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CANADA
General Description: Canada became a self-ruling dominion in 1867. Following World War II, large-scale mining, manufacturing, and service sectors of the economy were developed. The Canadian economy has developed along side of and is very integrated with that of the United States. In 1989, Canada entered into a free-trade agreement with the U.S. and later in 1994, the North American Free Trade Agreement with the U.S. and Mexico. Today, the equivalent of $1.5 billion dollars in goods and services are exchanged each day across the Canadian-U.S. boarder. Canada has the 13th largest economy in the world. The size of the Canadian government is large compared to other countries in the world. Government spending is 39.3% of GDP. Recently, Canada has sold some state-owned businesses and is encouraging competition in industries that were formerly run by the government or private monopolies, such as telecommunications, and the distribution of natural gas and electricity. Government continues to provide or regulate other industries, however, most notably health care. In 2008, Canada removed a 4% federal corporate surtax but the corporate income tax rate remains at 21%. Businesses also pay provincial corporate tax rates between 10% and 16%. The provinces also levy sales taxes on capital equipment for businesses. The OECD (Organization for Economic Co-operation and Development) reports that “Canada has the highest marginal effective tax rate on capital in the developed world.” The overall average tax rate for businesses is 45%. Business owners in Canada can open a business in 3 days but they face longer than average times to close a business (almost 10 months). The World Bank ranks Canada 7th of 178 countries for “ease of doing business.” Private property is well protected in Canada. The Heritage Foundation explains that “the judiciary is independent, and judges and civil servants are generally honest. Foreign investors have full and fair access to the legal system, and private property rights are limited only by the rights of governments to establish monopolies and to expropriate for public purposes. Some companies have complained that intellectual property rights enforcement against counterfeiting and piracy is cumbersome and ineffective.” The World Bank’s governance indicators rank Canada in the 96th percentile (out of 100) for rule of law and the 95th percentile for control of corruption. On Transparency International’s Corruption Perceptions Index, Canada scored an 8.7 (0 is highly corrupt and 10 is highly clean). Specific Scenario A: “Ontario Doctor Uses Lotteries to Pare down Patient List” (Note: the following paragraphs have been excerpted from an article by Tom Blackwell that originally appeared in the National Post, August 5, 2008)
In the latest jarring illustration of the country's doctor shortage, a family physician in Northern Ontario has used a lottery to determine which patients would be ejected from his overloaded practice.
Dr. Ken Runciman says he reluctantly eliminated about 100 patients in two separate draws to avoid having to provide assembly-line service or extend already onerous work hours, and admits the move has divided the close-knit community of Powassan. Yet it was not the first time such methods have been employed to determine medical service.
…A new family practice in Newfoundland held a lottery last month to pick its caseload from among thousands of applicants. An Edmonton doctor selected names randomly earlier this year to pare 500 people from his heavy caseload. And in Ontario, regulators have heard reports of a number of other physicians also using draws to choose, or remove, patients.
…In Gander, Nfld., two new doctors setting up practice held a lottery last month to choose patients from among approximately 4,000 applicants, hoping to avoid the mob scenes that greeted the last new physician to arrive in town.
Specific Scenario B: “Ottawa to Extend Property Rights on Reserves” (Note: the following paragraphs have been excerpted from an article that appeared on CBSnews.ca, March 4, 2008)
The federal government has introduced legislation to ensure women on First Nations reserves have matrimonial property rights if their marriages dissolve, Indian Affairs Minister Chuck Strahl said Tuesday.
Provincial laws governing the fair division of assets when marriages fail do not apply on reserves, and the federal Indian Act, which governs most aspects of life on reserves, does not address the subject.
The proposed legislation also includes a mechanism for First Nations communities to develop their own community-specific laws to deal with matrimonial property, Strahl said.
It also offers similar protection to women and children on reserves as the laws available to those off-reserve, he added.
