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Slaughter & Rees Report - One of the Most Important Reports on the Global Economy

November 11, 2013 -- 

When Vladimir Putin returned to Russia’s presidency last year, one of his first actions was to issue an executive order aimed at accelerating the country’s economic growth. While the order contained many directives that would be considered standard fare for economic reformers, one stood out from the rest: “increase Russia’s ranking in the World Bank’s ease of doing business index from 120th place in 2011 to 50th place in 2015 and 20th place in 2018.”

President Putin’s push to score higher in the “Doing Business” report was top of mind last week when the World Bank issued its annual flagship report that ranks 189 economies on their regulatory climates for small and medium-sized firms. The report assembles a wealth of illuminating and easy-to-access data, and as such is essential reading for anyone interested in global economic developments. The reforms that drive the rankings have been shown to influence economic growth rates, while the rankings themselves shape foreign direct investment trends. And, per Mr. Putin’s directive, the report has triggered healthy competition among countries to create environments more supportive of starting and growing businesses.

This year’s report reveals further policy progress since last year’s report, with 114 economies enacting 238 reforms (up from 108 economies and 201 reforms). This progress furthers a decade-long trend of countries generally enhancing the environment for their small businesses.

Each country’s ranking is based on 10 diverse indicators including the ease (or difficulty) of starting a business, obtaining construction permits, securing credit, and enforcing contracts. The top five spots in this year’s report go to the high-income economies of Singapore, Hong Kong, New Zealand, the United States, and Denmark. The worst rankings go to low-income economies: Chad, Central African Republic, Libya, South Sudan, and the Republic of Congo. Beneath these top-line rankings lie a number of interesting trends and patterns.

The progress in Africa and other developing areas is particularly encouraging. These low-income places desperately need the vitality of both foreign direct investment and small businesses alike. With an estimated 90 percent of the employment in developing countries provided by the private sector, says the Bank, “Having the right business regulations and related institutions is therefore essential for the health of an economy.”

For the United States, ranking fourth is a reminder that for all its regulatory challenges, America is still a very attractive place to do business relative to the rest of the world. The U.S. scores highest on the ease of getting credit (3rd) and lowest on the ease of paying taxes (64th)—the latter problem a topic about which we earlier wrote here.

Underscoring the influence of the rankings has been China’s reaction to them. It has never scored particularly well—96th this year. Rather than initiate reforms that would boost its standing (it ranks 185th in the sub-category of “dealing with construction permits”), it has reportedly pushed to have the rankings overhauled or abolished. Time will tell if this is a harbinger of China’s attitude toward global economic cooperation. In the meantime, we prefer Mr. Putin’s approach.  And we salute the World Bank for this latest installment of its pioneering work.

Articles © 2013 Matthew Slaughter and Matthew Rees. All rights reserved.
Publication © 2013 Trustees of Dartmouth College. All rights reserved.

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