Easy Business

I am a fan of composite indices trying to compare nations. There are great measures for items such as human development, child welfare and education effectiveness, usually developed by the UN or another world body. They cause plenty of controversy, and are sometimes carefully ignored by embarrassed politicians, but other times they can change the world. The PISA educational rankings are one such example, where now many countries try to shape policy to move up the rankings and where there is a far greater international debate and sharing of good practice than ever occurred before.

The World Bank’s index about the ease of doing business can claim similar success. The project started in 2001, and has gained increasing acceptance ever since, now forming part of accepted wisdom for many government policies in large parts of the world.

Today I looked up the components, and they seem eminently sensible. There are ten: how simple starting a new business is; gaining construction permits; getting electricity; registering property; getting credit; protecting investors; paying taxes; cross border trade; enforcing contracts; and bankruptcy.

For many indicators, improvement will surely do good and have few unintended negative consequences. Why should it take more than a couple of weeks to get the paperwork together to get started? Removing bottlenecks to trade, power or money can only be good. And businesses will surely invest more if their legal ground is not unduly shaky.

One or two measures are more nuanced. Take tax. Part of the metric looks at the hours required to be tax compliant, which is only good. But what about the total tax burden on the business? Yes, lower taxes would be good for business investment, but at what cost? Either the state would have to tax individuals more to compensate, or reduce spending, often on civic or welfare programs. The consequence may be more harmful than the benefit to the overall economy, and certainly to the citizens.

Originally, the index had an additional category about flexible labour laws, which was so controversial that it was dropped. The Economist frequently lobbies for countries to make hiring and firing easier. Again, the benefit is clear, as firms will take more people on if they see lower risks. But the cost in that case is clear as well, in the form of lost rights for workers and potential abuse by managers, for example via zero hours contracts. Eventually, after a lot of fuss from trade union organizations, the category was dropped.

This story tells a lot about what the index has become. It is hard to imagine trade unions campaigning so hard if the index was not seen as driving policy. The evidence is also clear when you look in detail at the packages agreed by nations requiring loans: conditions are applied that seem closely linked to the ease of doing business index. It is no coincidence that countries like Spain and Portugal have moved up through the rankings (while France and Italy have not).

A closer look at country league tables gives some cause for concern. Take Georgia, which managed to be promoted from 98^th to 38^th in one year, and in 2008 even made it to 8th. Now, I don’t know an awful lot about doing business in Georgia, though actually I do know a little bit. I am sure things have improved. But the top ten? Corruption used to be so endemic there that it stretches credulity that such rapid progress could be possible. Most likely, the concerted goal of the government has been to improve the ranking. That is not quite the same as improving the business climate, as the metrics can only ever be a proxy. When such a campaign can generate so spectacular a result, in my mind it only gives cause to challenge just how effective a proxy the ranking is.

The USA usually scores about 4^th in the global rankings. Now, it is clear that the USA is a good country to do business. But I can also see some major downsides. And I wonder whether the chosen metrics really tell the whole story.

Several of the rankings relate to legal security, for example enforcing a contract. There is no doubt that the US legal system is very comprehensive. What is also certain is that the climate is highly litigious – just watching the ambulance chasing ads on TV tells you that. As a consequence, enforcing a contract is no doubt pursued fairly and professionally. But the flip side is that more money and time are spent paying lawyers than in other markets. My guess is that the US will score in the index, but less well in reality. I am sure the small company I am associated with is not the only one that has balked at setting up a formal legal US operation for fear of prohibitive increases in legal costs and risks. A smarter index would take account of this somehow.

Another example is the health care premium. US employer taxes are low, but that does not make employer cost surcharges low, as healthcare premia are so high. It is an effective tax on employment, but it will not show up in any index.

What if healthcare cost did show up in the index? It could work both ways. A good outcome would be a more concerted effort by US employers to lobby to reduce the costs, without reducing benefits. The cynic in me suggests employers would take the other path, the one that seeks to reduce their obligations to employees. We see this already as states compete with each other to scale down the statuary benefits from accident insurance cover for employees.

It might be taking cynicism too far to ponder whether the choice of metric and the consequent good ranking for the US has any connection with the head of the World Bank and most of its staff being American, furthermore Americans with connections to lobbyists and Wall Street. I was amused to note this month that the Chinese have set up their own competitor to the World Bank, after years of fruitless lobbying for a more equitable power balance in the existing institution. Even more noteworthy was that most Europeans have for once risked displeasing the hegemon and have pledged support to the new Chinese institution.

