DOING BUSINESS 2009 - JOHN J. HADDAD, Ph.D.

About DoingBusinessIn 1664 William Petty, an adviser toEngland’s Charles II, compiled the firstknown national accounts. He made 4entries. On the expense side, “food, housing,clothes and all other necessaries”were estimated at £40 million. Nationalincome was split among 3 sources: £8million from land, £7 million from otherpersonal estates and £25 million fromlabor income.In later centuries estimates of countryincome, expenditure and materialinputs and outputs became more abundant.But it was not until the 1940s thata systematic framework was developedfor measuring national income and expenditure,under the direction of Britisheconomist John Maynard Keynes. As themethodology became an internationalstandard, comparisons of countries’ financialpositions became possible. Todaythe macroeconomic indicators in nationalaccounts are standard in everycountry.Governments committed to the economichealth of their country and opportunitiesfor its citizens now focus onmore than macroeconomic conditions.They also pay attention to the laws, regulationsand institutional arrangementsthat shape daily economic activity.Until very recently, however, therewere no globally available indicator setsfor monitoring these microeconomicfactors and analyzing their relevance.The first efforts, in the 1980s, drew onperceptions data from expert or businesssurveys. Such surveys are useful gaugesof economic and policy conditions. Buttheir reliance on perceptions and theirincomplete coverage of poor countrieslimit their usefulness for analysis.The Doing Business project, launched7 years ago, goes one step further. It looksat domestic small and medium-size companiesand measures the regulations applyingto them through their life cycle.Doing Business and the standard costmodel initially developed and applied inthe Netherlands are, for the present, theonly standard tools used across a broadrange of jurisdictions to measure theimpact of government rule-making onbusiness activity. 1The first Doing Business report, publishedin 2003, covered 5 indicator sets in133 economies. This year’s report covers10 indicator sets in 181 economies. Theproject has benefited from feedback fromgovernments, academics, practitionersand reviewers. 2 The initial goal remains:to provide an objective basis for understandingand improving the regulatoryenvironment for business.What Doing Business coversDoing Business provides a quantitativemeasure of regulations for starting abusiness, dealing with constructionpermits, employing workers, registeringproperty, getting credit, protectinginvestors, paying taxes, trading acrossbor ders, enforcing contracts and closinga business—as they apply to domesticsmall and medium-size enterprises.A fundamental premise of DoingBusiness is that economic activity requiresgood rules. These include rulesthat establish and clarify property rightsand reduce the costs of resolving disputes,rules that increase the predictability ofeconomic interactions and rules thatprovide contractual partners with coreprotections against abuse. The objective:regulations designed to be efficient, to beaccessible to all who need to use themand to be simple in their implementation.Accordingly, some Doing Businessindicators give a higher score for moreSTARTING A BUSINESS vregulation, such as stricter disclosure requirementsin related-party transactions.Some give a higher score for a simplifiedway of implementing existing regulation,such as completing business start-upformalities in a one-stop shop.The Doing Business project encompasses2 types of data. The first comefrom readings of laws and regulations.The second are time and motion indicatorsthat measure the efficiency inachieving a regulatory goal (such asgranting the legal identity of a business).Within the time and motion indicators,cost estimates are recorded from officialfee schedules where applicable. Here,Doing Business builds on Hernando deSoto’s pioneering work in applying thetime and motion approach first usedby Frederick Taylor to revolutionize theproduction of the Model T Ford. De Sotoused the approach in the 1980s to showthe obstacles to setting up a garment factoryon the outskirts of Lima. 3What Doing Businessdoes not coverJust as important as knowing what DoingBusiness does is to know what it doesnot do—to understand what limitationsmust be kept in mind in interpretingthe data.Limited in scopeDoing Business focuses on 10 topics, withthe specific aim of measuring the regulationand red tape relevant to the life cycleof a domestic small to medium-size firm.Accordingly:• Doing Business does not measure allaspects of the business environmentthat matter to firms or investors—orall factors that affect competitiveness.It does not, for example, measuresecurity, macroeconomic stability,corruption, the labor skills of thepopulation, the underlying strengthof institutions or the quality ofinfrastructure. 4 Nor does it focuson regulations specific to foreigninvestment.(c) The International Bank for Reconstruction and Development / The World Bank