Imagine walking into your local department of licensing to open a sandwich shop. You fill out ten forms. You wait 47 days in line. And then the clerk behind the counter hands you a bill for half your annual income.
Sound crazy? Unfortunately, it’s about average for most countries. At least that’s according to a a World Bank survey of legal “entry costs” in 85 countries. On average, 10 procedures, 47 days, and half of annual per capita income is required to register a start-up.
Some places are beyond bad. It takes 152 days for a business license in Madagascar. In the Dominican Republic, license fees are five times annual income—plus 21 bureaucratic steps.
With barriers like that, it’s a wonder anybody gets out of bed. No surprise: the authors find countries who penalize entrepreneurship see less of it—the law of demand in action.
But the real question is, Does regulating start-ups do any good? Don’t high costs of entry pay for social goods like better health and clean water?
From the authors:
“In a cross section of countries, we do not find that stricter regulation of entry is associated with higher quality products, better pollution records or health oucomes, or keener competition.”
So much for that. However, there is one thing increased regulation does get you:
”...[S]tricter regulation of entry is associated with sharply higher levels of corruption, and a greater relative size of the unofficial economy.” (emphasis mine).