U.S. Ranks 3rd in World for Ease of Doing Business

The United States ranks 3rd out of 178 countries world wide for ease of doing business, according to Doing Business 2008, a report released last month by the World Bank. Only Singapore and New Zealand, respectively, scored better. The U.S. ranking remains unchanged from last year.

The top 25 in order are: Singapore, New Zealand, the United States, Hong Kong (China), Denmark, the United Kingdom, Canada, Ireland, Australia, Iceland, Norway, Japan, Finland, Sweden, Thailand, Switzerland, Estonia, Georgia, Belgium, Germany, the Netherlands, Latvia, Saudi Arabia, Malaysia, and Austria.

The rankings are based on 10 indicators of business regulation involving the time and cost to fulfill government requirements. A high ranking means the country’s regulatory environment is conducive to the operation of business. The 10 key areas reviewed were the ease of: Doing business, starting a business, dealing with licenses, employing workers, registering property, getting credit, protecting investors, paying taxes, trading across borders, enforcing contracts, closing a business. The rankings do not assess such areas as macroeconomic policy, quality of infrastructure, currency volatility, investor perceptions, or crime rates.

The key area where the United States loses points is taxation. It ranked 76 on the list due to the amount of state tax and/or federal tax imposed on a U.S. business as well as the time it takes to file both state and federal taxes. On the other hand, it ranked number one for the ease of employing workers. In other words, employers can hire, lay off and fire workers without the burdensome procedures and/or hefty severance pays often imposed in other countries. It should be noted that for its baseline in the U.S., the study used New York City. As regulations differ from state to state and city to city, the ease of doing business in any one state or city may change for the better or worse.

Egypt topped the list as the country implementing the most reforms between April 2006 and June 2007, the study’s reporting period, having made improvements in five of the 10 areas assessed. Besides Egypt, the other top 10 reformers are, in order, Croatia, Ghana, FYR Macedonia, Georgia, Colombia, Saudi Arabia, Kenya, China, and Bulgaria.

The bottom 10 are in descending order: Niger, Liberia, Eritrea, Venezuela, Chad, Burundi, Congo, Rep., Guinea-Bissau, Central African Republic, Congo, Dem. Rep.

The study also revealed that higher rankings on the ease of doing business are associated with higher percentages of women among the entrepreneurs and employees in any given country. For example, in the Democratic Republic of Congo, where women need their husbands’ consent to start a business, they run only 18 percent of small businesses. In neighboring Rwanda, which has no such regulations, women run more than 41 percent of small businesses, according to the World Bank’s global press release dated Sept. 26, 2007.

What this report showing is that reform done correctly not only improves the economy it also improves the situation of women. To paraphrase the authors of the report, restrictive regulations implemented allegedly to protect women, in reality are counterproductive, only forcing women into the informal, unregulated job market. There, women have little job security and earn few social benefits, and can be easily exploited. When proper reform is implemented, however, these women not only gain the right to work and start their own business, they also gain protections under the law and receive their social benefits.

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