty. In most of the former Soviet
Union =96outside of Russia=97poverty has worsened since the fall of communi=
sm.
The report argues that improving property rights offers benefits to
citizens, especially the poor. For instance, when the Peruvian government
issued property titles to 1.2 million urban-squatter households, parents
were able to find jobs instead of staying home to protect property. In the
past decade, work hours increased 20 percent in Peru and the incidence of
child labor declined by 30 percent, the report said.

Among recent success stories, China has successfully overhauled much of
its economic system in the past few years to attract foreign
investment=97and US, manufacturing jobs. Djankov said China has undertaken
"tremendous reforms in the areas of enforcing regulations, resolving
commercial disputes and making it easier to start businesses." In
contrast, India, which has been attracting high-end U.S. technology jobs,
has business regulations that are enforced unevenly in the country's
various states and provinces. "India has the worst bankruptcy system. It
takes about 10 years to go through the process," Djankov said.

The Financial Times adds that despite rapid progress of some developing
countries such as Jamaica in reducing regulation the report says poor
countries generally lag behind. Employment law in Africa was written on
average three decades ago. The book reflects a growing emphasis within the
bank on developing countries' creating a good environment to do business
and attract investment. To its critics, the drive merely represents a
familiar agenda of reducing social protection under a new guise. But the
report argues that it is often how regulation is applied that is key.


--
Robert Weissman