Naked Economics: Undressing the Dismal Science pdfdrive com

No excessive regulation. Government has plenty to do—and even more that it
should not do. Markets must do the heavy lifting. Let’s talk about articles 575
and 615 of the Russian civil code. These regulations would be very important if
you were a firm in Moscow doing something as simple as installing a vending
machine. Article 575 forbids firms from giving anything away free, which
includes the space that a firm “gives” to Coca-Cola when a vending machine is
installed. Meanwhile, article 615 forbids subletting property without the
landlord’s consent; the square meter taken up by the vending machine can be
construed as a sublease. In addition, the tax collector forbids commercial
enterprises (e.g., vending machines) to operate without a cash register. And since
selling soft drinks from a machine constitutes retail trade, there are assorted fire,
health, and safety inspections.
10
Excessive regulation goes hand in glove with corruption. Government
bureaucrats throw up hurdles so that they can extort bribes from those who seek
to get over or around them. Installing a vending machine in Moscow becomes
much easier if you hire the right “security firm.” What about opening a business
elsewhere in the developing world? Again, Peruvian economist Hernando de
Soto has done fascinating work. He and fellow team members documented their
efforts to open a one-person clothing stall on the outskirts of Lima as a legally
registered business. He and his researchers vowed that they would not pay bribes
so that their efforts would reflect the full cost of complying with the law. (In the
end, they were asked for bribes on ten occasions and paid them twice to prevent
the project from stalling completely.) The team worked six hours a day for forty-
two weeks in order to get eleven different permits from seven different
government bodies. Their efforts, not including the time, cost $1,231, or 31
times the monthly minimum wage in Peru—all to open a one-person shop.
11
Chapter 4
outlined all the reasons government should stick to the basics.
Harvard economist Robert Barro’s classic study of economic growth in roughly
one hundred countries over three decades found that government consumption—
total government spending excluding education and defense—was negatively
correlated with per capita GDP growth. He concluded that such spending (and
the required taxation) is not likely to increase productivity and will therefore do
more harm than good. The Asian tigers, the all-star team in the economic
development league, made their economic ascent with government spending in
the range of 20 percent of GDP. Elsewhere in the world, high tax rates that are
applied unevenly distort the economy and provide opportunities for graft and
corruption. Many poor governments might actually collect more revenue if they
implemented taxes that were low, simple, and easy to collect.

---

The Internet has a huge potential to improve transparency everywhere, but