Business Climate and Failed States

This morning I launched a new business. Although I had to fill out many forms and submit fees to various government agencies, this process has been remarkably easy. In fact, I live in a country that offers helpful public resources to support entrepreneurs. For  entrepreneurs in failed states, starting a business is an arduous and expensive task, and one that is frequently abandoned.

People can reasonably disagree about how much businesses should be regulated. Most, however, would concur with the sentiment that the private sector should be restrained no more than necessary. This principle is especially important with regard to forming a new business. If it is too difficult to legally form an enterprise, whole economies suffer. The dynamism of free markets is suppressed. Prospective entrepreneurs will remain without work or under-utilized as employees of existing companies. And black markets will flourish.

The Burden of Bureaucracy

This collage features Franz Kafka and Max Weber, two authorities on bureaucratic obstacles. Illustration credit: Harald Groven (via Flickr, Creative Commons license).

It will come as no surprise that it is very difficult to start a business in failed states. Beyond the challenges of poor infrastructure and under-educated populations, poor governance hinders entrepreneurial activity. Each year the Heritage Foundation and the Wall Street Journal publish an “Index of Economic Freedom.” I don’t agree with all of the ideological judgments behind the index, but it is nonetheless a very valuable dataset.

One of the ten criteria assessed in the index is “Business Freedom,” which is defined as follows:

Business freedom is a quantitative measure of the ability to start, operate, and close a business that represents the overall burden of regulation as well as the efficiency of government in the regulatory process. The business freedom score for each country is a number between 0 and 100, with 100 equaling the freest business environment.

Poor performance on this criterion is common among failed states. Poor performers on “business freedom” are frequently referred to on this blog. These countries include: North Korea, Haiti, Zimbabwe, Central African Republic, Democratic Republic of Congo, and Myanmar (Burma).

In contrast, my home state of Virginia offers a “Business One Stop,” for new businesses. And, based on my experience, Virginia deserves the praise it receives for business friendliness. (Sorry, I couldn’t resist a bit of local boosterism.)

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Cityscapes from Fragile States

Port-au-Prince, Haiti

The Haitian capital, Port-au-Prince, is still struggling to rebuild after a massive earthquake in January 2010. The residential areas in this photo are representative of the low-rise, crowded neighborhoods of many cities in fragile states. Photo credit: Siri B.L. (via Flickr, Creative Commons license).

Urban growth in developing regions has been rapid for many decades. In some cases, major cities are doubling in population in less than a generation. It is in these places that key challenges of weak and failed states are focused. Cities like Lagos and Karachi are now among the biggest in the world. These two are among the candidates to overtake Tokyo and Mexico City as the largest on Earth.

Lagos, Nigeria Traffic

Lagos, Nigeria is infamous for its clogged roadways. One outgrowth of “go slows” is street hawkers (pictured) who weave among slow-moving vehicles. Photo credit: dolapo (via Flickr, Creative Commons license).

Lagos, Nigeria Trash Dump

The “informal sector” in developing countries includes many workers who recycle materials from trash dumps and other places. Pictured is a scene from Lagos, Nigeria. Photo credit: boellstiftung (via Flickr, Creative Commons license).

Karachi, Pakistan School Children

Cities of fragile states are youthful, which is a key cause of their rapid population growth. Above is a school group in Karachi, Pakistan. Photo credit: Photogeraphar 0345-3333888 (via Flickr, Creative Commons license).

 

 

Measuring Corruption (in Failed States)

Earlier this month, the respected NGO Transparency International released its annual survey of public sector corruption around the world. The Perceptions of Corruption Index is the most influential effort to assess the relative cleanness of governance throughout the world.

First, here are a few highlights from the 2012 survey, which assigns a score of 0 to 100 to each state, with 0 representing a highly corrupt public sector and 100 representing an extremely clean public sector.

Anti-corruption poster in Port Moresby, Papua New Guinea. Photo credit: Raymond June (via Flickr, Creative Commons license).

