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Dick Davis Column: An Uneven Surface on a Flat World |
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Written On: January 2006 |
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Written By: By Richard S. Davis - President, Washington Research Council |
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"Governments should encourage the daring. And many do." Such is the mindset underlying global competition today. The statement, from Doing Business in 2006: Creating Jobs, underscores the challenges that should be tackled by the Global Competitiveness Council appointed by Gov. Christine Gregoire last June to "...make sure we are competitive as our companies do business around the world."
Doing Business, a joint publication of the World Bank and the International Finance Corporation, looks at regulations dealing with starting and closing a business, hiring and firing workers, registering property, paying taxes, trading across borders, enforcing contracts, and getting credit—10 sets of indicators in all—to determine which nations have adopted the most business-friendly regulatory environments.
WB/IFC analysts found that in 2004 about two-thirds of the 155 countries in the survey introduced reforms "to make it easier to do business," encouraging the daring to risk entrepreneurship. Ninety-nine countries adopted a total of 185 reforms: simplifying regulations, reducing tax burdens, and strengthening property rights.
The report also ranks the nations on "business-friendly" regulation. New Zealand tops the list, followed by Singapore, with the United States coming in third. There are few surprises in the Top 15, mostly wealthy, developed nations. The rankings don’t consider such important factors as market size, infrastructure, education and crime. Still, "...a high ranking...does mean that the government has created a regulatory environment conducive to the operation of a business." And when businesses thrive and create career opportunitie sand investment in education, infrastructure and effective law enforcement will often follow.
In his important book, The World is Flat, Thomas Friedman describes the convergence of new technologies, increased economic freedom, and transformed business practices that has accelerated globalization, fundamentally changing how, where and with whom we do business. India and China have rapidly become major competitors, not just outposts for cheap manufacturing or back-office service operations. While the two nations rank 116th and 91st respectively on the Doing Business index, the flattening effect will inevitably push them toward reform.
Friedman, however, also reminds us that many countries are stuck in an "unflat" world. The comets of change arc over parts of the globe still mired in primitive conditions, where reform comes slowly and at great cost. In Africa, Doing Business says, "Entrepreneurs face more regulatory obstacles...than in any other region." Rwanda, however, ranked among the top reformers, improved judicial, customs procedures and contract enforcement, in the process achieving one of the highest economic growth rates in Africa.
To the reforming nations, the benefits can be both immediate and profound. Doing Business reports, "...the vast majority of people who escape from poverty do so by starting their own business or finding work in an existing one." And in nations embroiled in conflict, providing work for former soldiers provides the best vehicle for restoring family stability and avoiding further conflicts.
Although global conditions vary dramatically, the interests of entrepreneurs are remarkably aligned. They seek regulatory certainty, consistent enforcement of property rights, and responsible taxation. Consider the WB/IFC counsel on taxation: "...consolidate the number of taxes," "...cut back special exemptions and privileges," "...simplify filing requirements," and "...broaden the tax base by keeping rates moderate." Sounds like nearly every pro-business legislative tax agenda I’ve seen.
In this race, the competitors begin at different points on the track, but those that have taken the baton have a common goal—to become the best place in the world for job creation and capital investment. The pace of change can be blindingly swift; no lead is safe. Lithuania and Estonia rank 15th and 16th, respectively, on the Doing Business index. Germany ranks 19th; France comes in at 44th. New Europe encourages the daring and will reap the rewards.
Within the United States, which still has the inside track, the 50 states vie with similar intensity. Our regulatory and tax climate places Washington at a disadvantage in the interstate competition for domestic and global investment. Business and government leaders here have worked in recent years to improve our position. A robust economy may tempt some to relax those efforts. The evidence from around the world demonstrates why that would be a mistake. They’re gaining on us.
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