»The Daily Reckoning by Bill Borner

Doing Business isn't Easy
1 SEPTEMBER 2012


- By Asad Dossani, Author, The Lucrative Derivative Report


Asad Dossani
Each year, the World Bank publishes an index that ranks countries based on the ease of doing business. The factors that determine the ranking include how easy it is to start a business, to raise capital, to get the necessary permits, to enforce contracts in court, and many others. It is primarily a measure of how effective or ineffective business regulation is in a country.

In this ranking, 183 countries are included. Any idea where we would rank on such an index? Given what we know about widespread corruption and the ineffectiveness of economic policy in our society, chances are we would not do very well. And that is absolutely the case, as we rank 132 out of 183 countries.

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A ranking of 132 is bad. It means we rank below all the other large emerging economies like China, Brazil, and Russia. We also rank below our neighboring countries like Bangladesh, Nepal, Sri Lanka, and Pakistan. We rank below countries going through debt crisis like Greece and Spain. The countries we rank above are mostly African countries that are in much worse economic shape.

The highest-ranking country on the list is Singapore. The Reserve Bank of India (RBI) recently published a report on the Indian economy, and they singled out the ease of doing business as one of the primary factors holding back the Indian economy. In the same report, Singapore was held as a good example of how a government can implement effective business regulation.

The RBI then concluded that lowering interest rates is unlikely to revive the Indian economy on its own. This is because the ease of doing business is such an important factor, that without any improvement in business regulation, we are likely to remain where we are.

The RBI's points are valid. For an economy to reach its full potential, we need competition in the marketplace. And this means it needs to be easy to start and run a business. For existing businesses, it needs to be the case that they try to increase profits by providing better goods and services at lower costs.

It is so often the case that businesses try and increase their profits by manipulating regulations in their favor, thereby stifling new competition. A change in this mode of thinking is what is needed to revive the economy, and push us higher on the Ease of Doing Business index.

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