Keith,
Would you agree that watching the current market
situation in Russia with its declining life expectancy, its terrible public
sector and its low standard of living that Russia had gone backwards into a
Robber Baron criminal capitalist system? Might we not be seeing a
pendulum swing from one extreme to the other rather than a historical
regression? Or could it be the type of equilibrium that
happens in systems when they can't escape a centrifigal swing? I'm
questioning your analytic model on this one.
REH
Ray, I think things are going the other
way. The oligarghs (read 'robber barons') took over Russia's principal
productive assets during the privatization and loans for shares schemes of the
1990s. They became very powerful economic and political players. For
whatever reason, Putin is trying to undermine their power by making life very
difficult for them. What may be happening is a move from the era of the
robber baron to the re-emergence of the all powerful state. We'll have to
watch and see if Putin is successful and, if so, where he is taking
Russia.
Ed
----- Original Message -----
Sent: Saturday, November 01, 2003 12:06
PM
Subject: Re: [Futurework] Bootstrap
development
Keith,
Would you agree that watching the current market
situation in Russia with its declining life expectancy, its terrible public
sector and its low standard of living that Russia had gone backwards into a
Robber Baron criminal capitalist system? Might we not be seeing a
pendulum swing from one extreme to the other rather than a historical
regression? Or could it be the type of equilibrium that
happens in systems when they can't escape a centrifigal swing? I'm
questioning your analytic model on this one.
REH
----- Original Message -----
Sent: Thursday, October 30, 2003 3:41
AM
Subject: Re: [Futurework] Bootstrap
development
Ed,
From the recent decisions of Putin in
prosecuting businessmen (though he deies that he is in any way involved!),
it looks as though Russia is going backwards to its Communist/Tsarist
past.
Much enjoyed your following diary extract. Superb. I
wonder what's happened to Sergei?
Keith
At 17:39 29/10/2003
-0500, you wrote:
I had the opportunity to gain
some understanding of what the small business sector was up against in
Russia when I was there in 1995. Surely things have improved by now,
or have they? The following is from my diary:
- Sergei (not his real name) is from St. Petersburg, and was in Moscow
for the day. He was invited to have supper with us, and a few of us met
with him. His business is writing computer software. He employs six
people, including his wife and an accountant, which seems a little
strange for such a small establishment (i.e., the accountant, not the
wife). He is Jewish, and some of the things he said suggested that he
had undergone some discrimination, but that he expected it and had
learned to live with it. He is well into his forties, and regards
himself as middle class. He speaks very good English - much more
fluently than the "learned at school" variety that you encounter
here.
- Being a small businessman in Russia is difficult and requires far
more skill and moxy than running a business in Canada. You want to avoid
drawing the attention of both the taxman and the Mafia, since both can
crush the life out of a small business. To avoid the Mafia, Sergei has
kept his address secret for the past few years, though now he has moved
his office into what he considers a completely secure facility and feels
he can operate more openly. To avoid the taxman, he has to figure out
the income level to which he wants to work for tax purposes, keep his
books accordingly (hence the accountant?), and then figure out various
under the table means of getting the rest of his income. There is
perpetual frustration because petty rules and regulations are forever
being changed (also hence the accountant?).
- Dealing with the bureaucracy is a full time job. For example, he can
deliver his product to a client by email, but this is not good enough
for the Russian tax man, who believes that a contract has not been
fulfilled until there is firm evidence that something tangible has been
delivered. So as well as sending the product by email, Sergei has to
send the client something tangible by mail and get a piece of paper that
demonstrates that he has in fact done so. Usually, he sends an empty
diskette, but this costs him $79, which he is not always sure that he
can write off for tax purposes (what you can write off seems to vary
from year to year). As another example, a client sends Sergei a check
for services rendered and Sergei puts the check in the bank. However,
Sergei cannot draw on the check until he is able to demonstrate to the
satisfaction of the banker that he has indeed rendered the service by
presenting a piece of paper from the client stating that the contract
has been fulfilled. Getting this piece of paper has at times taken
weeks. Sergei as much as implied that he is in on a growing underground
business of counterfeiting the various forms needed by the bureaucracy,
which is necessary just to keep things moving.
