The World Bank has just released its Ease of Doing Business data for 2018 (report PDF; rankings; historical data in Excel)
I wrote about why good scores on this indicator are pretty useful two years ago:
First, elites pay a lot of attention to it. Several countries – including Russia, Kazakhstan, and India – have made climbing up the Doing Business rankings a matter of national economic planning.
Second, all else equal, more economic freedom really is “better” than less economic freedom. You do not need to be some kind of neoliberal hypercapitalist to appreciate that having more layers of bureaucracy, more hops you need to jump through to start a business or enforce a contract, as benefitting anyone other than the bureaucrats who create these rules in the first place. Indeed, when adjusted for differing GDP per capita levels, there is a strong correlation between a country’s place on the Doing Business rankings and its reported incidences of bribery/corruption, presumably because the more regulations you have the more opportunities bureaucrats have to shake businesses down.
It is also highly objective. You look at the legal documents, count the number of steps and/or days required to set up a business or enforce a contract, and tally the whole thing. Necessarily more subjective assessments of the degree of corruption or the prevalence of the rule of law – important, but prone to bias – don’t enter the equation.
Well, the good news is that Russia has continued its strong trend of improvement since the start of Putin’s third term, and is now in the uppermost quintile of all the world’s economies in terms of ease of doing business.
This is especially impressive since the entire world has been getting far more business friendly in the past decade, as institutions such as this very index spur on even the more recalcitrant nations to adopt First World best practices (fewer pointless regulations).
Russia’s immediate neighbors now – France, The Netherlands, Japan, Czechia – are no longer cause to be ashamed, as was the case around 2010, when it instead neighbored models of bureaucratic efficiency such as India and Nigeria.
As we can see, Russia is now fully within the “range” of First World – not as business-friendly as the United States, with its age-old reputation for free-wheeling commerce, but more so than Italy, with its reputation for bureaucratic tyranny.
Since the mid-2010s, Russia has been doing far better better than its fellow BRICS members.
Russia is now also doing about as well as the average for Eastern Europe’s successful reformers – worse than free trade entrepot Estonia and libertarian nirvana Georgia, but at about the same level as Poland, Czechia, Kazakhstan, Belarus; somewhat better than Hungary, which has lagged on reform; and far better than in the Ukraine or in Uzbekistan.
Analyzing by subcomponents, only two sectors where Russia still does quite badly – worse than the global median – are in “Dealing with Construction Permits” and “Trading Across Borders,” both notoriously corrupt sectors of the Russian economy. They urgently need attention.
But otherwise, this is the sort of quiet but very real “reform” that Russia needs at the micro level, but that remarkably few of Putin’s liberal critics seem to notice.
Although Putin has formally failed to fulfill his ambitious 2012 election promise of climbing into 20th position on this ranking by 2018, an improvement from around 120th position to 35th position is still more than respectable.
This index is a poor index. It only measures two or three major cities. Putin found out how to game it and now India has as well. In India, a country I know well, they only sample Mumbai and New Delhi. Furthermore, given how the black economy – the untaxed economy, in other words – form over 60% of GDP in India, it is already deeply flawed.
Worse, a country can just focus on those two cities and get instant results without doing the kind of root-and-branch reform at the ground level, away from the spotlight, which is more important for durable growth. That’s why you can have these huge jumps such as India’s 30 spot jump from 130 to 100. I doubt Russia is drastically less corrupt today than it was, say, 6-7 years ago.
The E&Y corruption/bribery index doesn’t show it, for sure. Yet these indexes will give a false view. I also find some of the positions to be highly questionable. Netherlands significantly lower ranked than, say, Macedonia is very hard to believe given the highly efficient, transparent, low-corruption and overall Germanic culture of the Netherlands.
I also find your defence of the index unpursuasive, given my reasons above. Even many investors know the limitations of it, only the most ignorant ones don’t and blindly follow it. I’m not against the concept per se, but the sampling of the index is deeply flawed. Both at the geographical as well as the formal/informal level. It’s mostly skewed towards big and formal companies located in a few very large cities. As such, it is largely useless since it’s very easy to game, which Russia has and now India has begun.
I wonder how much higher Russia would be if it wasn’t under so many sanctions.
Since SPB and Moscow are 22/30 and 30/30, respectively, in an assessment of the ease of doing business in 30 Russian cities from 2012, it seems that if anything Russia might be underestimated.
New Delhi and Mumbai are 6/17 and 10/17 in India, respectively, i.e. more or less representative. Though that was from back in 2009, admittedly.
Two separate things.
Corruption is better tallied by other measures, such as Transparency International’s Global Corruption Barometer surveys (for the incidence of everyday corruption), or the World Bank’s own Enterprise Surveys (for the incidence of business corruption).
