Business Removing

ENFORCING CONTRACTS 65
Two types of reform have worked. First, in Finland,
Ireland and Sweden, a state enforcement authority collects
all debt, including what is due in taxes. Armenia, Estonia
and Latvia recently adopted a similar system. The
second option is to privatize the enforcement process.
In France, a private enforcement specialist, huissier de
justice, collects on all private claims. 21 Belgium and the
Netherlands also have private enforcement, as do many
former French colonies, such as Algeria and Benin. Inspired
by the French example, Hungary, Poland, Scotland
and Slovakia have all introduced private enforcement.
And in many common law countries—Australia, Canada,
New Zealand, Uganda—the creditor’s attorney is responsible
for enforcement, with the help of the police.
Better incentives for remuneration—as when the enforcer
is paid a percentage of the recovered claim, or
a nominal fee plus a pro-rated bonus—speed up collection.
22 These schemes are superior to a flat fee or wages
(figure 8.7). Russia is a recent example of reform. In 2002,
the remuneration rules for bailiffs were changed so that a
bailiff would receive a bonus of 2% of the debt claim if he
successfully collected the money. This change improved
small debt recovery and had a lesser, but still positive, effect
on collecting larger debts. The reason is that the
bonus was capped at 800 rubles ($27), so the bailiff gets
the same reward for all cases of 40,000 rubles or more. As
larger amounts are more difficult to collect, enforcement
focused on the easier cases. 23
Finally, a reform that usually fails: increasing the
number of judges to reduce court congestion. Such reform
has obtained strong support in the development
FIGURE 8.6
Courts take longer to enforce a judgment
Days between judgment and enforcement
Court
enforcement
time
Private or
specialized
public
enforcement
time
Poor
countries
–15%
Source: Doing Business database.
Middle income
countries
–25%
Rich
countries
–39%
aid community. 24 This is understandable: by simple
arithmetic, the more the judges, the fewer cases per
judge. And it works for a brief period, after which delays
increase again as more people bring cases to court, while
the efficiency of dealing with each case remains the same.
Sri Lanka is an example. To take the burden off the
regular civil courts, specialized tribunals have been created
to hear tax disputes, consumer complaints, and
labor cases. But the civil courts remain as backlogged as
ever. This is because the solution—more judges—treats
the manifestation of the problem, not the problem itself.
A simple rule for reformers: when the judiciary
argues for more judges, it is time to also simplify procedures.
It costs less and has longer term effects.
Why reform?
The fewer procedures, the lower the cost, the shorter the
time to resolve disputes—the better that businesses rate
the efficiency and integrity of the courts (figure 8.8) and
the more likely that businesses are to go to the judge the
next time a dispute arises. As confidence in dispute resolution
rises, entrepreneurs become more willing to
enter contracts beyond their narrow circle of known
business partners. Trade increases and business expands,
bring-ing more prosperity. A survey of Russian
entrepreneurs shows that twice as many entrepreneurs
start business in cities like Taganrog, where the courts
are perceived as efficient, as in cities like Rostov-on-
Don, where courts are perceived as corrupt and slow. 25
A study comparing the corporate sectors in Mexico
and the United States finds that weaknesses in contract
FIGURE 8.7
Payment incentives for enforcers cut time
Days between judgment and enforcement
Enforcer
paid fixed fee
Enforcer paid
pro-rated fee
178
104
Poor
countries
Source: Doing Business database.
151
82
Middle income
countries
89
29
Rich
countries