The Difference Between a Sunny and Stormy Business Climate

For a small to medium-size business in NYC, it could take 89 days and 15 procedures to deal with construction permits. You would need to submit a zoning diagram, get approval from the Department of Buildings, certify sewer availability…and much more, but you get the picture.

In Paris, it could take 183 days and 9 procedures. In Sao Paulo, Brazil, you are talking about 400 days and 19 procedures.

Where are we going? To the business climate.

The Doing Business Index

Our story starts in Lima, Peru in 1983. After spending 289 days getting the permits and approvals they needed to start a small business, a group of researchers publicized the results. They hoped to pressure government into becoming more efficient. Twenty years later, the World Bank adopted the idea.

The rest is history.

The 2017 Report

Below is a copy of the top ten ranked economies in the World Bank’s Doing Business report. New Zealand is at the top. If I had included the whole list, you would have seen Somalia, last, at 190.

Meanwhile, the other columns indicate regulatory categories. In addition to the four that are shown, the other 6 are:

• Getting Credit
• Protecting Minority Investors
• Paying Taxes
• Trading Across Borders
• Enforcing Contracts
• Resolving Insolvency

As for the numbers in each column (except for ranking), they indicate a distance from the “best practice.” The lower the number, the closer to the ideal.

So yes, we have lots of numbers and criteria. But really, we are just talking about the regulatory business climate.

Our Bottom Line: Transaction Costs

If we call the business climate the “forest,” then transaction costs are the “trees.”

Defined as the time, energy and effort it takes to complete a task, a transaction cost can include the number of forms you fill out to register property or to get a loan. It can involve the regulatory procedures that precede a construction project or opening a restaurant.

From here, we can go in countless directions. But after hearing the President talk about infrastructure regulation, I was reminded of Doing Business. Then, I discovered that federal agencies like FPISC, and congressional committees are trying to reduce lengthy permitting and approvals.

Where does this leave us? With fewer transaction costs creating a sunnier business climate.

My sources and more: Investigating the regulatory business environment was like stepping into quicksand. It started easily with articles from The Hill. But moving onward to the Doing Business report, my resources multiplied. The Report had unlimited links that included my data for Paris, here, and for NYC here. Then the World Bank had a much longer Ease of Doing Business report.  And this paper from JEP was excellent.