Measuring “Doing Business in 2010″ – World Bank vs. Reality

Doing Business - World Bank 2010

In newly released “Doing Business 2010” report, World Bank has very good news! In 2009, pro-enterprise reforms went 20% up; Eastern Europe, Central Asia, Middle East and Northern Africa are world regions with the most reforms implemented per country.

Between June 2008 and May 2009, 287 reforms were recorded in 131 economies, 20% more than the year before. Reformers focused on making it easier to start and operate a business, strengthening property rights and improving the efficiency of commercial dispute resolution and bankruptcy procedures.Two regions were particularly active this year: Eastern Europe and Central Asia and the Middle East and North Africa. In Eastern Europe and Central Asia, 26 of the region’s 27 economies reformed business regulation in at least one area covered by Doing Business. Governments in the Middle East and North Africa are reforming at a similar rate, with 17 of 19 reforming in 2008/09. In both cases, competition among neighbors helped inspire widespread reform.

I am in particular cheery for Moldova. As one of the top 10 performers in reforming business, Moldova’s 2010 regulations are supposedly making it easier for local entrepreneurs to start up a business (“offers an expedited, 24-hour company registration service for an additional fee”), to register property (number of days to register land went from 48 to 6 days), and paying taxes (employers’ payments to social security funds went down).

However, I am skeptical about World Bank’s tools and methodology as far as measuring “de facto” versus “de jure” improvements in doing business over time in country X or Z.  Especially with respect to the rigid assumptions in their approach to target businesses: no corruption, no foreign trade, ltd. only, 100% local ownership, etc. Their narrow definitions of business assume away a lot of potential inhibiting factors ( increases in either formal, informal or both types of transaction costs) that could offset the new achievements in regulating business. A few new official business reforms, therefore, might not de facto translate into easier doing of business in Moldova or in any other country, just as it also might not say a lot about development.

Trade restrictions. Untangling WTO tariff statistics – Albania

My current research is focused on recent achievements in the state of trade and economic cooperation among a number of 13 countries in the Black Sea Region. Most of these countries have been enjoying independence for more then 18 years, which gave their governments (I insist) just about enough time to take advantage of the international division of labor by opening their markets (free the circulation of goods, services, labor, persons, enterprises, property rights in and out their territories, across jurisdictions)  to the global economy and implicitly to their neighboring economies. In my endeavor, I marched with a very simple (optimistic) question: ” Given there was some progress toward economic integration at the Black Sea in the last two decades, what is left to improve in terms of trade? More simply: What are the remaining barriers to trade in this region?” .

How hard can it be to find a clear answer to this? I imagined not that hard; for goods trade, for instance, I’ll just have to check with the WTO folks website… And so I did and,

I took Albania first and searched for its trade (tariff) barriers on wto.org:

-> Albania in the WTO -> Goods schedules and tariff data-> Albania Tariff Profile 2008 -> SUCCESS! -> this final summary of which the excerpt below basically says (correct me if I am wrong) that add-valorem tarrifs on imports of specified agricultural products do not go past 20% in the case of duties “bounded ” by the negotiations within the WTO setting, and not more then 15% in case of MFN (Most Favored Nation clause, non-discriminatory duties) agreements. The tariff range goes from 0% (duty-free) on a totally insignificant percentage of animal (0.1 ) and cereal (1.9) products imported into Albania, to 20%.

So far, it seems that imports under MFN agreements, unlike the rest, are a “privileged” category of products with lower maximum and average duties to be paid at Albanian customs. In reality, the numbers do not tell us much about the volume of transactions, do they? For instance, does it matter to know the simple average of all levels of customs duties applied on dairy products by Albania? For statistical records, maybe, but for economic interpretation, very little.

What would have been important to know in evaluating how restrictions on foreign dairy products on Albania’s market is not the simple, but the weighted average of import duties for each agricultural category. I could not find such information in WTO reports posted online.

Sure, I can find the trade flows data myself and then compute the averages, but then what is their role? Shouldn’t WTO issue (especially) qualitative reports that would make at least the average person understand the meaning of tariffs and why negotiations for tariff reductions is desirable for each country’s economic progress?

And I am not asking this because I am lazy to do that myself , I can do it! It’s just common sense. At some point, these giant organizations tend to loose the initial purpose of their whole existence…

Wind farms – more could mean less

From yesterday’s Economist.com we find out that if there is one policy area that President Obama should not worry (about not being able to keep his promise), that is the renewable energy area as America has just become the world leader in wind power! They proudly say that last year America increased its wind-power capacity so much that it led to the overthrowing of Germany – the previous leader.

How cool… This seems to be excellent news that should make every American feel proud of his country and president. However, at a closer look, how good news is this?

First, I doubt that building more “capacity”, that is planting more wind farms, is necessarily a good thing for the economy. It depends on the efficiency of this form of energy in comparison with other possible alternatives. Questions such as, “what is the production rate per unit of time of all this newly created capacity?”, “What are the benefits provided by it in comparison with the costs of installing and maintaining it?” should have been answered in this article before jumping to easy conclusion.

