Which Governments Are Fostering Innovation via Regulation?

Why do we need regulation?

Despite the obstacles that businesses might appear to face because of regulation, they serve an important goal - to ensure positive outcomes for society in the long-term. Without regulations, modern businesses wouldn’t be able to exist as the resulting chaotic environment would destroy them. Regulations across industries could be even more complicated and could significantly delay the implementation of innovative solutions, but in the end they exist to ensure tat each party is better off.

Regulations serve the purpose of balancing the business environment, to balance the power distribution and create legitimate opportunities. An unregulated labor market may cause negative outcomes for nations and economic growth. Regulations applied to employment protect both employers and employees. Moreover, regulations actually have a positive impact on the lending business, protecting financial institutions and lenders from borrowers who might be aware of their inability to pay back the loan, but if they were not required to present credit scores, would cause bankruptcies for the lenders.

Regulations in the ownership sphere create a transparent environment for businesses to operate with the certainty of owning real estate and other assets. Poorly functioning regulation regarding the ownership (of IP, real estate, land, etc.) creates uncertainty and inability for businesses to operate properly.

The presence of rules with which players in the market should comply, ensures that businesses understand the necessity to consider the outcome of their actions and the way they affect the market. With no rules, financial institutions would be able to rob the borrowing businesses and charge unjustified interest rates, creating a hostile environment for conducting business.

One of the international entities playing a major role in the regulatory environment within the financial services industry is The World Bank, which conducts extensive research on the regulatory environments within nations to foster the prosperity of businesses around the world.

At the moment, unfortunately, there is a lot to be done by the majority of the governments to establish a fertile ground for the business to prosper in their countries. In many cases, there are countless actions to be taken by entrepreneurs to establish an entity and see it actually operating. Commercial registration in many countries is a complex procedure with various obstacles to overcome.

As The World Bank has been assessing the regulatory environments, it has presented a Doing Business score to give an estimation of the level of difficulty in establishing a business in a particular country.

Where is the best regulatory environment to do a business?

Some countries have been able to build catalyzing infrastructures for businesses to prosper better than others.

According to data presented by The World Bank, Singapore, by far, remains the economy with the most business-friendly regulation.

The top-20 economies ranked by the ease of setting up and conducting businesses also perform well in international data sets capturing other dimensions of competitiveness. The positions at the top of the ranking do not indicate the absence of regulations or their weakness, but indicate the ability of the governments to create rules that facilitate interactions in the marketplace without needlessly hindering the development of the private sector.

As discovered by the ranking, there is a strong association between performance in the ease of Doing Business ranking and performance on measures of competitiveness and of quality of government and governance. The countries ranked high in the ease of Doing Business are also ranked high on such measures as the Global Competitiveness Index and Transparency International’s Corruption Perceptions Index.

As for particular regions, OECD high-income economies have the most business-friendly regulation overall. However, good practices in business regulation can be found in almost all regions.

The top-5 positions are occupied by previously mentioned Singapore, followed by New Zealand, Denmark, Korea and Hong Kong.

As explained by the research conducting entity, Doing Business measures the quality of regulation by analyzing whether the regulatory infrastructure needed for a transaction to be successfully completed is in place. Doing Business does not measure the quality of the outcome related to that regulation. Doing Business focuses on specific case studies and measures particular aspects of business regulation.

Some of the interesting encounters in the rating are Lithuania and the former Yugoslav Republic of Macedonia, which entered the top-20 list for 2015 substituting Georgia and Switzerland. The other 18 countries have remained in the top 20 since 2014.

Some of the countries have improved their positions within the top 20. For example, Hong Kong SAR, China, according to the report, has made four regulatory reforms in the areas measured by the rating. One was implemented at the Companies Registry, where a full-scale electronic filing service was launched in March 2015. With this reform, the security interests can be registered, amended, renewed and canceled online. New Zealand, which holds the second place, is another example. An outstanding improvement has been reached by Vector, the electricity distribution utility, which has reduced the days from the time needed to provide external connection works to customers by six days.

Where would businesses face the most obstacles for setting and conducting a business?

Out of 189 countries presented in the report, the bottom 10 consist of Eritrea, Libya, South Sudan, Venezuela, Central African Republic, Congo, Chad, Haiti, Angola and Equatorial Guinea.