By Simon Johnson
In class #1 of Entrepreneurship without Borders (at MIT Sloan) we discussed attitudes towards starting a new business. In many countries, people want to become entrepreneurs, but they can access only limited types of opportunities. Relatively small established elites, often with strong political connections, are able to mobilize the resources needed to build a company that can do well. Class #2 focused on the details of the current situation in Portugal – the macroeconomy will presumably begin to improve and the basic enforceability of legal contracts seems fine, but we do yet see a breakthrough in companies being created by new entrepreneurs. Below is a summary of the discussion in class #3.
The World Bank’s Doing Business indicators offer a rich set of data with many insights into the various barriers facing small and medium-sized business – as well as potential entrepreneurs. These numbers provide a first-pass comparison across countries focused on (a) regulation, and (b) contract enforcement.
Singapore and Hong Kong are the impressive leaders of the pack (see Table 1.1 on page 3 of the executive summary of this report). Countries can grow with an unfavorable environment, measured in this way, but this is more likely with a great deal of natural resources (e.g., offshore oil in Angola, ranked #172). For most countries, it would be wise to look for a set of reforms that make it easier to do business.
Experience in Georgia since the mid-2000s is encouraging. The government used the Doing Business indicators and related work to target their priorities – and made a great deal of progress, for example in terms of reducing the number of licenses required (for all kinds of activities) and creating a legal fast-track for applications (i.e., pay a premium and get your passport faster). Continue reading