The Costs of Doing Business

A World Bank report ranks the world's most business-friendly countries

Paul Karl Lukacs | November 7, 2007

Business taxes in Sierra Leone total 233.5 percent of profits. Firing an employee in Nepal will cost a business the equivalent of 90 weeks’ salary, which is better than the situation in Venezuela, where firing most employees is illegal. A contract dispute requires an average of 1,442 days to work its way through the Bangladeshi trial courts.

These curiously precise statistics can mean only one thing: The World Bank has issued its annual Doing Business report on the world’s economies.

Doing Business 2008, the fifth release in the series, summarizes the often surreal difficulty of being a local entrepreneur starting a small or medium-sized corporation. For instance, Tarik, one of the businessmen profiled in the report, is a Yemeni fish exporter who would dearly love to sell fresh tuna to Germany at $5.20 a kilogram. But he has to ship most of his tuna frozen to Pakistan at $1.10 a kilogram, because complying with Yemeni export regulations takes on average a sushi-unfriendly 33 calendar days. And Yemen isn’t close to having the slowest border. Iraq takes that prize, requiring exporters to wait an average of 102 days.

The World Bank and its affiliate and co-author, the private sector-oriented International Finance Corporation, rely heavily upon statistics to tell their tale. In total, almost every nation in the world was analyzed, the principal exceptions being countries with regimes that loathe the free market (e.g., Burma, Cuba, North Korea) and pinpricks like San Marino and Tuvalu. After all the laws are reviewed and every number crunched, each country is quantified and ranked in ten different categories, then given an overall ranking on the general ease of doing business.

The winner was no surprise. For the second year in a row, Singapore is ranked as the easiest country in the world in which to start and operate a business. The Asian city-state is followed in the league tables by, in order, New Zealand, the United States, Hong Kong (which is considered separately from mainland China), and Denmark. Dead last is the Democratic Republic of Congo, edging out the Central African Republic, Guinea-Bissau, the Republic of Congo and Burundi.

The real action is in the individual categories, which read like a gazetteer of finance ministry options, ranging from prudent transparency to contemptuous shake-downs—all spread around the world in unusual combinations. While Afghanistan, Kenya and the United States do not require an entrepreneur to deposit a single penny in start-up capital, Latvia requires a deposit equal to 22 percent of per capita income, South Korea requires a 296% deposit, and Syria wants a whopping 3,673.3 percent. New Zealand, Sweden and Thailand can each register a deed in two days, while Haiti, Kiribati and Slovenia each take more than a year.

Corporate income and payroll taxes are what differentiate economies that are merely misguided from the ravenous kleptocracies. Colombia and Tajikistan aren’t helping themselves with corporate tax burdens that hover around 82 percent, but they're bargains compared to the eight countries in which a business is expected to hand over more than 100 percent of its profits. This Hall of Shame includes likely suspects (D.R. Congo at 229.8 percent and Burundi at 278.7 percent) as well as relatively industrialized countries that should know better (Argentina at 112.9 percent and Belarus at 144.4 percent). Bottom of the barrel is Gambia, which taxes 286.7 percent of corporate profits.

In the past, libertarians have had their differences with the World Bank and its top-down interventions. “The World Bank et al.,” reason noted in 1995 while summarizing the Bank’s critics, “see capital and technology transfer as the key to growth, and fail to appreciate the economic potential of ordinary Third World citizens operating in free markets.”

The Doing Business series helps correct for the Bank’s 62 years of statist drift. By focusing on the minutia of business regulation, the Bank uses its hortatory powers to praise reformers while criticizing holdouts and backsliders. The current edition lauds Georgia (which targeted a spot in the top 25) and Egypt (which reformed in five of the ten categories) while noting that “Venezuela had the largest negative reforms.”

The Bank is employing a clever strategy, because each individual reform grants the entire business class of a country greater economic freedom without directly threatening the elites. A standard-issue military dictator is not going to conduct an open auction of the phosphate concession controlled by his family, but he probably won’t care if foreign diplomats request that he amend the banking code to allow general descriptions of inventory to be pledged as collateral.

Each quotidian reform tracked by the Doing Business report means that someone, somewhere will find it faster and less costly to create jobs and wealth. In that respect, the World Bank, of all unlikely institutions, is doing a better job of converting souls to free market capitalism than the Bush Administration.

Paul Karl Lukacs is a Los Angeles attorney who blogs about foreign affairs and travel at Knife Tricks.