…Aboriginal women's groups have argued the absence of matrimonial property laws has created hardship for women whose marriages break down, usually forcing them and their children to leave their reserves or move in with family members. INDIA
General Description: In 1991 India began several market-oriented economic reforms that included reductions in tariffs and trade barriers, reform and modernization of the financial sector, industrial decontrol, and safeguarding of intellectual property rights. The reforms have contributed to GDP growth rates over 8% in 2006 and 2007 and a reduction in poverty by 10 percentage points. According to the State Department, four Communist and Marxist political parties, collectively referred to as the “Left Front,” currently control 57 seats in the Indian parliament and are a strong voice in the UPA government. They oppose the liberal economic approach of the current Prime Minister. In 2002 India eliminated quotas on 1,420 consumer imports and has since lowered non-agricultural customs duties. Today greater amounts of foreign direct investment are allowed in key industries such as telecommunications, but there have been recent increases in some tariffs, especially in agriculture. Government receipts from privatization reached $3 billion in the 2003-2004 fiscal year, but privatization of government-owned industries has since stalled. The government of India receives 14.3% of its income from government-owned businesses and property and controls 70% of banks. According to The World Bank, the Indian government consumes 11.3% of GDP. The top corporate tax rate is 34%. The Heritage Foundation reports an uneven application of property rights, problematic enforcement of intellectual property rights, and large backlogs in court cases. Starting a business only takes 35 days; however, businesses face a heavy regulatory burden. For ease of doing business, The World Bank ranks India 116th of 155 countries - two places below Iraq, 25 below China, and 56 below Pakistan. The World Bank’s “governance indicators” rank India in the 56th percentile (out of 100) for rule of law and 47th for control of corruption. On Transparency International’s Corruption Perceptions Index, India scored a 3.5 on a scale of 10, where 0 is highly corrupt and 10 is highly transparent. Specific Situation A: “The Long Journey” The Economist print edition, Jun 1, 2006
To illustrate the effect of the shortcomings of both “hard” and “soft” infrastructure on Indian business, Vineet Agarwal, of the Transport Corporation of India, a freight firm, describes the 2,150km (1,340-mile) journey of a typical cargo between two of India's great “metros”, Kolkata and Mumbai.
The lorry is loaded at 2 p.m. in central Kolkata. But it cannot leave until after 10 p.m., because heavy vehicles can use the city streets only at certain times. By then, there is a jam and it is 4 a.m. before the lorry hits the National Highway 6. It takes a good 14 hours to travel the 180 km [110 mi.] to the border of this state, West Bengal, with Jharkhand. By then the border is closed for the night.
At 5 a.m. the following morning, the lorry joins the border queue. It takes two hours for the documents to be cleared, and the same time again to cross a sliver of Jharkhand. After another two-hour queue, it enters Orissa and enjoys a relatively uneventful 200km. But then it has to stop for the night, because the road is closed to avoid the danger of attacks by bandits or Maoist insurgents.
Day four begins again at 5 a.m., and after 12 hours on the road the lorry reaches the next border, with Chhattisgarh. Here it queues for four hours, but at least it can cross at night, making a creditable 350km in one day. So by day five, the lorry is in Maharashtra, the state of which Mumbai is the capital.
However, the lorry still has to pass a further 12 toll booths and inspection points after the 14 it has already negotiated, so it takes another two days to get to Mumbai itself. The driver then has to telephone the octroi agent and get this tax processed, which takes all night. It is the morning of day eight before he reaches his customer in Mumbai, having achieved an average speed of 11km per hour [7 mph] and spent 32 hours waiting at tollbooths and checkpoints.
Specific Situation B: Pay Up… License or Not!
“Delhi has approximately 500,000 cycle-rickshaws, providing an affordable and accessible transportation service to the poor. The Municipal Corporation of Delhi has mandated that rickshaws have to be licensed and that only ninety thousand licenses shall be given out. More than 80% of the cycle-rickshaws are illegal. This government- created illegality exposes the pullers to constant harassment and extortion by the police and municipal officers. One study suggests that on average a bribe of Rs200 per month per cycle-rickshaw is paid. Even the licensed rickshaws have to pay up. The government functionaries extort Rs 10,000,000 a month from the cycle-rickshaw pullers! Similarly, Delhi’s estimated 600,000 street vendors operate without the necessary license and pay up about Rs 12,000,000 per month… During municipal raids, which occur on a weekly or monthly basis, the goods, hand cart, weighing balance, and other equipment of vendors as well as the rickshaws of pullers are impounded. After rickshaws are seized it takes five to fifteen days and more bribes to get them released” (Powell 324). IRELAND
