Catching the Kiwis: Australia and the ease of doing business

Catching the Kiwis: Australia and the ease of doing business

Picture the scene, the silver fern resplendent atop the global benchmark as New Zealand rest unchallenged, a situation true for the past three years. Australia on the other hand, a former close rival, are drifting year on year whilst the northern hemisphere nations are starting to flex their muscles at the top of the table. If you have a vision of the All Blacks, Wallabies and Lions you wouldn’t be wrong but this situation is also regulatory as much as with rugby. The latest independent research is in, and the news for the Coalition is not encouraging, compared to its peers Australia is making it harder for businesses to function in this country.

Since 2001 a team at the World Bank have conducted a global research exercise on the ease of doing business in different states around the world. In each country a group of professionals such as accountants and lawyers are presented with a questionnaire covering imaginary business scenarios. The scope of the questions is to ascertain the time, complexity and resource required to establish new businesses based on local access to essentials such as permits, utilities and credit. Whilst the surveys are necessarily qualitative in nature, prone to debate and far from perfect the sum of the answers provides a window into the regulations enforced in that country.

Countries that score very poorly in this exercise include the anticipated nations where there are flawed public institutions, rife corruption and where disruption through war or disaster have fractured the country. As such amongst the lowest ranked nations are usual suspects such as Somalia, South Sudan, Libya, Yemen and Afghanistan. These fragile states often have rules that are opaque, insufficient infrastructure and a weak rule of law meaning that local entrepreneurs are frustrated in their endeavours and that international capital is extremely unlikely to flow into private sector ventures.

Above these countries sit a number of emerging markets that again lack clarity and rigour in their civic structures such as Algeria (157th), Bolivia (156th) and Pakistan (136th). Above these ‘below average’ states sit the ‘medium’ tier of business ease providers, a broad collection ranging from smaller population sizes in the Caribbean through to nominal GDP powerhouses such as Brazil (109th) and India (77th). Moving further up the ladder bring the ‘easy’ grouping with only the top 50 or so territories claiming the ‘very easy’ label when it comes to Doing Business.

This World Bank research document has become popular around the world and is cited as a source of competition amongst participants. Ruling governments can use progress up the ladder as a vindication of their economic policies and as an independent endorsement of their reforms. A good example is Georgia which sat in the 100th easiest nation for business in 2006 and since then has whittled away the red tape to move to 6th in 2018. For all the accusations that the criteria can be gamed to register pseudo progress rather than tangible success it at least prompts many leaders to support legislation that should help in the long run. Whilst it lacks the resourcing to be without anomalies to look at the rankings over the years it is clear there is some correlation between ease of doing business and GDP per capita.

So the Australian decline in the rankings is worth academic debate. In 2006 the lucky country had a very impressive ranking of 6th in the world but over time that has drifted out to double figures and in 2018 we have reached 18th. As such it is now perceived as easier to establish a new business in Tblisi, Helsinki and Skopje than Hobart. Whilst Australia can draw on a number of other qualities which might make it desirable such as climate, resources and quality of life for staff it is of concern in a globalised world if multinationals start to choose Singapore (2nd), Hong Kong 4th) or New Zealand (1st) as their APAC headquarters over Sydney.

The contrarian argument is that ease of business does not lead to quality of business nor corporate social responsibility. Many local laws are designed to protect the consumer, environment and national security so reducing these hurdles might not be in the public interest. Likewise though progress may be slower in registering the business with the taxation office, obtaining planning permission or obtaining an exporting license at least businesses in Australia benefit from robust institutions once the entity is established. Also scores involve survey responses so if our legal and financial experts feel drained by the processes they adhere to that pessimism will permeate their responses and cloud the information given.

Nevertheless the survey is clear in that the last decade has seen a net hindrance to Australian entrepreneurship from the legislative environment compared to the rest of the world. Each nation is blessed with heterogenous natural resources (land), legacy factories (capital) and human capital with which to operate (labour). Alongside these three economic resource types each nation is also blessed with a capacity for enterprise (entrepreneurship). Where rules balance the interest of all parties then business owners are suitably encourage to engage land, labour and capital to produce output that improves living standards and might even, in years of surplus, be exported around the world. If the rules are tipped too far away from enterprise their motivation is hampered and thus the net result is less ambition, less innovation and often less output. Aspiring business owners might struggle and abandon their plans nipping the next
Atlassian in the bud. Or perhaps these risk takers might decide the odds are more in their favour in other territories thus taking their skills and job creation plans to somewhere else. Where doing business becomes a trial then the nation may suffer in the long run and that is the inevitable conclusion from the last few surveys.

So perhaps Australia needs a new government to redress the recent slippage? Perhaps a committee could be tasked with suggesting reforms to alter the balance back towards the business community? Or perhaps, just as with union, the answer might lie with modelling the successes of our friends across the Tasman? One thing is for sure, it would make sense to stem the declining rankings before it is Argentina and South Africa looming large as rivals rather than the former days of France, Ireland and Japan!

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