Anti-corruption poster in Port Moresby, Papua New Guinea. Photo credit: Raymond June (via Flickr, Creative Commons license).

The cleanest clusters and states are: Scandinavia, the Netherlands, Switzerland, Australia and New Zealand, and Canada. Others scoring fairly well are Chile, Uruguay, Japan, the United States, and a few other European countries.

When examined by world region, Eastern Europe and Central Asia – including Russia, Ukraine and the “-stans” – fare the worst for public corruption. Ninety-five percent of these countries score below 50 points out of 100. (For comparison, 70 percent of the world’s states also score below 50.) Sub-Saharan Africa has the next worst scores overall, with 90 percent of the region’s states scoring below 50 points.  The Middle East and North Africa ranks as the third most corrupt region in the world. And the Americas and Asia Pacific are slightly below the world mark, with 66 percent and 68 percent, respectively, of countries scoring below 50 points.

Figures for the world’s key failed states are fairly predictable. The ten lowest ranking countries – meaning those where bribery, rent-seeking behavior, and corruption are entrenched – include the following failed states: Afghanistan, Haiti, Myanmar (Burma), North Korea, Somalia, and Sudan. Other critically weak and failed states score very poorly on the survey, including: Chad, the DRC, Burundi, Zimbabwe, Equatorial Guinea, and Pakistan.

But how do we know that these scores are valid? Transparency International freely acknowledges that they are assessing perceptions of corruption, and not absolute levels of public sector impropriety. Just a cursory look at the summary index map reveals an  old pattern, with Western countries judged as less corrupt and non-Western states labeled more corrupt. Perhaps the old process of Orientalism is at play in this influential global assessment.

A more careful look at the numbers, though, reveals some subtle differences that matter. In Africa, Botswana has a score that is identical to Spain’s and a bit better than Portugal’s. Ghana’s mediocre score is meaningfully better than those of Italy and Greece. Chile and Uruguay have similar scores to that for the United States.

What are your thoughts about this survey? Do you give much credibility to these scores and rankings?

Hunger and State Failure

Last month, a coalition of organizations released the seventh annual Global Hunger Index report. The report is sobering reading, and highlights ongoing challenges of governance and environmental stresses. The report also includes a revealing summary map that details the most food insecure countries and regions.

What places top the list of the food insecure? The Global Hunger Index identifies three small countries as having the most intense problems:

  1. Haiti
  2. Burundi
  3. Eritrea

Seventeen other countries are also in dire circumstances. Of those states, the main cluster is in Africa, particularly across the Sahel region. The African states include:  Sierra Leone, Niger, Chad, Central African Republic, Sudan, South Sudan, Ethiopia, Djibouti, Angola, Zambia, Mozambique, and Madagascar.

South Asia is the other large cluster of humanity of gravest concern. These states include: India, Nepal, Bhutan, and Bangladesh. (Yemen is the last of the 20.)

Finally, by way of the main summary findings, there are some important weak and failed states that have not yet been mentioned. The report did not classify the Democratic Republic of Congo, Somalia, Iraq, Afghanistan, and Myanmar (Burma), since no data were available for these countries. Limited access to basic data is a fundamental characteristic of weakly governed states. It is quite likely that most of these “no data” states would also be included in the list of most food insecure places, if reliable information were available.

I direct an emergency food pantry, and I have seen the face of hunger in my home area. The magnitude to the challenge is so much greater in places like Haiti and the Sahel. Even as many countries have seen gains over the last 30 years, the effects of climate change and rising energy prices are now significant stressors. Addressing ongoing global hunger issues will require more concerted local and global action.

Natural Disasters and Failed States

I live in the Mid-Atlantic region of the United States, and we are currently being pounded by a 800-kilometer wide hurricane (cyclone). This week’s storm refocuses our attention on natural disasters. Aside from their physical power, these events tell us much about societies and development around the world.