I had a quick look, and the “percent of firms expected to give gifts in meetings with tax officials” dropped from 52.3% in 2006 to 15.3% in 2014, while the “percent of firms expected to give gifts to public officials “to get things done”” also dropped from 47.5% to 16.6% during the same period. So the situation in India genuinely does seem to have improved.
Russia also saw drastic improvements, dropping from around 60% for both indicators in the early to mid-2000s, to 7.3% and 20.0% for each of the two respectively, in 2012.
https://twitter.com/akarlin88/status/917530048952983557
Basically with a few exceptions the entire world is becoming far less corrupt at quite a rapid pace (I will have a post on this some time).
I don’t think they make a big impact to anything but the “Trading Across Borders” subcomponent.
Good job hopefully India can surpass China next year so more shit talking can commence.
No shit talking, if India can surpass China next year I will worship the God-Emperor Modi at His display of psychic power capable of coordinating millions of denizens by the grace of His whim. T
That’s quite impressive, especially if – as you write – the index is more objective than I would’ve thought.
Georgia at Number 9 – above Sweden – and Macedonia at Number 11. Surely shome mishtake !
I do doubt the thoroughness of this survey.
Don’t tell there has been a fantastic improvement since Saakashvili left.
It took a few millennia of careful breeding; but he’s here, he’s brown and he ain’t a clown!
http://www.tehelka.com/wp-content/uploads/2013/06/modi3.jpg
Very odd; Saransk, Ulyanovsk, Vladikavkaz at the top? Must be solely due to the local government that happens to be there at the time, unless things like getting electricity and registering a company are biased towards smaller, less booming areas where the workmen and bureaucrats aren’t overwhelmed with requests. Maybe moscow just needs to hire more men.
I would be interesting if someone would attempt to add the racial quota systems for the USA and UK as a factor to the cost of doing business, a business that needs to hire ever more useless deadwood will tend to suffer as time goes by. Obviously such a survey could never pass the PC censors, but I am certain that should such a survey be done then the US, UK, France, etc will all be lower ranked.
Lowest Ranking European countries
Rank / Score / Country
86th / 64.2 / Bosnia and Herzegovina
84th / 64.87 / Malta
76th / 65.8 / Ukraine
67th / 68.0 / Greece
65th / 68.7 / Albania
63rd / 69.0 / Luxembourg (this is a surprise)
53rd / 71.6 / Cyprus
52nd / 71.7 / Belgium
51st / 71.7 / Croatia
50th / 71.9 / Bulgaria
Highest Ranking European countries
Rank / Score / Country
3rd / 84.1 / Denmark
7th / 82.2 / UK
8th / 82.2 / Norway
9th / 82.0 / Georgia
10th / 81.3 / Sweden
11th / 81.2 / Macedonia
12th / 80.8 / Estonia
13th / 80.4 / Finland
16th / 79.9 / Lithuania
17th / 79.5 / Ireland
Which BRIC are people here most bullish on?
The Brazilian political elite has a joke, “Brazil is the country of the future, and always will be.” I’m definitely a Brazil bear.
I personally would put Russia 1st, China 2nd and India 3rd. Brazil is trash but the acronym is much worse without them.
Yes, it’s incredible that anyone takes this seriously.
This seems like an awfully silly list. Georgia better than Switzerland? Kosovo better than Israel? Uh, not buying it.
Absolutely.
I remember the days when American defense contractors used to complain about the FCPA (Foreign Corrupt Practices Act) constraining them in competition against the Europeans in pursuing contracts in less-developed countries (“The Germans can tax-deduct bribes paid overseas!”).
Those days are long gone. It’s not to say that corruption is a thing of the past, but the absolute scale and public acquiescence (or lack thereof) of it have changed dramatically in many parts of the world.
This IS a good thing.
Another measure by which Belarus seems to be doing surprisingly well.
I wouldn’t make much of this (though it’s obviously a positive sign) due to Georgia and Macedonia being so high up on the list, and relatively poor New Zealand being #1.
I don’t have an opinion on how accurate this survey is, but I think many people are missing the point of the survey, which is not to rank countries by wealth or infrastructure or even how much corruption grandma faces in her daily life, but simply by how easy it is to do business. For example, did you know that US citizens can go to Georgia and work for a year, all without a visa? While I’m not saying that is a wise policy of the Georgian government, it is certainly an indication that doing business there could be easier than in many other countries.
A personal note. Getting a work permit as a “Highly Qualified Specialist” in Russia used to be a big headache. The first time I had to wait for hours in a herd of people picking up work permits for cheap labour. Some years later, the same office had been completely remodeled and served only highly qualified specialists. It took fifteen minutes. (Maybe cheap labour still has to wait in a herd, I don’t know.) This is some indication that even in the past few years, there have been changes in how government services are organized and prioritized.
