Some central questions in international development are how to measure progress, make sound cross-country comparisons, and build the case for political and economic reforms. Multilateral institutions such as the World Bank play the role of repositories of credible, accessible, and up-to-date information that serves as an international benchmark for progress. Access to information is the basis for evidence-based policymaking and can serve as a catalyst for necessary reforms.
The World Bank recently convened a conference to present research around its Doing Business index at my alma mater Georgetown University. The keynote speaker, Tim Besley of the London School of Economics, discussed the importance of World Bank data that is publicly available and internationally recognized as a reliable source of evidence-based policymaking.
The Doing Business Survey focuses on two main sets of indicators: regulations and legal institutions. The regulation indicators are the number of procedures, time, and cost involved in starting a business, to obtain a construction permit, getting access to electricity, registering property, paying taxes, and the ability to trade across international borders.
“Here’s why you have my undying support and friendship: you are doing what I take for granted all the time and forget sometimes. You are carving out the space for people to breathe and express themselves in a way that I think is incredibly admirable…”
– American Satirist Jon Stewart to Egyptian Satirist Bassem Youssef, April 24, 2013
Egypt has once again captured the world stage these past few weeks as millions of revolutionaries charged Cairo to demand President Morsi’s ouster and were supported by military intervention. As we continue to watch the events in Egypt unfold, many are resting their hopes on this revolution as a grand solution to the disappointments that lingered after January 25, 2011. In fact, in these past two years Egypt has focused primarily on fresh leadership to revive hope—a new father figure for Egypt who could keep the passions for democracy and unity burning after the streets cleared and the face paint washed away.
As Egyptians again search for a new authority, they must also address the deeper cooperative issues hindering democracy and prioritize stronger institutions to determine and stabilize the transition they seek. With strong civic and private sectors, the future of Egypt will no longer be determined by one Egyptian, but by all Egyptians.
One of the most famous opening lines in all of literature comes from the great Russian novel Anna Karenina: “Happy families are all alike; each unhappy family is unhappy in its own way.” With that, Tolstoy encapsulates a simple truth: dysfunction takes myriad forms. That’s not to say that one cannot learn from another’s experience. Indeed, some of the most important lessons can come from those who have already tried and failed. Experience is singular, but patterns can illuminate.
It is in that same spirit that Boris Begović writes the latest Economic Reform Feature Service article, which offers Serbia’s lessons in democratic transition to countries currently in flux. Dr. Begović, a longtime CIPE partner who was a chief economic adviser to the federal government of the Federal Republic of Yugoslavia for 15 months during 2000-2002, examines the approaches that worked for Serbia—and those that didn’t. Read the full text of The Serbian Experience in Transition.
We continue to suffer profound institutional gaps on the local, national and international levels – especially in the areas of property rights, access to credit and effective governance. I attended the CIPE Democracy that Delivers for Entrepreneurs conference in Chicago on April 9-10 and shared views with thought leaders from Egypt, Kenya, Lebanon, Pakistan, the Philippines and Venezuela. While it may seem that citizens in such developing economies suffer more from institutional paralysis, the pain felt by the local start-up dealing with banks, bureaucracy and back room deals is just as real and just as prevalent on the south and west sides of Chicago.
Organizations decline when leaders and workers focus on function rather than mission. Across the wide spectrum of our global community, too many have lost sight of the core principles that make democracy work, including the right to associate economically, the right to own and finance property, and the right to have government work for everyone, not just the connected elite. The only way to dislodge this entrenched bureaucracy is to make noise – to make our voices heard. We have to demand that government at every level stop tinkering with half-measures and start integrating new thought, new technologies, and the next generation into our institutions.
The great Peruvian democracy advocate Hernando de Soto has spent much of his career focused on bringing informal entrepreneurs into the formal sector, where their rights are enshrined in and protected by law. When citizens have the tools to access to capital and a business environment that supports them, they are able to move up the development ladder from the survival entrepreneurship of the informal sector to the prosperity of the formal economy.
De Soto’s work encouraged an important new way of thinking about how to create opportunity where none previously existed. In so doing, he and his organization, the Institute for Liberty and Democracy (ILD) in Peru, have had a profound and positive impact on the lives of millions in Peru and around the world. CIPE’s first partner 25 years ago, De Soto’s and ILD’s work personifies the proven belief that strong markets require vigorous governance and vice versa, and that open participation in both markets and government are a foundation of democracy.
In this most recent Economic Reform Feature Service article, De Soto looks at the necessity of institutions—and specifically the rule of law—to create and nurture a successful entrepreneurial environment.
Article at a glance
- Creating wealth through entrepreneurship requires combining different resources (for example, the parts of a pencil or those of a watch). Institutions are crucial to facilitating that combination.
- To do all the things that entrepreneurs in developed countries take for granted – like dividing labor, using property as collateral, protecting personal assets, expanding markets, or creating economies of scale – entrepreneurs in developing nations need the standards that only legal institutions can provide.
- The wealthy in developing nations have convinced the poor that no matter how talented or enterprising they are, they will never succeed. In fact, the world’s most successful entrepreneurs just have access to superior legal institutions.
Read the entire article.
Fast-growing economies have institutions that allow entrepreneurs to take risks. (Photo: Businessweek)
Why is it that some economies adapt to change and produce long-run growth, while others stall? We observe that in the adaptive economies, entrepreneurs drive change and innovation. So why then do talented entrepreneurs play a leading role in a few societies and yet hit the wall in others? What causes entrepreneurs to make the leap from dealing in guilds and bazaars to participating in global markets?
Mary Shirley, President of the Ronald Coase Institute, digs deeply to explain how fundamental institutions make all the difference. In “Why Institutions Are Essential to Entrepreneurship,” new from CIPE’s Economic Reform Feature Service, Dr. Shirley offers clear insights into the mechanisms that facilitate exchange and reduce the risks of being an entrepreneur. Societies that lack these institutions — the limited access societies — fail to unleash the entrepreneurial drive. However, those that nourish creative business endeavors improve their long-run economic performance.
This article is part of a forthcoming CIPE report on Creating the Environment for Entrepreneurial Success.
Lack of technology — or weak institutions? (Photo: Wikimedia commons)
Sergio Daga is a CIPE-Atlas Corps Think Tank LINKS Fellow serving at the Heritage Foundation.
According to empirical studies, high rates of economic growth over the long-term (in per capita terms) result in better living standards for people in every country. The main force for high, long-term economic growth rate is productivity gains – finding better ways to efficiently use production factors such as natural resources, labor, physical and human capital.
Lora and Pagés explain that, compared to other regions in the world, the relatively lower growth of productivity is the main determinant of the poor economic growth rates in Latin American countries. They also argue that it has also prevented the region from closing income gaps and economic development levels with developed economies. Therefore, the achievement of higher productivity should be the epicenter of the current economic debate in Latin American countries.
How can we foster productivity? Productivity gains are usually associated with increases in technological progress of a country, but some argue that this is a complex problem that goes beyond that. In fact, depending on the country’s level of development, technological readiness could be a necessary condition but not a sufficient one.
For low-middle income countries, such as the majority of Latin American countries, productivity gains could be achieved by making progress towards what the World Economic Forum’s Global Competitiveness Report calls “the fundamental pillars for development.” One of the most important pillars is having a sound and fair institutional environment.