Even discounting much of my more cynical thoughts, there are plenty of lessons in the tale of the ease of doing business index.

First, such indices are usually good. They can tell you a lot about your own country. There are worse ways to vote than to follow the parties that treat international indicators seriously (and not just ones they carefully select) and try to find policies to improve. The ease of business index is a good example of one that has had net global benefit. The paperwork to open a business has probably simplified in over a hundred countries as a direct result of the index.

Next, exercise some caution. If a country can leap sixty places in one year the index is probably too easy to game. Look out for unintended consequences of chosen metrics. Even more, look out an agenda of those promoting the index, and of indices that simply promote established dogma rather than seeking genuine learning.

Then, promote new indices. They can make a difference. The UN millennial goals are good examples, since they spawned indices that then spawned action. Why not an index for promoting respectful employment? Underemployment blights many countries, and solutions might be to hand. I could see sub-measures in education, apprenticeships, costs to employ, flexible but not inhumane contracts, avoidance of nepotism, incentives to work, childcare affordability and so on. These would cross the political spectrum, but might generate a cocktail that worked better than the sum of its parts. I’m sure there could be others too.

Asia's Chance

Sitting in New York or London, we can become sucked into a partial narrative for humanity. We see political dysfunction, growing inequality and a resumption of the cold war and we become depressed. But one continent has two thirds of humanity, and has altogether a better story to tell.

True, Asia has issues as well. The Middle East is part of Asia. The growing tensions between China and its neighbours are reminiscent for some of the drift of European powers into war a hundred years ago. And there is plenty of brutality and repression and abject poverty around in Asia too.

Banyan, the Economist’s Asia commentator, can be quite a negative writer. This week he or she bemoaned the state of Asean, the group of ten south east Asian nations seeking to forge common direction. Due to domestic issues, well known in Thailand and Burma but less reported in Indonesia, the Philippines, Malaysia and even Singapore, Asean is making slower progress than hoped for on issues such as free trade.

Well, I prefer to see a half full glass. Firstly, we should reflect on what has already been achieved within the last generation or two. Progress in Asia during that time has been unprecedented in human history. Almost all global economic growth from the last thirty years has come from Asia. That the UN has achieved such remarkable progress on its millennial goals is largely down to Asia. Child mortality, life expectancy, human rights and economic well-being have all moved in a positive direction at rapid pace, right across the continent. We might foresee war in the future, but we should also note the context of lack of war in the recent past – even supposedly civilized Europe cannot match the Asia record on that.

Further, contrary to the view of Banyan, recent events and trends seem to me to give Asia a unique chance to move even further ahead in the next twenty years or so. We can look at this country by country, in order of population, so starting with China.

The Chinese story is utterly remarkable and well documented. What is less appreciated is how the current leadership seems to be setting about fixing some of the things that made such progress hard to sustain. Quietly, the leaders are transforming the economy to be consumer led. Pensions are being introduced at sustainable dates and levels. Environmental flaws are being addressed. And the endemic corruption within the ruling system is being exposed as well. This is so impressive. Draconian measures such as a one child policy, treatment of minorities, forced relocation and frequent executions are plainly undesirable, but the regime, and even the system, has to take vast credit for a phenomenal set of achievements. I think China will go from strength to strength.

Next comes India, which has at last elected a leader with some mandate and clear agenda. The latent potential of India is like nowhere else on earth, and the social and health progress should be stunning in the next decade or two, built around such simple things as provision of proper toilets. Modi has his skeletons and his prejudices, but again the overall story is one of opportunity being grasped. He might even make progress with Pakistan.

Third in population comes Indonesia, where a charismatic and empathetic leader has recently been elected too. Finally, that country looks set to move away from the shadow of the military and oligarch families, and surely it will be the better for it, so long as there is no backlash. Jokowi’s priorities of health and education and of dragging the poor into society appear spot on, and might even work. That way lies another engine for human development and growth.