Is it really so important for American people to know that they are nation is world’s number one in wind energy? May be, but I doubt they would enjoy it just for the sake of being number one as opposed to achieving it as a clear result of a competitive process.

Second, how can something like this be attributed to the current president? He has been in the office for only two weeks. This seems to be just one of those “lucky” coincidences in his case.

The Economics of “Thank you”

Trade is a mutually beneficial game; buyers and sellers meet and “shake hands” on transactions that make them together better off. The buyer receives a product or service that he values more then the money given away in exchange to the seller who, obviously, values the money more then the product  or service he sells.  Both are satisfied and, as a result, they often say “Thank you” to each other. Well, “often” is what I experience here in America where in any grocery store I go to, cashiers always say “Thank you” for purchasing something from their store. Yet, back home, in Romania, I recall fewer times of being thanked for purchasing something and more times thanking myself, unilaterally. Moving farther East, in Moldova or even farther to Russia, I’ve never ever heard a seller or a buyer thanking each other in a transaction, but, of course, this was back in the early to mid 90s (beginning of transition to market economy) , I imagine things changed meanwhile and I have no doubts that capitalism drives competitive businesses do acknowledge the success of every item sold by thanking their customers who, at their turn, thank the sellers for their own reason that of being in the possession of a desired good. The key word that makes all the difference to whether a “Thank you” comes more often from a seller then from a buyer is COMPETITION. In markets with different levels of competition freedom people present different levels of market education.

Why being optimistic about Krugman’s Nobel Prize

Optimistic because:

1. the simple state of people engaging in trade deserves being celebrated by a Nobel Prize even if there is still much to do to remove barriers that prevent specialization on a global scale.

2. it’s “for his analysis of trade patterns and location of economic activity”.

3. Paul Krugman is one of the most outspoken advocates of free trade and trade liberalization.

4. a high academic acknowledgment of his work as such reinforces the urgency for deregulation adjustments in current protectionist trade policies around the world.

5. more economics professors will reference and educate their students by Krugman’s theories in international trade and I consider educated people being a key promoteurs of economic freedom, prosperity.

Retorica in CSR

De ce persista politicile de Corporate Social Resposability (CSR), cand:

• efectele lor sunt foarte greu sau chiar imposibil de masurat.
• obligand, astfel, stakeholderii sa faca acte de caritate si voluntariat.
• altfel spus, ii obliga sa suporte costuri transferate de la alte industrii, scutite prin CSR-ul primilor de partea lor de responsabilitate.
• de exemplu, de ce sprijina A&D Pharma educatia si nu-si concentreaza banii spre a-si imbunatati pretul/calitate al produselor farmaceutice pe care le marketeaza?

Agricultori romani vs. hypermarket-uri multinationale

Ca raspuns la nemultumirea producatorilor de produse agricole din Romania fata de taxele practicate de multinationalele/ mari lanturi comerciale cash&carry, aduc 4 argumente CONTRA:

1. Pe principiul politelor de asigurari, controversata “taxa de raft” reprezinta de fapt o prima de risc pe care cumparatorul (agricultor) e obligat prin contract sa o plateasca vanzatorului (hypermarket) in cazul producerii evenimentului asigurat: vanzari zero. Cu cat iminenta producerii evenimentului asigurat este mai mare (produs de slaba calitate, cu cerere mica pe piata, etc.) cu atat “taxa de raft” va fi mai mare – analogie cu asigurarile de viata pentru care un om bolnav plateste o prima de asigurare superioara celei platita de unul sanatos. Nu e corect ca un produs slab sa aiba parte de un “display” pe o piata (increderea si fidelitatea careia fiind atat meritul cat si responsabilitatea distribuitorului) asemanator unui produs competitiv care satisface atat cererea petei cat si obiectivele financiare ale celorlalti agenti economici implicati.
2. Succesul in afaceri pe o piata libera/concurentiala se realizeaza prin eficienta si competitivitate. Caile ocolitoare sustin discriminarea si falimetul pe spinarea celorlalti.
3. Numarul mare de hypermarketuri din Romania, indica o concurenta insemnata, motiv pentru care acuzele de cartelizare mi se par nefondate. Oamenii iubesc hipermagazinele pentru ca acolo intalnesc o diversitate de produse (de origine romaneasca si straina) la cele mai bune preturi, beneficiaza de carduri de reduceri, tombole cu surprize de sarbatori, atentie si respect.
4. Exista mai multe solutii de iesire din impas pentru producatori si fara apelarea la subventii: a) iesirea de pe piata (dur, dar asta e, **** happens…); b) reprofilarea; c) investitii in capital tehnologic, in cresterea calitatii produsului, a capacitatii de productie, in campanii de promovare, crearea unor unitati proprii de procesare, ambalare si distributie sau resemnarea la canalele de distributie potrivite pietei reale a produsului actual: pietele deschise, magazinele mici).

Lista ramane deschisa, concluzia e evidenta: revolta agricultorilor romani nu este justificata sau agricultura in Romania(exceptand acei producatori care nu se plang) este ineficienta.