Big Government Stifles SMEs

It all started when I found a link to a recent survey in New Zealand entitled "NZ's Small Business Sector Crushed By The Cost Of Compliance."



At first glance the title seemed a little sensational to me, and I almost dismissed the article. But then I started digging. I soon realized that there is much more to this story -- and it affects more than New Zealand.



The survey was conducted by the Auckland, Wellington and Otago Chambers of Commerce. It demonstrated how many hours per employee were being spent annually on complying with regulations and completing and filing tax returns. For example, an average of 205 hours a year were spent on regulatory compliance by New Zealand SMEs (small-medium businesses) with 5 employees. The numbers go up from there as the size of the business increases.



However, this point is of interest not just to small business -- and not just to New Zealand.



The connection between regulatory burden and a country's business health has been shown by a recent report by the World Bank.



In its report "Doing Business in 2005," the World Bank notes that the less regulation in a country, the more business growth the country experiences. New Zealand, I learned, actually compares very favorably with most of the rest of the world -- which says a lot about the state of the rest of the world.



If New Zealand business organizations feel they are being "crushed" by government regulation, imagine what it feels like to be an entrepreneur in Argentina. There it takes 15 procedures to start a business, compared to New Zealand's 2 procedures.



Or, imagine the business in Algeria, where it takes 16 procedures to legally register property, versus New Zealand's 2 procedures.



Regulation saps limited resources that entrepreneurs and SMEs otherwise could put to growing their businesses. The surest way to limit business growth is to grow government instead. As the President of the World Bank notes about the report:

Obviously, making it easier for entrepreneurs to start new businesses is good for growth. The same seems to be true for the other activities the report tracks, which include trading property, ease of hand allowing the use of collateral to get credit. It should come as no surprise that countries with streamlined, efficient regulation of these areas enjoy higher growth.

The irony is that a government-funded organization like the World Bank has proven this fact.



[Hat tip Just for Small Business for the link to the New Zealand survey.]