Oxfam International managed to post a video clip blaming Brazilian poverty on inequality then tweet the same day on an important cause of poverty in developing nations. That important cause was the difficulty of establishing property rights in poor countries.
Brazil is a terrible place to start a business, register property, pay taxes and trade across borders to name but a few of many deficiencies is a business environment. Little wonder that it is poor because of all these factors that are within the remit of its government.
Oxfam International would serve the poor of Brazil and the rest of the Third World far better by spending more time complaining about bad business environments.
Countries that embraced capitalism such as in East Asia did far better than those in Latin America that hesitated and preferred crony capitalism.
Oxfam mislead its readers about the degree of inequality in Latin America compared to the past.
These measures including the full cost of starting a business. Not only are official fees included, the opportunity cost of the waiting times for various permits are issued are added as well.
In some countries, the official and legal fees of setting up a business are trivial but in other countries they start to mount up.
The most mystifying bureaucratic rule I have come across is in Western Europe. A number of these countries require entrepreneurs deposit a minimum sum of money in a bank or before a notary up to a month before registration and 3 months after incorporation. If they cannot do this, they cannot start their business lawfully.
I am mystified as to what this regulation is designed to do other than make it difficult to start a new business. It is a private commercial matter as to whether trade credit is extended to new businesses. That indeed is one of the challenges facing every entrepreneur: discovering who are reliable business partners or not.
One of the functions of banks is to issue letters of credit. These vouch for the financial strength of a customer when seeking new business or export markets.
For a rich country, Luxembourg is a pretty crappy place to do business – worse than Greece. Mostly due to terrible rankings for the Luxembourg legal system. Italy is not much better.
Having a high minimum wage is the least of the problems that the US territory of Porto Rico has when you consider reasons from its recent sovereign default. It owes about US$70 billion. It is a terrible place to do do business – worse than Mexico! Mexicans find it easier to export to the USA!
Figure 1: registering property rankings, USA, UK, Germany and France – World Bank Doing Business rankings, 2014
Figure 1: Doing Business in the USA, Canada, World Bank rankings, 2014
It’s easier to do business in the USA and Canada because of the difficulties with construction permits and getting electricity and few more problems with enforcing contracts and registering property. It is easy to open a business in Canada.
Figure 1: World Bank Doing Business rankings, France, Germany and the UK, 2014
Some things are decidedly harder to do in Germany and France than for businesses in the UK. On the other hand, it is surprisingly hard to register property in all three countries including the UK after 700 years of the blessings of the British common law.
Paying taxes in Germany and France are far harder than in the UK. Don’t have anything to do with construction permits in France unless you must. It is surprisingly hard to get the electricity on in the UK and France.
The European Union must have some benefits when it comes to trading across the borders of all three countries. Only problem is in Germany where it is very difficult to start a business in the first place. Why is for a later posting.