Tuesday, January 17, 2012

Powell's secrets

Jim Powell wrote a nice Forbes article, "The Most Important Secret of a Prosperous Economy," filled with his usual brand of thoughtful historical detail. Two paragraphs caught my eye,
Consider, for example, what it’s like trying to start and operate a legal business in Singapore (atop the World Bank’s Doing Business 2012 report on 183 countries) compared with Chad (at the bottom of the list). In Singapore, starting a legal business involves only 3 procedures, whereas in Chad there are 11 procedures. The process takes 3 days in Singapore, 66 days in Chad. It takes 26 days to obtain a construction permit in Singapore, 154 days in Chad. The filing fees, taxes and other costs of starting a legal business are 0.7 percent of per capita average income in Singapore, a dramatic contrast with Chad where such costs amount to 208.5 percent of per capita average income.

In Singapore, an estimated 84 hours are required each year to maintain tax-related records and prepare tax returns, versus 732 hours in Chad. Total taxes consume 27.1 percent of corporate profits in Singapore, 65.4 percent of corporate profits in Chad. Importing a container of goods costs $439 in Singapore, $8,525 in Chad. Exporting a container of goods: $456 in Singapore, $5,902 in Chad. Resolving a bankruptcy takes 9.6 months in Singapore, 4 years in Chad. In Singapore, the recovery rate (cents on the dollar) from a bankruptcy is 91.3 percent, but the recovery rate is zero in Chad. Is anyone surprised that per capita GDP is much higher in Singapore ($50,714) – about 55 times higher – than Chad ($920).
(The World Bank Report itself is a hilarious example of boosterish, glass-is-5%-full NGO writing. You'd think the whole planet was on a steady march of virtuous free-market reforms. But thanks for the data!) 

As we know, this doesn't cover the half of it. In a country regulated to death like Chad, I can't imagine that each of those 11 procedures comes easily as soon as you fill out the paperwork. The dark side, which the World Bank can't talk about, is just how many bribes and connections you need to make all this work.

This little story bears on the "micro vs. macro" question for our current troubles. "Macro" explanations revolve around deficits, money supplies, and so on. "Micro" is... well, like Chad. Surely, Chad's problems will not be solved by stimulus.

In our policy debates, we focus far too much I think on the explicit tax rates and easily measured regulations. "Macro," deficits and interest rates, are easier still.  The dark side of micro stagnation is just too hard to measure. That doesn't mean it isn't there. Running a business in the US isn't that easy anymore either.