Wrong premise

BS OPINION

The report says that the cost and time involved in starting a business, the cost of employment regulation, and tortuous bankruptcy procedures through courts are all inimical to growth, and poor countries would be well advised to emulate lightly regulated countries such as Australia, Denmark, Singapore, the US and the UK.

There is little doubt that ease of entry and exit into business help increase competition and makes for efficiency. It's also true that onerous regulation "" the 'inspector raj'""increases the cost of doing business.

But it would be unwise to conclude that less regulation is always better. The effects of "lightly regulating" companies like Enron and WorldCom hardly need to be pointed out. Some would consider the US telecom regulatory regime to be a disaster.

Even more dangerous is the doctrine that a "one-size-fits-all" regulatory regime is appropriate for developing countries. The phrase has an unsavoury reputation, dating back to the days when developing countries were force-fed structural adjustment programmes dreamed up in the IMF offices, which often had little correlation with reality.

After the 'Washington Consensus' failed to deliver, the focus shifted to institutional reforms, supposedly essential to spur economic growth. The list of such measures now ranges from tax reform to developing markets to tackling corruption and administrative and judicial reform.

A developing country has only to follow this long list, so goes the argument, and growth will follow. The World Bank report adds regulation to this growing list of institutional measures required. The Washington Consensus is being reincarnated in institutional form.

But consider, on the other hand, the lessons of history. Countries such as Japan, South Korea, Malaysia, Singapore and China have all been at some time paragons of growth, but their route to development has been very different from orthodox free market liberalism.

China, for instance, does not even have clearly defined property rights, a requirement considered absolutely essential for growth by the orthodox, and its version of the rule of law is very different from the western one.

South Korea developed behind high tariffs, extensive government pre-emption and direction of credit, and export subsidies. And the institutional response to foster growth has been different in every country "" these range from township and village enterprises and special economic zones in China, chaebol in Korea, the keiretsu in Japan to the bank-led industrialisation in Germany.

Closer home, consider how the introduction of single stock futures breathed new life into our bourses after the badla was banned. The moral of the story is that we need different horses for different courses and every country must strive to have a balance of institutions and regulations that suit its circumstances. Transplanting regulations may not always lead to best practices.