Of Course, We All Know Regulatory Uncertainty Is A Myth

But is regulatory despair?

Nearly all development economists agree that good institutions—legislatures, courts, administrative agencies—are crucial. When poor countries improve their institutions, economic growth soon accelerates. But what about rich countries? If poor countries can get rich by improving their institutions, is it not possible that rich countries can get poor by allowing their institutions to degenerate? I want to suggest that it is.

Consider the evidence from the annual “Doing Business” reports from the World Bank and International Finance Corporation. Since 2006 the report has published data for most of the world’s countries on the total number of days it takes to start a business, get a construction permit, register a property, pay taxes, get an export or import license and enforce a contract. If one simply adds together the total number of days it would take to carry out all seven of these procedures sequentially, it is possible to construct a simple measure of how slowly—or fast—a country’s bureaucracy moves.

Seven years of data suggest that most of the world’s countries are successfully making it easier to do business: The total number of days it takes to carry out the seven procedures has come down, in some cases very substantially. In only around 20 countries has the total duration of dealing with “red tape” gone up. The sixth-worst case is none other than the U.S., where the total number of days has increased by 18% to 433. Other members of the bottom 10, using this metric, are Zimbabwe, Burundi and Yemen (though their absolute numbers are of course much higher).

We have discussed many times, on these pages, the massive regulatory burdens that have descended on American businesses. Sarbanes-Oxley, Dodd-Frank and the pending crush of Obamacare, just to name three, tally over 2000 pages. And the cost of regulation, especially with the new insurance mandates, run into the hundred of billions. Is it any wonder why we’ve had a lost decade? Why unemployment stay high? Why wages are stagnant? Why Apple keeps its earning overseas? The article goes through many different measures and many ways of approaching the question and keeps coming up with the same answer: massive systemic institutional failure creating a hostile business environment for anyone who doesn’t play the Washington game. Overhauling our tax system alone would remove a couple of hundred billion in deadweight loss on our economy. So why isn’t it on the table?

Because the current system empowers the powerful. It brings rent-seeking businesses to Washington to beg and plead for special dispensations and subsidies. It gives those businesses billions in advantages over their competition. It lets politicians control the economy, punish businesses they don’t like and reward ones they do. It creates mass fortunes for the lawyers who interpret regulations, advise on regulations and file lawsuits when some company breaks them.

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  1. Mississippi Yankee

    It’s my belief that we have been at Stage 1 oligarchy for almost a decade. Your entire last paragraph just firms up that notion for me.

    How we handle these scandals will be the determining factor as to if we reach Stage 2.

    Thumb up 3

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