The most basic fact about natural disasters around the world is the highly variable death tolls they bring. Major disasters in developed countries are considered very deadly if they kill a few hundred people. Storms, earthquakes, or droughts of similar intensity can kill thousands, or even tens of thousands, in developing countries. True, it can be challenging to compare the severity of disasters in different contexts, but the basic global pattern is stark and sobering. With the important exception of Japan’s mega-disaster in 2011, modern mega-disasters exclusively occur in poorer countries, and especially those with weak governments. Here are just a few recent catastrophes:

  • Haiti earthquake (2010): more than 200,000 killed
  • Myanmar (Burma) cyclone (2008): more than 130,000 killed
  • Pakistan earthquake (2006): more than 70,000 killed
  • Indian Ocean tsunami (2004, Indonesia and other countries): more than 270,000 killed
  • Bangladesh cyclone (1991): more than 130,000 killed

And, lest you think that developing countries are simply more prone to natural disasters, North America (and the United States especially) is the most disaster-prone region in the world.

Why, then, do developing countries experience so much more loss of life in natural disasters? The answers are many, and vary by the type of disaster. In general, though, poor and weakly governed states suffer from the following problems:

  • Less effective advanced warning.
  • Illiteracy and lower levels of education.
  • Less sturdy buildings and infrastructure.
  • Less effective land use planning.
  • Slower and less effective disaster recovery.
  • In some cases, an unwillingness to accept international assistance, as with the case of Myanmar after Cyclone Nargis in 2008, and North Korea during various episodes of famine.

On a positive note, some developing countries are dramatically improving their disaster preparedness and response. Chile, for example, sustained relatively few casualties after a massive 8.8 magnitude earthquake in  February 2010. Even though major population centers were affected, only about 500 deaths were reported. Progress is possible.

The Relevance of U.S. State Department Travel Warnings

The U.S. Department of State has active “travel warnings” for 32 of the world’s 193 states, or just over 15 percent of the world’s countries. The State Department strongly urges Americans to avoid all non-essential travel – to selected areas or whole countries – for those states with an active warning. Below is the list of warning states, grouped by regions of the world. Some have been on the list for a decade or more.

Latin America (3 states):  Haiti, Colombia, Mexico

Sub-Saharan Africa (16 states):  Republic of South Sudan, Guinea, Sudan, Mali,  Democratic Republic of the Congo, Central African Republic, Kenya, Nigeria, Somalia, Mauritania, Cote d’Ivoire, Burundi, Eritrea, Mali, Niger, Chad

Middle East and North Africa (12 states and territories):  Syria, Libya, Israel, The West Bank and Gaza Strip, Iraq, Saudi Arabia, Lebanon, Algeria, Iran, Yemen, Pakistan, Afghanistan

Asia, other (2 states):  Philippines, Democratic People’s Republic of Korea (a.k.a. North Korea)

For readers of this blog, there are many familiar names: Afghanistan, Pakistan, Yemen, Somalia, Mali, Nigeria, Cote d’Ivoire, and Haiti. It is worth noting here that the State Department may issue a travel warning based on the limitations on U.S. diplomats and consular staff to offer assistance in particular countries (e.g. Iran, North Korea). Even with this qualification, the vast majority of these states either have active armed conflicts or are marked by significant state weakness or state failure.

How should we evaluate these travel warnings? Some largely disregard these travel warnings as irrelevant propaganda. Governments of countries with warnings often loudly protest this designation. Kenya, for example, has a substantial tourism sector that is reliant on foreigners, and official travel warnings are obviously not helpful to that sector. So, while the U.S. State Department warnings can tend toward alarmism, it is important to recall the main reason why these bulletins are issued. Contrary to what many cynics believe, these travel statements are primarily posted to keep Americans (and other foreigners) safe abroad. In the pursuit of this goal, the individual assessments do offer a fairly high degree of objectivity. As such, these periodically updated bulletins do provide relevant information on the world’s most troubled lands.

Below is a small sampling of excerpts from current travel warnings.

