A fundamental economic debate was settled in the late 1980s and early 90s, when the Marxist dream of a planned economy failed, leaving its antipode, the free-market alternative, as the conspicuous, optimal choice for any state that wishes to achieve, maintain, or expand economic growth.
Since then, the dissenting schools of thought have shifted the discord from whether or not the market economy works to how involved the government should be in the affairs of this private-sector-led system. The important thing to remember is that there is no such thing as a pure market economy; there are mixed economies that have varying blends of government intervention and capitalism.
In the mixed economy, almost everyone agrees on two things: we need government to regulate and keep the playing field even, and we need more small businesses because they are the backbone of the economy.
There is a direct link between the number of businesses that exist and the number of available jobs, the very thing that almost every politician promises to provide.
But, here’s an important fact: government officials don’t necessarily create jobs; they should create the enabling environment that leads to more businesses, which provides more employment. This means that if any administration is serious about what they promise, businesses would be the top priority.
In an extremely broad sense, government’s role as the regulator in the mixed economy should be threefold: help improve (not replace) the functioning of the market economy; provide social policies that alleviate the poverty of those who, for whatever reason, are unable to share in the income and employment of the system by their own efforts; and establish and execute contingency plans when the private sector hits those bumps in the cycle such as recessions.
The thrust of this week’s Ripple Effect is focused on the first expectation—helping to improve the way the market-oriented benchmark is applied, especially as it relates to ensuring that the economy’s “backbone” is as strong as possible.
Belize: 105th out of 185
The theory of the pure market economy is predominantly a point of reference for government’s to see where they are along the socialism-capitalism spectrum; and looking at Belize it is clear that the electorate needs to start asking where exactly do we fit on the scale, especially when our country gets an overall rank of 105 out of the 185 countries in the World Bank’s “Doing Business 2013” report. That says that we are not that “business friendly.”
The report measures and “sheds light on how easy or difficult it is for a local entrepreneur to open and run a small to medium-size business when complying with relevant regulations.”
Comparing Belize to comparator economies, the recent study looked at and ranked Belize on ten specific variables: Ease of starting a business—158th, dealing with construction permits—21st, getting electricity—58th, registering property—136th , getting credit—129th , protecting investors—128th, paying taxes—45th, trading across borders—102nd, enforcement of contracts—169th, and resolving insolvency—30th.
The study looked at three factors that are relevant to Belize in all ten aspects: time (number of days), number of steps in the process, and costs as a percentage of Gross National Income (GNI) per capita. Please note that GNI is Gross Domestic Product (GDP) plus net receipts from wages, salaries and property income from residents who work temporarily or seasonally abroad or from migrant workers who are in Belize for a year or more. GNI per capita, which reflects the average income of the country’s citizens, is derived by dividing the GNI by the Belize’s population. According to the World Bank, Belize’s GNI is US$3690.
The World Bank evaluation shows that it takes an average of 44 days to complete the 9-step procedural process to start a new local business in Belize; and, to top it off, the cost of the process is 51.9% of GNI per capita.
The overall average for starting a business in the Latin American and the Caribbean region is 98. Jamaica, for example, has an overall average of 90. According to the report, it takes 7 days for Jamaican entrepreneurs to complete their 6-step procedure at a cost of 6.7 percent of their GNI per capita.
In Barbados, which was ranked 88th, it takes an average of 18 days to go through the 8 steps at a cost of 7.2 percent. In Mexico, there are reportedly 6 steps to be completed in 9 days at 10.1 percent of GNI per capita.
The United States, which is ranked fourth, has six procedures that can be completed in six days at a total cost of 1.4 percent of their GNI, which is translated to US$675.
The cheapest place to start a business is Slovenia, where the process is absolutely free. The country is ranked 35th and has only a two-step process: deposit capital in a bank account and get a receipt from the bank, after which the entrepreneur registers the business at the electronic “one-stop stop: E-vem”. This may take a total of seven days.
However, in terms of speed and number of procedures, New Zealand, which comes in third overall, tops the charts with its one-step online process that is completed in one day at only 0.4 percent GNI per capita.
The fact is that economies around the world have not only recognized that businesses are the backbone of the economy; they have also begun to take steps to make it easier to start a business. They have begun to streamline procedures with the goal of eventually arriving at that one-stop shop where simpler and faster technologies are used to eliminate the bottlenecks.
As stated in the Doing Business report, “Many have undertaken business registration reforms in states—and they often are part of a larger regulatory reform program. Among benefits have been greater firm satisfaction and savings and more registered businesses, financial resources and job opportunities.”
The need for reform
If you notice, we have only looked so far at one of the ten variables. The other factors are equally in need of improvements; however, since 2006, when Belize was first added to the Doing Business report, there has been very little to no reform in these matters, especially as it pertains to starting a business.
But it is hard to blame the government alone; it is the people who also have to make these matters central to our political debates. It is appalling, to say the least, that our pre- and post-election discourse is often flooded with so many side issues that real issues such as these take the back seat.
While every politician will promise more jobs, jobs aren’t created by government directly; it is created by businessmen who take on the risk of entrepreneurship. And until the bureaucratic systems that weigh down businesses are properly addressed, that promise will continue to be one that administration after administration will come up short on.
Now, of course, there are many other factors to consider. The researchers explained that the study did not look at other areas important to business “such as an economy’s proximity to large markets, the quality of its infrastructure services … the security of property from theft and looting, the transparency of government procurement, macroeconomic conditions or the underlying strength of institutions…[and that the] indicators refer to a specific type of business, generally a local limited liability company operating in the largest business city.”
Nevertheless, unless all the Belizean people—not just the handful of vocal businessmen and women who have been challenging government already—demand a more business friendly environment to take us closer towards the true wealth of nations, we will continue to witness the anaemic GDP growths rates, the exorbitant unemployment rates and even the ridiculously high crime rate, which everyone agrees is in many ways connected to the poor socioeconomic conditions.
It is encouraging to see the advent of the Small Business Development Centers (SBDC). The SBDCs have an excellent track record at helping entrepreneurs start or improve their businesses. The SBDCs will certainly serve as an excellent compliment; however, it wouldn’t change that much if Belize doesn’t become more business friendly.