How Laws Encourage Or Restrict Economic Development

All over the world countries are reforming the ways they do things in order to encourage development. They have no interest in remaining stagnant economically. They have watched the West and seen what progress looks like and how stagnation occurs. A major area of reformation, as it turns out, has to do with government regulations. Do they incentivize growth or strangle it. Does the culture fertilize the spirit of entrepreneurship or kill it with toxic chemicals.

Historian Niall Ferguson discusses this in his book The Great Degeneration: How Institutions Decay and Economies Die.

Ferguson studied the volumes of data gathered by the World Bank to evaluate the nations in Africa that he might identify which countries in Africa ranked highest by the following measures:

1. The Quality of Public Administration
2. The Business Regulatory Environment
3. Property Rights and Rule Based Governments
4. Public Sector Management and Institutions
5. Transparency, Accountability and Corruption in the Public Sector

The top countries that rank highest in four or more of these categories were Burkina Faso, Ghana, Malawi and Rwanda.

According to Ferguson, another way of evaluating is to look at the IFC's "Doing Business" reports since 2006. Which countries have done the best at reducing the number of days it takes to complete the following six procedures:

1. Starting a Business
2. Getting a Construction Permit
3. Registering a Property
4. Paying Taxes
5. Importing Goods
6. Enforcing Contracts

The African winners, in order of achievement, were Nigeria, Gambia, Mauritius, Botswana and Burundi.

Paul Collier, a development economist, outlines several stages to making commerce happen. Foremost is the necessary step of reducing violence. Second, protect property rights. Third, impose institutional checks on government. Fourth, prevent corruption in the public sector.

When I look at this list, my first thought is how cities that don't deal with inner city violence are essentially undercutting their hope for a better economic future. As for property rights, to the degree that cities can utilize easy "eminent domain" to eliminate businesses, to that degree they are sending signals to other businesses to consider a flight to safety.

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There was a time when the United States set the benchmark as regards the Rule of Law. Now, Ferguson states, it's the lawyers who rule. This is not the same thing. It's worth noting that lawyers are over-represented in our U.S. Congress. You might even say we have a nationwide epidemic of lawyers.

Cronyism and corruption are excessive as well. There is so much that is rotten in the legislature and regulatory agencies and the legal system itself, how can they be reformed?

Ferguson's answer to this is that real reform must come from outside the public institutions, from the associations of civil society. In short, from us, the citizens. 

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I remember reading a story years ago about an albacore fish business that was started in Los Angeles (or the vicinity). In order to just get the business off the ground they had to get approvals and paperwork from 49 government entities. Once they had gotten going, yet another agency read about what they were doing and because they did not have this agency's stamp of approval had to pay a $25,000 fine. 

WE GET WHAT WE INCENTIVIZE.
Here in Duluth we have a shortage of affordable housing. One potential fix here might be to do a thorough self-analysis of every facet of local government that has to do with housing. How many rules and regulations are interfering with the ability of the city to provide affordable housing? How necessary are they? Can they all be listed and prioritized?  Who has the authority to address each one (or each of the most restrictive items. 

We always think more money is what we need. What things can be changed without needing money? 

The book has generated a lot of ideas. Rather than blaming or finding fault, we can work together and discover solutions. Let's not give up hope.