Friday, October 20, 2006

Government Bureaucracy : An entry barrier for entrepreneurs?

Doing business in Chile or in others key Latin American economy, can be an interesting experience , although there are some cost to take into account .According the World Economic Forum , in the year 2005 it was needed 27 days and 9 procedures to start up in Chile a new business, whereas in Mexico it was needed 8 procedures and 58 days, and Brazil 17 procedures and 152 days. It is not that bad to be in a better position than key players in Latin America Economy. On the other hand, a World Bank Study for Chilean business opportunities ,found that to start up a new industrial business, it requires roughly U$$ 1320 ,and an average period of time of 130 working days to fulfil the whole bureaucratic procedures . To start a restaurant business it requires U$$1240 ,and a grocery store it might cost U$$1185. Highly business orientated countries , such as New Zealand requires no more than 1 or 2 working days and less than U$$40! To get through the whole procedures. In the United States ,it is needed no more than 5 days,5 procedures and roughly U$$210 .
How can we explain these differences? .Maybe there are a lot of alternatives to begin with, but it is clear that those countries which still do not have a business friendly environment ,are the one where the government has some homework to do. In fact , in the Chilean case there are a lot of discussion concerning the necessity of modernizing the State. Sure, very much of those procedures and cost involved in the process of starting up a new business , are related to States bureaucracy. At every level of new business opportunities, let say small, medium or large scale business operation ,there are these bureaucracy costs . Therefore, any new business opportunities must pass the government filter ,before trying to get over the other more important filter: consumer needs..
What does this all means ? It means that Government , is acting like an entry barrier for entrepreneurs to taking advantage of new business opportunities.-
The real issue is not to improve the access to new business opportunities, but who control the access door to that opportunities. In this sense, the State has been captured by politicians, bureaucrats ,and special interest group who depend upon the State to provide them support. The more people depend upon the State, the more needed it is to have resources to finance its services. It is in their own interest to keep the State alive, imposing additional cost to those who try to move away from the State social programs or protections throughout private business.
Chilean Government experience is not too negative on the issue, although there is still plenty of room to move forward..
A 2004 study ,found that the level of effectiveness of Chilean Government was ranked at 14 place out of 155 countries, which is quite satisfactory. The Economic freedom ranking was in the 13 place. This is because Government has implemented different programs to support entrepreneurs ,besides it has created different programs to improve social assistance to the poor, and it has helped to macroeconomic stability following fiscal policy rules. However, business opportunities do not wait and people enthusiasm for seeking new alternatives can not be exhausted by bureaucratic procedures.
To start a new business, it should be necessary only to check some minimum requirements concerning tax laws ,all of other requirements, can be fulfilled through supervisory rules made by consumers decisions and at the same time improving consumer rights protections.-

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