Next comes Pakistan, which is hardly a poster child. But even here signs are stronger than they were five years ago. At least the denial about military and security policy seems to be ebbing. This is another land with massive latent potential, and an upward trajectory at last seems more likely than a downward one. Then comes Bangladesh, which has improved on development goals but has broken politics, so that one might go backwards before it can resume success. Japan has its problems too, though a concerted effort to break the cycle of deflation and stagnation is having some successes. I also think that Japan being more forceful in the world has an upside too: engagement can lead to conflict, but also to Japan pulling more of its weight in supporting development elsewhere.

Number seven in population is the Philippines. Here again the president is notably less corrupt than predecessors and economic indicators at last start to point in a better direction. There is also the courage to deal with the Muslim minority issue, where some progress towards self-determination has been made. The Philippines is another work-in-progress of a good news story, in another land with huge upside.

Vietnam I know little about but does appear stable. Iran has a huge upside if only the West would have the humility to strike a deal with it – by the way the most likely legacy of the recent disgraceful Republican letter and the invite to Netanyahu is the loss of any global consensus on sanctions. People should be careful what they ask for. Turkey has had a great decade, and may even make progress with assimilating its Kurds, though Erdogan seems to be suffering from overreach lately.

Thailand is the only story of negative trends in the whole list of top Asians that I can see, and heaven only knows what chaos will ensue when the aged king dies. But next comes Burma, where challenges remain but we should remember that five years ago no-one gave any credence at all to what has emerged there. The last nation with population over 50m and number fifteen on the list is South Korea, which remains a poster child for democratic progress anywhere.

So here we have a continent that has achieved truly remarkable things in the last thirty years, yet where I see many trends seeming to make conditions even more favourable in the next period, with only one nation heading backwards and most heading forwards, some with incredible upsides. There are even good stories from lower down the list – Afghanistan has sound leadership for the first time in decades, and so does Sri Lanka.

There is evidence outside Asia of the coming Asian age. The top selective public school in New York has 70% Asian Americans – the future consequences of this sort of thing are immense.

What does this all mean? Well, overall it gives me cause to celebrate. There is good cause to believe in another burst of human development from Asia in the next generation, with benefits for all of us. With apologies for slipping into wild generalization, Asian values tend to be respectful, consensual, caring and peaceful. There is less dangerous religious baggage than in other parts of the world. On the other hand, transitions are always tough, and we cannot predict an era of blissful peace: far from it.

How should we respond, whether Asian or not? If I were younger, I’d certainly consider learning an Asian language, seeking out Asian friends and trying to understand come of the cultures better. All of us can read the news and observe current affairs aware that our lens may be out of focus or missing a dimension. We can certainly try to fight our own fears and prejudices, and avoid being party to policies or opinions that cling to outdated thoughts about white supremacy or xenophobia or “protecting national interests” – we should be especially careful what we wish for in those areas.

But mostly we can simply celebrate what could be a wonderful century for humanity, assuming we can avoid some of the transitional potholes.

On Ignorance

I have had a lot of polarised experiences lately from reading about people and from listening to them. It seems somehow that the smart are getting smarter and the dumb dumber.

I am amazed almost daily by the progress achieved by humanity. Each week the Economist obituary introduces me to a true hero or heroine. When I work with youngsters I am impressed time and again. The rate of progress in behavioural sciences is awe-inspiring. Just browsing on Wikipedia can give me such pleasure, for the increased range of fascinating knowledge so readily available and the brilliance of fellow humans. This is truly an enlightened age.

But then there is the other side. Each day I witness breath-taking ignorance, often openly expressed with pride. It is often the ignorance of ignorance that gives me pause.

Some examples are in order. Two weeks ago I was on a train from Philadelphia that broke down. As usual in these situations, people actually started talking to each other. It appears that the rolling stock on this line is prone to breakdown, since many seem to have witnessed it before. Poor Amtrak came in for a lot of criticism, not surprisingly in the circumstances. But out poured all sorts of other theories. Apparently, the main reason for poor infrastructure in the US is that the country invests most of its funds into propping up other economies! Someone claimed this, at typical New Yorker volume, and many seemed to agree, while no one demurred.

Yesterday, our daughter came home from school and asked if Italy and France were safe to travel to. Seemingly one of the kids at school had mentioned a plan to travel to those countries, and the principal, no less, had almost tried to bar her from the trip, on the grounds that the places were too unsafe.

Then we can add in all we read on discussion fora or as comments to articles. Many people are struck by how mean this material is, but I find the ignorance more astonishing. The contributors really believe what they write, and what they write is just so far away from anything that could remotely be true as to make me wonder how they ever exercise their brains at all.

