Despite ranking, Asia attracts business

The article appeared in the Patriot News, Sunday, Sept. 24, 2006.

The World Bank's "Doing Business" report contains some surprising findings. The report ranks 157 countries by the ease of doing business, a composite measure that takes into account indicators ranging from the tax burden to the ability of firms to fire workers.

But first the unsurprising news. The top five countries most hospitable to business activity include the usual suspects: Singapore, New Zealand, the United States, Canada, Hong Kong.

These are followed by other countries in Western Europe, Australia and Japan.

All are largely developed countries with stable economic and political systems (although Hong Kong displays the occasional tremor as China seeks to make the government and the press more pliable), and entrenched institutions that protect property rights and enforce contracts. It comes as little surprise that businesses will flourish in such environments.

The report also notes the strides made by countries implementing economic reforms. Thus, Georgia (No. 37) and Romania (49) receive plaudits for showing the greatest improvements in making their countries hospitable for businesses.

At this point, one might start to wonder: What about China and India? Where do they rank? After all, these are the two countries that receive tremendous media attention in this country, since they are seen as irresistible magnets for American firms in search of cheap labor (manufacturing in the case of China) and skilled workers (information technology in India). So how easy is it to do business in these two countries?

The World Bank report gives China a dismal ranking of 93, placing it below such worthies as Colombia, Kenya, even Bangladesh.

India fares even worse -- with a rank of 134, it is surpassed by Malawi, Algeria and Bolivia.

China and India, from these rankings, would appear to be gravely inhospitable to businesses, both domestic and foreign.

But such a conclusion is unsettling. Aren't China and India growing at a fairly rapid clip, creating a burgeoning middle class and lifting millions out of poverty?

China's output of goods and services is expanding at a blistering 10 percent each year; India's at about 7 percent. If the environment in these countries were inimical to the creation and expansion of businesses, surely such rapid economic growth (and the attendant decline in poverty) would not be possible.

The data on foreign direct investment also highlights certain shortcomings with the World Bank's rankings.

Despite their relatively dismal standings in the report, India attracted some $5 billion of FDI in 2004, while China received a whopping $55 billion.

In other words, foreign firms appeared to be unpersuaded about the inimical business environment suggested by the World Bank report; instead, they decided that their prospects in these countries were considerably rosier and accordingly spent billions of dollars setting up factories and entering into joint ventures with local firms in the two countries.

Despite its drawbacks, the report serves a useful purpose. It shows that developed countries generally provide a conducive environment in which business can prosper. Further, by highlighting countries that implement business-friendly reforms, it provides encouragement to other developing countries to do the same.

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