- A basic problem is that the laws and regulations which small
businessmen work under, and the bureaucracy which administers them, are
inherited from the Soviet era when there were very few entrepreneurs, or
at least when there were few out in the open. They are designed to catch
and punish the small businessman, not to help him. This may be one
reason why the attitude of small Russian business people, right down to
the lady who operates the ice cream cart, is basically
defensive.
- Another problem is property rights. Sergei works in the field of
intellectual property, but has virtually no protection for what he
produces. He claims to have seen more than a few instances of where
something he has produced has been pirated and incorporated into someone
else's software. And there is still a more general problem - getting
Russians to enter the computer age. Many of the officials he deals with
really do not understand what he is doing and that he is producing
something - i.e., do not understand value added except in a very
tangible, physical sense, like making a component for a machine. And of
course behind all of this is the corruption of the entire system, and
the readiness to rip-off anyone who might be making any
money.
Ed Weick
- ----- Original Message -----
- From: Keith Hudson
- To: [EMAIL PROTECTED]
- Sent: Wednesday, October 29, 2003 12:36 PM
- Subject: [Futurework] Bootstrap development
- Some years ago I was thinking of setting up a conventional music
publishing business in Ukraine and I had a couple of colleagues over
there who could help me. However, when I learned just how many
departments I would have to register with (19) and how long it would
probably take (9-18 months) and the backhanders I would probably have to
pay -- never mind what banks to avoid because of mafia informers always
on the lookout for 'commissions' -- it didn't take me long to withdraw
completely.
- Here's why -- and here's why it takes a great deal more energy than
any normal entrepreneur possesses in order to start even a modest
business in many countries. Martin Wolf's excellent article is one
reason why some countries are never going to develop anytime
soon.
- Keith Hudson
- <<<<
- A SCANDALOUS BURDEN FOR THE WORLD'S POOREST NATIONS
- Martin Wolf
- Under the pressure of neo-liberal ideologists, governments of
developing countries have chosen market-friendly regulatory regimes.
That is the conventional wisdom. But it is nonsense. Inapposite
regulation of business remains far more onerous in poor countries than
in rich ones.
- If you start a business in Australia, Denmark, Canada, New Zealand,
Singapore, Sweden, the UK or the US, it will cost you 1 per cent of the
country's average annual income, or less. In Australia, your business
can be up and running in just two days. In Brazil it will take you 152
days, in Indonesia 168 and in poverty-stricken Haiti, 203. In Ethiopia
and Niger, starting a business will cost you more than four times
average annual income per head. This cost is quite apart from the
investment you must make in the business itself.
- Do you want to manage your workforce? Do not go to impoverished
Sierra Leone, with the most generous annual leave requirement, at 39
days. The Republic of Congo (Brazzaville) requires 35 days, Ethiopia 33
and Chad, Ivory Coast and Niger 32. Regulation of employment --
flexibility of hiring and firing and freedom to negotiate conditions of
employment -- is least severe in Austria, Denmark, Hong Kong, Malaysia,
New Zealand, Singapore, the UK and the US. It is most severe in Brazil,
Mexico, Panama, Paraguay, Peru, Venezuela, Angola, Belarus, Mozambique
and Portugal.
- Do you wish to secure payment from a recalcitrant customer? In
Guatemala, you will need to go through 19 procedures, which will take
1,460 days. Enforcing the same contract will take just seven days in
Tunisia, 39 days in the Netherlands and 50 days in New Zealand and
Singapore. In Austria, the Netherlands, the UK, the US Taiwan, Brazil
and Jordan, the costs you incur will be negligible. In the Democratic
Republic of the Congo, the Ivory Coast, India and the Philippines, the
costs of enforcement will be close to the country's average income per
head. In Indonesia, they will be more than twice average income per
head.
