Emerging Markets Seek to Increase Regulation to Move Up the List

An article in the Wall Street Journal discusses the progress emerging markets are making in regulating their industries in order to improve market efficiency. The World Bank Group has a ranking of the different economies in the world and their overall ease of doing business. The “Doing Business” project, which began nine years ago, was started to assess how countries deal with concerns of different firms’ ability to secure construction permits, pay taxes, enforce contracts, etc. The list seeks to point out faults in the countries’ regulation systems so that they may fix the issues and move up the list, hypothetically attracting more business. Emerging markets often have little regulation, allowing many foreign investors to take advantage of resource and labor rich countries and exploit them due to lack of infrastructure. Technology has paved the way for many of these emerging market countries to become more organized, and take initiative on regulation in order to protect their resources. Stigler’s paper on the Theory of Economic Regulation would be in support of this project as one of his main reasons for supporting regulation is because it “is designed and operated primarily for its benefit.” Stigler continues to propose that industries that have the power to be able to control entry will do so because it is profitable. Although Stigler’s proposition focuses on controlling entry in order “to retard the rate of growth of new firms,” in emerging markets, growth of firms is often welcomed, as long as it happens in an efficient and non-exploiting manner. The article highlights that things as simple as putting property records on computers, actually enforcing permits and contracts, and stipulations to investors that would require them to use local resources i.e. labor have led to great benefits for these countries. Stigler also highlights the importance of representatives to argue these regulations because voting forums can be very costly. One of the reasons why these emerging markets are so behind in regulation practices is because they often do not have the political infrastructure and sometimes stability to have representatives to debate these issues, so it is too costly to figure out efficient regulation. Sometimes the emerging markets that do have representatives have large amounts of corruption that prevent them from finding out what regulation is best. As emerging markets make strides to increase profitable regulation practices, Stigler would be a good person to keep in mind as they figure out efficient forums to debate these issues as many of these countries are already suffering from large amounts of political corruption.