NCPA - National Center for Policy Analysis

Regulation and Legal Systems Affect Companies

October 8, 2003

The development of a vibrant private sector is central to promoting growth and expanding opportunities for poor people. It is well recognized that encouraging firms to invest, improve productivity and create jobs requires the right legal and regulatory environment -- including protection of property rights, access to credit, and efficient judicial, taxation and customs systems. In short, the least amount of business regulation fosters the strongest economies, according to a new report by the World Bank.

Measuring the cost of five basic business-development functions in 130 nations, 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.

According to the report:

  • The least regulated and most efficient economies are concentrated among countries with well-established common-law traditions, including Australia, Canada, New Zealand, the United Kingdom and the United States. On par with the best performers are Singapore and Hong Kong.
  • Joining the leaders are Denmark, Norway and Sweden, social democracies that recently streamlined business regulation.
  • The countries with the most inefficient across-the-board regulations and laws are Bolivia, Burkina Faso, Chad, Costa Rica, Guatemala, Mali, Mozambique, Paraguay, the Philippines and Venezuela, according to the survey.

In much of Africa, Latin America and the former Soviet Union, excess regulation stifles productive activity, say the authors.

The report concludes 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.

Source: Michael Schroeder And Terence Roth, "World Bank Faults Tight Regulation: Study to Argue Fewest Rules Foster Strongest Economies; Goal Is to Promote Changes," Wall Street Journal, October 7, 2003.

For Editorial text

http://online.wsj.com/article/0,,SB106556838568160100,00.html

For Schroeder and Roth text

http://online.wsj.com/article/0,,SB106547880428497600,00.html

 

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