Nigeria:

Violent crime remains a problem throughout the country and is perpetrated by both individuals and gangs, as well as by persons wearing police and military uniforms. ….. Travel by foreigners to areas considered by the Nigerian government to be conflict areas should not occur without prior consultation and coordination with local security authorities. The Nigerian government may view such travel as inappropriate and potentially illegal, and it may detain violators. ….. Law enforcement authorities usually respond slowly or not at all, and provide little or no investigative support to victims. U.S. citizens, Nigerians, and other expatriates have experienced harassment and shakedowns at checkpoints and during encounters with Nigerian law enforcement officials.

Philippines:

U.S. citizens should defer non-essential travel to the Sulu Archipelago, due to the high threat of kidnapping of international travelers and violence linked to insurgency and terrorism there. ….. Security and safety conditions in the urban centers of Davao City, General Santos City, and Cagayan de Oro City in Mindanao are generally more controlled. Nevertheless, official U.S. Government visitors and Embassy employees must receive special authorization from the Embassy to travel to any location in Mindanao and the Sulu Archipelago, including these urban centers.

Haiti:

The Department of State has issued this Travel Warning to inform U.S. citizens traveling to or living in Haiti about the security situation in Haiti. This replaces the Travel Warning dated August 8, 2011, to update information regarding the crime level, the prevalence of cholera, lack of adequate infrastructure – particularly in medical facilities – seasonal severe inclement weather, and limited police protection. The United Nations’ Stabilization Force for Haiti (MINUSTAH) remains in Haiti. ….. Haiti’s infrastructure remains in poor condition and unable to support normal activity, much less crisis situations. Medical facilities, including ambulance services, are particularly weak. Some U.S. citizens injured in accidents and others with serious health concerns have been unable to find necessary medical care in Haiti and have had to arrange and pay for medical evacuation to the United States.

*** Did you like what you read here? You might be interested in the new book by this blog’s author, Failed States: Realities, Risks, and Responses.

Haiti: Excavating the Past

According to Haiti’s government, and independent sources, the country is experiencing a mini-boom in tourism. Or, there is at least a fair amount of tourism-related investment planned for the next few years. Prior to the devastating January 2010 earthquake, such news would not have been too surprising for Haiti. In the years leading up to the natural disaster, foreign investment poured in to Haiti, and export-related job growth surged. Indeed, with the support of the United Nations, the country’s quality of governance was on a clear path of progress.

Now, after the setback of 2010, and a reconstruction process still far from complete, many outsiders are again questioning Haiti’s position for enduring development. If we take a much longer view – reaching back into the nineteenth century – Haiti has a very long experience with foreign doubters. In truth, Haiti’s early international relations were roiled by much more than mere skepticism abroad. As the first independent black state in the Americas, Haiti was singled out for diplomatic and economic ill will. After it won its independence from France in 1804, Haiti suffered enormously because it was seen as a threat to countries still utilizing black slave labor. In the twentieth century, the United States and other key states removed formal economic sanctions motivated by racism. But, the Cold War period brought a different kind of negative foreign influence in the form of “anything but communism” support for a repressive dynasty of dictators, the Duvaliers.

While it is clear that Haiti does not face the same kind of international challenges that it once did, it is premature to argue that these historical legacies have been fully erased. Yes, the island state has key boosters like former US President Bill Clinton, who have helped lure new investment to Haiti. And international NGOs have flocked to the country, though not all agree on the benefits of all this development aid. Even so, anecdotal evidence – and some of the argument presented by the activist Randall Robinson – suggests that Haiti is still battling an image problem abroad. Who hasn’t heard the often-stated fact that Haiti is the poorest country in the Americas? And, tellingly, that fact is often presented as though it is self-evident, since we are talking about Haiti. Over time, sustained good governance and steady economic growth should help erase these negative perceptions of the past. For Haiti’s sake, let’s hope that longstanding negative images of the country – once tied to pro-slavery interests – fade away soon.

*** Did you like what you read here? You might be interested in the new book by this blog’s author, Failed States: Realities, Risks, and Responses.