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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
66 DOING BUSINESS IN 2005 enforcement are associated with a smaller size of businesses in Mexico. There, 96% of businesses employ less than 10 workers. In the United States, only about 63% of businesses do. And the efficiency of debt collection varies across Mexican states, with the top one, Aguascalientes, being nearly three times as efficient as the bottom one, Guerrero. Improvements in debt recovery from the bottom to the top quartile of states imply a large jump in employment—a 17% increase in the number of workers in the average business. 26 Reforms of debt collection reduce costs to the government as well. This was the original motivation behind the Woolf Report in the United Kingdom. The simpler the procedures, the less the need for more court clerks and judges. The more summary judgments, the less the taxpayer money used to fund drawn out trials. The government can instead direct more resources to legal aid for the poor. FIGURE 8.8 More procedures—more corruption… Perception of judicial integrity …less efficiency Perception of judicial efficiency Positive Positive Negative Negative Least Most Least Most Countries ranked by procedures to enforce a contract, quintiles Countries ranked by procedures to enforce a contract, quintiles Note: The relationships shown are significant at the 1% level and remain significant at the 5% level when controlling for income per capita. Source: Doing Business database, WEF (2004). Notes 1. An interview reported in Kahn (2003), p. 27. 2. World Bank (2004c). 3. Based on analysis of the Doing Business indicators with indicators of impartiality of the judiciary from Economic Freedom of the World and Batra and others (2003). Results are significant at the 5% level, controlling for income per capita. 4. Samano (2002), p. 9. 5. A recent report on case management in the Canadian judiciary suggests as a main indicator of success the ratio of cases judged in summary proceedings to cases judged in regular proceedings. The rationale is that summary proceedings reflect the willingness of judges to provide quick resolution. See Quebec Ministere de la Justice (2001). 6. Laukkanen (2004). 7. Surveys published in Pravda newspaper, various issues. 8. Zuckerman (1999). 9. Deloitte Consulting (2003). 10. Hendley (2004). 11. Proskuryakova (2002). 12. World Bank (2003b). 13. Creditors complained of a pro-debtor bias in judgments. The evidence suggests otherwise. Nearly 90% of judgments in Mexico and 80% of judgments in Argentina were in favor of the creditor. These percentages rose after appeal. 14. Lord Woolf (1995). 15. See Australian Law Reform Commission (2003) for a summary of reforms. 16. On average, the cost of dispute resolution is 15% with case management, and 25% without. This difference exists at all income levels. 17. Korb (2002). 18. World Bank (2003c). 19. CEELI (2004). 20. World Bank (2003d). 21. Kennett (2002). 22. Data on remuneration of enforcement agents was collected for the first time in this year’s survey. The questionnaire is available at the Doing Business website. 23. Hendley (forthcoming). 24. See, for example, Buscaglia and Dakolias (1999). 25. Djankov and others (2004). 26. Laeven and Woodruff (2004).
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Doing Business in 2005 Removing Obs
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Contents Doing Business in 2005 is
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2 DOING BUSINESS IN 2005 FIGURE 1.1
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4 DOING BUSINESS IN 2005 FIGURE 1.4
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6 DOING BUSINESS IN 2005 TABLE 1.3
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8 DOING BUSINESS IN 2005 Notes 1. P
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10 DOING BUSINESS IN 2005 eration w
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12 DOING BUSINESS IN 2005 Based on
Page 19 and 20: 14 DOING BUSINESS IN 2005 FIGURE 2.