- Do you need credit? In most developing countries, you will
experience frustration and probable rejection, unless you are well
connected. Why is it so difficult to obtain credit? One explanation is
the absence of shared credit information. A more important obstacle is
the lack of legal protection for creditors. Suppose, for example, you
want to collect a bad loan secured on business equipment. In Germany,
Ireland, Tunisia and the US, it will take a week. In Brazil and Chile it
could take five years.
- Alas, you go bankrupt. In Canada, Ireland, Japan, Norway and
Singapore, it should not take more than a year to complete the process.
In Brazil, Chad and India, it will take over a decade.
- All these fascinating examples come from the first of a planned
series of studies from the World Bank group.* Instead of the usual polls
of experts or enterprise surveys, the study rests on detailed assessment
of the regulations and laws of 133 countries, against hypothetical
examples. To take just one, researchers asked local experts what would
be involved in recovering an overdue payment worth half their country's
average income per head. They also specified the location and
characteristics of the litigants, the remedy sought and the merit of the
claim. In this way, the study generates an internationally comparable
evaluation of regulatory regimes.
- Overall, the analysis comes to three conclusions. First, regulation
of business varies hugely around the world. Second, rich countries
regulate more consistently and appropriately than poor ones. Third, poor
regulation brings dismal outcomes.
- The variation in the intrusiveness and cost of regulatory regimes is
not determined only by a country's wealth, important though that is. The
origin of the legal system also matters. Nordic and English systems
impose the least regulatory burden and socialist and French the most,
with the German in the middle. One can expect the worst regulation in
the world in a poor Francophone country.
- The costs imposed by inapposite regulation are many: a higher
proportion of businesses operates outside the law; the tax base is
smaller; corruption is greater; unemployment is higher; and productivity
is lower. In Bolivia, for example, one of the most heavily regulated
economies, an estimated 82 per cent of business activity takes place in
the informal sector. In many developing countries, it is close to
impossible for a business to operate successfully inside the
law.
- Some economists have argued that developing countries should
regulate more, because their markets are more imperfect than those of
rich countries. This is nonsense. First, much of this regulation is
misdirected: making it prohibitively costly to start a business, adjust
the size of the workforce, obtain judgment against debtors and go
through bankruptcy does not make markets work better. Second, the
institutions of governance are normally still more imperfect than the
markets they are supposed to oversee.
- Developing countries need to focus their limited resources on the
tasks that matter. The most important are to define and protect property
rights and safeguard citizens against injury from other citizens and the
state itself. There is strong evidence, moreover, that the more intense
are the regulatory interventions, the weaker are these essential
protections. As the Bank study remarks: "Rather than spend resources on
costly (and often ineffective) regulation, good governments channel
their energies into enhancing prosperity."
- In general, regulation should be reduced to what is essential,
efficacious and readily enforceable. Markets themselves will do much of
the regulation, provided they are competitive. Governments also need to
use modern technology to improve the efficiency of what they do.
- Policymakers and analysts have been paying too little attention to
the core of what makes businesses work: the ability to start up, close
down, secure credit, demand payment and manage the workforce. In all
these respects, the environment in many developing countries is
calamitous. The countries that can least bear the burden of cumbersome
and misdirected regulation suffer from it most. This is a scandal and a
tragedy.
- *Doing Business in 2004: Understanding Regulation (World Bank and
Oxford University Press, 2004)
- Financial Times 29 October 2003
- >>>>
- Keith Hudson, Bath, England, <www.evolutionary-economics.org>, <www.handlo.com>,
<www.property-portraits.co.uk>
Keith Hudson, Bath, England, <www.evolutionary-economics.org>, <www.handlo.com>,
<www.property-portraits.co.uk>
|