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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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?

The Sweetest Moments for Democracies (and Elections in Failed States)

Obama won, again. Americans were prepared for a long election night, and the potential for a repeat of the Bush versus Gore (2000) counting process. And, despite many (deepening) flaws in America’s democracy, Mitt Romney provided us another of democracy’s sweetest moments at the end of a hard-fought presidential election. Like the losing candidates before him, he conceded defeat and respected the rules of the game. In too many fledgling democracies and weak states, electoral losers do not accept defeat, even when it is legitimate.

Before we move on to challenges of democratization in developing countries, it is worth noting briefly the current challenges to democratic governance in the United States. It is important that Americans and others recognize that the U.S.A. is not necessarily the model democracy that it once was. Here are just a few of the key issues plaguing the American polity:

  • The inability of Congress and the president to seek common ground on big issues facing the country.
  • Rising incivility among citizens and elected officials alike.
  • An electoral system awash in money, and the corrupting influence of that money.
  • Gerrymandered legislative districts, leading to a disconnect between citizens and lawmakers, as well as a more polarized debate.

Although democracy in the United States is not in full health, respect for electoral process is alive and well. If only it were so in many transitional democracies of Africa and Asia.

Laurent Gbagbo

The former president of Cote d’Ivoire refused to leave office in 2010 after his electoral defeat. Gbagbo’s intransigence led to additional armed conflict in this West African state. Photo credit: Paterne (Creative Commons license).

Why is accepting electoral defeat so difficult in new democracies? Let us count the reasons:

  1. Elections are often held under conditions that are not fair. Ruling parties often appoint biased officials who oversee voting. Media coverage is often slanted in favor of those in power. And so on.
  2. Electoral defeat in poor countries often leads to significant loss of income for losers. Mitt Romney will almost certainly make more money outside the White House. Not so for the elites who lose elections in many developing countries. Access to public offices – including the pay, perks, and potential for corrupt dealings – affords huge material opportunities for politicians.
  3. Electoral losers – both elites and ordinary citizens – may face persecution from the winning side.

In the recent decade, numerous states have descended farther into state weakness or failure after disputed elections. Notable cases include: Madagascar (2002), Zimbabwe (2008), and Cote d’Ivoire (2010).

On the other hand, principled and courageous politicians – such as those in Ghana – can sometimes choose sweet democratic moments, and gracefully concede defeat.

What are your thoughts about elections around the world? Could the international community do more to help electoral losers concede defeat?

South Africa’s Slide

This week’s Economist magazine highlights mounting troubles in Africa’s largest economy. Though South Africa is far from state failure, the heady optimism of early post-apartheid days is long gone. Even as many African countries are surging ahead, politically and economically, the “rainbow nation” is stalling out.

Mandela’s land is dear to me, since I have traveled there three times in the last few years, leading groups on two occasions. It is a land of tremendous beauty and potential, but the current political climate and nagging legacies of the white supremacist era are holding South Africa back.

The main obstacle to South Africa’s progress is an uncompetitive electoral landscape, which breeds corruption and bad governance. There is no way around it: the ruling African National Congress (ANC) has lost its way. Though South African elections are basically free and fair, a serious opposition party is yet to emerge as the country nears two decades since the end of apartheid. The ANC’s dominance must be broken, if only for a short time, if the country is to move forward.

Lack of electoral competition is hardly the only challenge that South Africa faces. As the Economist’s special report highlights, South Africa’s schools are in pitiful shape. Many of the country’s southern African neighbors produce better outcomes, and that with less spending per student. To be fair, these neighboring states do not have to deal with the fallout of the struggle against apartheid. During the last 15 years of white minority rule, widespread protests and civil unrest led to a “lost generation” with respect to education. And, despite some recent gains, HIV/AIDS persists as a major burden for the country. And we could go on.

Let’s hope that South Africa’s current travails are simply a rough patch in an otherwise promising post-apartheid narrative. Africa and the world need a stable, free, and prosperous South Africa. And, after the nightmare of apartheid, it would be tragic if South Africa goes the way of Zimbabwe.

Drunk on Power: Zimbabwe’s Mugabe

At independence in 1980, Zimbabwe (formerly known as Rhodesia) had many advantages. And, despite some domestic tragedies and the turmoil in neighboring South Africa, the 1980s were a decade of development progress for this former bread basket of southern Africa. Zimbabwe muddled through the 1990s, mostly living off the gains of the previous decade. In the 2000s, however, Zimbabwe descended into state failure, largely because of the power drunk rule of Robert Mugabe and his ZANU-PF party. Remarkably, after 32 years in power, Mugabe is attempting to prolong his tenure in elections planned for 2013.

In the 1960s and 1970s, Mugabe and his ZANU-PF cronies were anti-colonial revolutionaries and Marxists. Despite heightened tensions with the white minority population at independence, Mugabe initially chose a path of racial reconciliation and gained international goodwill. But, as Martin Meredith recounts in his excellent biography, Mugabe, the democrat-turned-dictator was fully exploiting the race card by the early 2000s. Like so many other power drunk “big men,” Mugabe settled on a governing program of regime survival at all costs.

In the 2000s, the ZANU-PF government pursued policies that led to state decay and economic collapse. A “land reform” program abruptly transferred productive farmland from white commercial farmers to blacks, but many of the key beneficiaries were well-connected Mugabe cronies. The government imposed crippling price controls on most consumer goods. Excessive printing of the national currency, flight of foreign capital, and general economic mismanagement led to other-worldly hyperinflation and the official abandonment of the Zimbabwean Dollar in early 2009. And, opponents of ZANU-PF were forcibly relocated from Harare urban districts, denied emergency food aid, and otherwise repressed by Mugabe’s thugs. As much as one-quarter of Zimbabwe’s population fled the country.

In economic terms, the situation in the country has stabilized since 2009, roughly coincident with abandonment of the national currency and the introduction of a nominally power-sharing government. Inflation is now in the single digits. Zimbabwe has registered economic growth of 5-10 percent over the last few years, and per capita incomes have roughly doubled, though from the very low annual number of $300. Adult life expectancy has risen from 43 years (2004) to 51 years.

Even so, Mugabe is a tyrant posing as a democrat. At one time he was a hero. But that time has long passed. The Southern African Development Community, the rest of the international community, and freedom-loving Zimbabweans should send “Uncle Bob” packing.

The singer Johnny Clegg got it right in his song “The Revolution Will Eat Its Children (Anthem for Uncle Bob)”:

He’s a leader, talks of freedom
He knows the power of the Big Idea
He’s a dealer, he’s a seeker
Of the power that comes from fear
He gave his life to the party machine
Holding on to a secret dream
He knows better than anyone
Power comes from the barrel of a gun

And he’s rising up against them now
And he’s rising up in country and town
Rising up against them now, rising up