So I’ve tried to draw some conclusions. First, I’m not so sure things are any more polarised than they ever were, it is only that now more beliefs are more visible.

When I heard about the unsafe France and Italy story, my first reaction was that the perpetrator had no right to his responsible position. I still think that. But then I thought about something that happened to me in 1985, when I was living in Northern Ireland, during what is known as the Troubles, when the place was close to civil war and many killings happened each year.

Northern Ireland was probably the least safe place to be in Europe at the time. By contrast, the rest of Ireland might have been the safest. Nothing ever happened. Few lived there, the place was just full of fields and pubs and villages and simple living in the rain. One Friday at lunchtime in the Shell canteen I happened to mention to some tanker drivers that I was going to the south for the weekend. They looked at me in horror. Quickly I wondered if I had made a political faux pas, but soon they revealed their true belief: they told me it was not safe there.

So probably things have not changed all that much, it is just that more of us has wider windows into the lives and opinions of others. Comment sections did not exist thirty years. Then again, nor did Wikipedia, and the Economist and other information sources worked with a much narrower range of sources. So we weren’t blessed with so much of the best of humanity, yet we were spared from some of the most ignorant.

Another factor may be that the ignorant have got louder. Before, we were less encouraged to be curious, and maybe with were a bit deferent and shy in expressing our opinions, more in awe of experts or even more senior family members. But now so much information, factual and otherwise, is available everywhere, so we all have a temptation to become part of the noise. Generally I celebrate that, and I love the way education has moved from facts to enquiry, but clearly there are downsides.

With the cacophony and with modern social media, are we talking more than listening? Are we being selective in what we pay attention to in order to keep the noise manageable, and not challenging our chosen sources enough? There is an idea going around that with all this complexity we tend to limit ourselves to voices that reinforce our existing prejudices.

A possible outcome is that we are all more open to be brainwashed. We used to trust the BBC, and know what to trust and what to ignore from Labour and Tories. Now we are confused and get lazy. Fox News can claim that Birmingham runs under Sharia Law and a lot of people choose to believe it.

This has uncomfortable consequences for democracy. We can see how politics in polarising and becoming nastier in democratic countries. We like to blame gerrymandering and the corrosive effect of money. But none of this would matter, indeed it would not even happen, without the ignorance and apathy of the general public.

Democracy should be stronger than ever, thanks to the wide availability of information, improvements in education and the breakdown of social deference. Even technology can help, for example via instant referenda. But the truth is much more sordid. Many are not fit or at least not interested, and the crowd can be swayed by populism or biased media, often driven by hidden money. The result is corruption, cynicism and cronyism, all the things that democracies like to accuse non-democracies of suffering from.

Some elites react by circumventing democracy. The EU commission, central banks, civil services and even armed forces are all guilty of this. In the short term, this can protect the public from their own incompetence, but in the longer term it only goes to feed the cynicism, with bodies such as the EU becoming targets for anger.

What can be done? Obviously the temptation to limit democratic rights has to be resisted – it is that sort of elitist logic that originally denied votes to women or black people. We also have to be careful not to overpraise a system like China’s, where a seemingly benign elite appears to have made a better job overall of running the country than most democracies.

No, somehow we have to find a way to muddle through. It will be healthy to be honest about the failings of democracy. In the longer term, further improvements in education and technology might help us pass a positive tipping point.

In the meantime, those of us that care owe it to democracy to make efforts to protect the system from its worst failings. Whatever our preferred policies, we have to find the energy to fight the influence of money, cynical gerrymandering or raising hurdles to be eligible to vote. We should withhold our votes from those seeking to undermine democracy in those ways. We should campaign to place decisions closer to where the impact will be felt, which generally means smaller national parliaments but larger local ones and more cross-border ones. This stuff is much more dull than taxation or immigration policy – but in the end it is this stuff which could prevent the whole democratic edifice from collapsing.

Another individual step could be to celebrate ignorance rather than to condemn it. We are taught that “I don’t know” is a weak answer. Far from it! Embracing ignorance is humble, and invites curiosity to learn. Similarly, let us all try to challenge our assumptions as often as we can, and encourage others to do the same. If such values could become even stronger in our education systems, then so much the better.