Saturday, September 11, 2004
The Economist has a very interesting article on a new report by the World Bank on the global business environment. It is well worth reading if you are interested in one of the reasons why some countries are so rich today and some are so poor. It turns out that pointless regulations on such things as selling land, opening new businesses, or borrowing money often harm economic growth. Even such seemingly good things for poor workers such as a high minimum wage can have unintended economic consequences. For example:
Rules aimed at protecting vulnerable groups, such as women, often have the opposite effect. In Turkey, women who marry are allowed a year to decide whether or not to quit their jobs. If they go, their employers must give them a large severance package. So firms hire men instead: only 16% of Turkish women have formal jobs.

There is no easy magic formula in economic development. Many times regulations that try have the exact opposite effect. Hernando De Soto, a well known Peruvian economist has been a leader in the call simplify needless government red tape and regulations. For more, check out his books The Mystery of Capital:Why Capitalism Triumphs in the West and Fails Everywhere Else, and The Other Path. They are both quite good.

Read the whole article. It is worth your time.

UPDATE: It occurs to me that I should put a disclaimer in on this post. First, I am merely stating my opinions and not those of Food for the Hungry as an organization. This is always the case on this blog. Secondly, I want to steer far clear of any Peruvian political issues or politicians. It occurred to me that Hernando De Soto is a somewhat controversial figure here in Peru and has been mentioned in the past as a possible political candidate(though I would be very surprised if that ever happened). I enjoy his books and perspectives on development, however, this is only my personal opinion.


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