Costs of Entrepreneurship

Arnold Kling

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Andrew David Chamberlain points to a World Bank study written by Andrei Shleifer, among others, of barriers to entrepreneurship.

Countries with heavier regulation of entry have higher corruption and larger unofficial economies, but not better quality of public or private goods. Countries with more democratic and limited governments have lighter regulation of entry. The evidence is inconsistent with public interest theories of regulation, but supports the public choice view that entry regulation benefits politicians and bureaucrats.

I pointed out the impact that this has on economic growth in this essay.

A public service ethic is something that we take for granted in the United States. If you want to open a restaurant, you may find the paperwork and regulations irritating. However, at least you can count on the public officials to process your application in a reasonable time without requiring a large bribe. In many other countries, the conduct of state employees ranges from routine petty corruption to organized extortion.

See also this paper by Leora Klapper, Luc Laeven and Raghuram Rajan on the effect of entry regulations.

For Discussion. What is the solution to the problem of government officials using business licensing procedures for extortionary purposes?

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CATEGORIES: Growth: Causal Factors , Public Choice Theory , Regulation and Subsidies

COMMENTS (3 to date)

Latest Comment

Sandy P. writes:

Hang the UN OFP thieves from their respective flagpoles as a warning?

Draw and quarter the rest and send them home in thank you-sized envelopes?

Or just seize all their assets, do not allow them or their families into the US again and specifically put in every contract the contract is null and void, a 100% penality will be paid and the contract terminated if any of them or their families even give the whiff of the appearanceof impropriety and let them rely on the charity of their nation to support them?

Posted March 29, 2004 1:59 PM

Lawrance George Lux writes:

Always the Devil's Advocate! The 'backish' or extortionary system actually works quite well, better than the American regulatory system. Such Payments speed transition times, remove obstacles like sanitary regulations etc., and allow for rapid Startup. The maze of Paperwork disappears. lgl

Posted March 30, 2004 11:20 AM

Theofanis D. Lekkas writes:

I have been visting this site for quite a while (this is a first time post) and have been antcipating the opportunity to post something relevant (my ego says I have much to contribute, but, since I am a trader, reality sets in and I wait my turn.) In response to the question: the only solution is to abolition the majority of "procedures" (in response to the anarcho-capitalists,and the hard-core libertarians, and the statists: some is good, just not a lot [I am of course referring to the state.]) Obviously, there is a debate as to what we should not abolish, but, we should abolish quite a bit. I am a descendant of Greeks, I live in Chicago (proudly), and I have worked in (and managed) many restaraunts; I understand the irrelvance of much of these "procedures". I can understand the desire of some "procdures", but, in the end, most establishments (and not just eateries) do a good job on their own.
With respect to LGL, the "backish" system does not work well (I know many an affluent immigrant that has complained of this issue.) I know there is an argument for why bribery works, but, the point (or rather the question) is how do we eliminate the systems that create criminals.

With Regards,
Theofanis D. Lekkas

Posted March 31, 2004 10:49 PM

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