Page 22 and 23: 17 Starting a business Who is refor
Page 24 and 25: STARTING A BUSINESS 19 BOX 3.1 Who
Page 26 and 27: FIGURE 3.4 “More difficult” can
Page 28 and 29: STARTING A BUSINESS 23 Introduce te
Page 30 and 31: HIRING AND FIRING WORKERS 25 Hiring
Page 32 and 33: HIRING AND FIRING WORKERS 27 TABLE
Page 34 and 35: HIRING AND FIRING WORKERS 29 FIGURE
Page 36 and 37: HIRING AND FIRING WORKERS 31 FIGURE
Page 38 and 39: 33 Registering property Who makes r
Page 40 and 41: REGISTERING PROPERTY 35 BOX 5.1 Who
Page 42 and 43: REGISTERING PROPERTY 37 FIGURE 5.4
Page 44 and 45: REGISTERING PROPERTY 39 Others are
Page 46 and 47: 41 Getting credit Who is increasing
Page 48 and 49: GETTING CREDIT 43 TABLE 6.1 Coverag
Page 50 and 51: GETTING CREDIT 45 ment only takes t
Page 52 and 53: GETTING CREDIT 47 losing possession
Page 54 and 55: 49 Protecting investors Who uses eq
Page 56 and 57: PROTECTING INVESTORS 51 FIGURE 7.1
Page 58 and 59: PROTECTING INVESTORS 53 FIGURE 7.4
Page 60 and 61: PROTECTING INVESTORS 55 national in
Page 62: PROTECTING INVESTORS 57 With langui
Page 65 and 66: 60 DOING BUSINESS IN 2005 FIGURE 8.
Page 67 and 68: 62 DOING BUSINESS IN 2005 In Lithua
Page 69: 64 DOING BUSINESS IN 2005 FIGURE 8.
Page 73 and 74: 68 DOING BUSINESS IN 2005 tion and
Page 75 and 76: 70 DOING BUSINESS IN 2005 Japan hav
Page 77 and 78: 72 DOING BUSINESS IN 2005 Provide s
Page 80 and 81: 75 References Acemoglu, Daron. 2003
Page 82 and 83: REFERENCES 77 ———. forthcomin
Page 84 and 85: 79 Data notes Economy characteristi
Page 86 and 87: DATA NOTES 81 Cost measure The text
Page 88 and 89: DATA NOTES 83 Assumptions about the
Page 90 and 91: DATA NOTES 85 such as government or
Page 92: DATA NOTES 87 Assumptions about the
Page 95 and 96: 90 DOING BUSINESS IN 2005 Starting
Page 97 and 98: 92 DOING BUSINESS IN 2005 Registeri
Page 99 and 100: 94 DOING BUSINESS IN 2005 Registeri
Page 101 and 102: 96 DOING BUSINESS IN 2005 Protectin
Page 103 and 104: 98 DOING BUSINESS IN 2005 ALBANIA G
Page 105 and 106: 100 DOING BUSINESS IN 2005 BANGLADE
Page 107 and 108: 102 DOING BUSINESS IN 2005 BRAZIL G
Page 109 and 110: 104 DOING BUSINESS IN 2005 CHAD GNI
Page 111 and 112: 106 DOING BUSINESS IN 2005 CROATIA
Page 113 and 114: 108 DOING BUSINESS IN 2005 ETHIOPIA
Page 115 and 116: 110 DOING BUSINESS IN 2005 GUINEA G
Page 117 and 118: 112 DOING BUSINESS IN 2005 IRELAND
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116 DOING BUSINESS IN 2005 MACEDONI
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118 DOING BUSINESS IN 2005 MONGOLIA
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120 DOING BUSINESS IN 2005 NIGER GN
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122 DOING BUSINESS IN 2005 PERU GNI
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124 DOING BUSINESS IN 2005 SAUDI AR
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126 DOING BUSINESS IN 2005 SPAIN GN
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128 DOING BUSINESS IN 2005 TOGO GNI
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130 DOING BUSINESS IN 2005 URUGUAY
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ACKNOWLEDGMENTS 133 Acknowledgments
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ACKNOWLEDGMENTS 135 Angela Zaffalon
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ACKNOWLEDGMENTS 137 Nolan Stringfie
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ACKNOWLEDGMENTS 139 Thomas Bang LVP
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ACKNOWLEDGMENTS 141 Günter Schneid
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ACKNOWLEDGMENTS 143 Gavin Doherty E
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ACKNOWLEDGMENTS 145 Indrikis Liepa
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ACKNOWLEDGMENTS 147 Phillip Mwangal
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ACKNOWLEDGMENTS 149 Nestor Espenill
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ACKNOWLEDGMENTS 151 Beng Hong Ong W
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ACKNOWLEDGMENTS 153 Leopold Thomas
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ACKNOWLEDGMENTS 155 Marcela Hughes
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