We need to be careful not to rely on “reasoning” like “Georgia can’t be better than Switzerland in this respect because it’s not better in other respects.”
Or even worse, “Georgia can’t be better than Switzerland because I have a certain notion of Georgia in my head and I’m impervious to evidence of changing circumstances.”
This is in answer to many other commenters with similar points.
I can think of several reasons why doing business might be easier in a semi-developed country like Macedonia than in the first world. For example there might be no building codes restricting what buildings to build, less restrictions to sack workers, less safety regulations, etc.
Now I don’t know anything about either Georgia or Macedonia at all. Can anyone with knowledge of these tell if it’s easy to do business in them?
Essentially, being first world makes it more difficult to achieve a high position on this list. Building codes are important – without them, you’ll have extremely ugly third world cities. But they make it more difficult to do business. Same thing with safety regulations, or the rights of workers and unions, etc.
You mean: what’s good for Neoliberalism is good for business. I’m sure the “World Bank” agrees.
You’re changing the subject. If you’re a businessman and you’re doing business somewhere, the easier to fire people, the easier your job, for example. The less building codes, the easier to do business. That’s what that frigging indicator is measuring. That’s what I’m saying. In other words: a higher ranking than Switzerland on that list doesn’t necessarily imply that the country is better than Switzerland. Which seemed to be your argument against it.
I was being facetious: the World Bank believes that Neoliberalism is good for business. Not you, Herr Tor, nor me, Mr Verymuchalive.
No Building Regulations mean lots of shoddy buildings, which mean terrible living conditions for those who live in them. It means poverty wages for those who labour on them. It means high injuries and fatalities for workers. It is symptomatic of a state that has no sense of responsibility to its own citizens. I could continue, but in the interests of brevity, won’t.
Neoliberalism is evil and its perpetrators are criminals.
The way to be number one in this game is to have no requirements for registration of businesses, dole out enforcement of “contracts” to non-judicial arbitrators (who can be bribed rapidly), etc. The World Bank once again seems to be mostly a propaganda organization. Not surprising given its structure.
Denmark doesn’t exactly strike me as a neoliberal hellscape.
http://www.doingbusiness.org/rankings
Also being able to easily fire workers is good, because otherwise they (especially unskilled young workers) will not be hired in the first place. See: Most of Mediterranean Europe. And labor mobility will be lower, since workers will fear not getting hired if they quit and will tend to stay in unsatisfactory jobs.
Good example of nice intentions leading to bad outcomes.
I was referring, rather, to reasonable Building, Health and Safety and other policies that any proper First World country should have. I am in favour of internal mobility of labour, but protected by having a restrictionist policy on imported labour. Especially, I see no need for 3rd World imported labour at all.
Amusingly, the Survey places Denmark, the most restrictionist country in Europe, at number 3. Whereas Belgium, much of it becoming an Islamist hellhole, is at number 52. Obviously, not all of the World Bank’s surveyors were reading the script.
Well yes, exactly, and I too support reasonable Building, Health and Safety policies too.
Emphasis on the reasonable part. Russia is ~120th on Dealing with Construction Permits, its worst performance on any of the categories, but its not a secret that it is (still) a bribefest from start to finish – and one that doesn’t even accomplish anything (i.e. low standards of fire safety, and many historic Moscow landmarks being destroyed esp. during Luzhkov’s mayoralty).
The fact that Denmark is 3rd while Belgium is 52nd actually testifies that the World Bank’s surveyors do their job reasonably and without (too much) political bias.
I think you are confusing things. Easy of doing business has nothing to do with how strict or stringent particular codes are. I believe that in of all of the non-EU countries mentioned, the industry and service codes are identical to those of the EU countries.
Easy of doing business is just that: how easy is it for a foreigner to set up a company, get various permits etc. In other words, how customer friendly a particular country is.
It makes a lot of sense for these countries to make these administration procedures as simple, short and user friendly as possible and eliminate red tape as much as possible in order to attract foreign investments.
See the section here on “German-Style Labor Market Practices”: https://seekingalpha.com/article/269429-what-david-brooks-doesnt-get-about-unemployment
It includes one downside of high labor mobility: less incentive for companies to invest in training workers.
These really are good news! I hope Russians will be able to continue their market orientated reforms.
If only Russia could develop a stable market economy with its concomitant rule of law, we could still hope that she does not stay permanently an under-developed and, thus, poor country.
I wonder how many more times we’ll read about “Putin’s kleptocracy” before this become common knowledge. Has the Economist talked about this at all?
A lot of people think “neoliberal” is the same as “libertarian” or “Randian”. It is not.
How is Russia “under-developed” exactly? It has a respectable per capita GDP of around 25K (PPP) and a very high human development index. Russia is neither “fully developed”, nor “poor”, just like many/most other eastern European countries. You could describe it as “near-developed”, or something like that.