General Description: During the 1950s, Ireland lost 1/7th of its population to emigration because of economic growth rates of just 2% - far below the post-war European average. In the 1960s the government moved toward freer trade and reduced protectionism. During the 1970s, Ireland increased government spending to fight the oil shocks of ’73 and ’79 and encourage economic expansion. The cuts failed to revive the Irish economy and created a large budget deficit. During the 1980s higher taxes cut the deficit by half, but the government debt (116% higher than GDP), interest on the debt, expenditures, and slow growth left the Irish government in fiscal crisis. (Powell 344- 346) Beginning in 1987, Ireland began cutting government expenditures in health, education, agriculture, roads and housing, and even the military. Programs like the National Social Services, the Health Education Bureau, and Foras Forbatha (an environmental watchdog) were cut completely. The number of public sector employees decreased by more than 8000. (Powell 347) Despite these changes, the government still plays a big role in the economy. Government spending in 2007 was 34% of GDP. From 1996 to 2000, GDP growth rates for Ireland averaged 9.9% and living standards quickly caught up to the rest of Europe. According to the CIA World Factbook, per capita GDP surpassed that of the United States in 2007. Tax cuts have brought the standard income tax rate down from 35% to 22%, but the top individual income tax rate is still 42%. Corporate tax rates, on the other hand, are very low – just 12.5%. Ireland has a lower tax burden than any other EU country except Luxemburg. The Heritage Foundation reports that “The country has one of the world's most business-friendly environments, especially for investment....” and they have the “most comprehensive legal frameworks for the protection of intellectual property rights” in all of Europe. Both domestic and foreign firms that incorporate in Ireland are treated equally. As of 2007, U.S. foreign direct investment in Ireland was $85 billion, more than the U.S. total for China, India, Russia, and Brazil combined. Ireland has the same trade policy as the rest of the EU. While average tariffs are 2%, there are many non-tariff barriers such as subsidies for agriculture and manufacturing goods. For this reason, The Heritage Foundation took 10 percentage points off Ireland’s trade freedom score. The World Bank’s “governance indicators” rank Ireland in the 94th percentile (out of 100) for rule of law and 93rd for control of corruption. On Transparency International’s Corruption Perceptions Index, Ireland scored a 7.5, on a 10 point scale in which 0 is highly corrupt and 10 is highly clean. Specific Situation – Entrepreneurship Takes Off in Ireland (Note: The following paragraphs are excerpted from an article that appeared in the New York Times, January 17, 2008. Available online www.nytimes.com.
DUBLIN — Ireland is now alive with enthusiasm for entrepreneurs, who seemingly rank just below rock stars in popularity.
For evidence, consider the Ernst & Young accounting firm’s award for Irish Entrepreneur of the Year. The award show was prime-time television fare in October. (The winner, Liam Casey, runs a business, now based in China, that arranges for products to be manufactured and shipped from China to customers in Europe and the United States.)
Then there are the government-sponsored studies proclaiming that Ireland ranks third in the European Union in early-stage entrepreneurial activity. And Enterprise Ireland, an agency of the Irish government that gives fledgling small companies a helping hand, has even leased space in an office building in Midtown Manhattan to serve as an incubator for businesses hoping to expand into the American market.
The relatively new emphasis on entrepreneurs in Ireland is the culmination of nearly four decades of government policies that have lifted the economy from centuries of poverty to modern prosperity.
…“The change came in the 1990s,” said James Murphy, founder and managing director of Lifes2Good, a marketer of drugstore products for muscle aches, hair loss and other maladies. “Taxes and interest rates came down, and all of a sudden we believed in ourselves.”
…Government help for Irish entrepreneurs grew out of an overall economic policy devised in 1987 that reduced personal taxes, said Kevin Sherry, a director of Enterprise Ireland who specializes in start-up companies.
…Enterprise Ireland has also put up initial capital for venture investment funds and supports research and development. “We must support new approaches, nanotechnology, biotechnology and other sciences,” Mr. Sherry said, “because we cannot succeed in the future using what got us here in the past.” MALAYSIA
General Description: Malaysia gained independence from Great Britain 50 years ago and is currently run by a broad coalition called the Barisan Nasional. The government is a very active participant in the economy. It invests, plans, approves investment projects, approves public and private procurements, creates and implements policies and programs to eliminate poverty, and decides on privatization contracts. The government is a shareholder in many domestic companies and thus influence a wide range of economic activities. While once dependant on the export of raw materials, Malaysia has transformed itself to an increasingly diversified economy that specializes in the export of manufacturing, services, and tourism. Malaysia has become one of the world's largest exporters of semiconductor devices, electrical goods, and information and communication technology (ICT) products. Even with global economic downturns, economic growth continues at 5%. The Malaysian government takes an active role in guiding economic development. Through increased spending on education and a new focus on higher-technology production, they hope to meet their goal of becoming a fully developed economy by the year 2020. While the Malaysian government does have considerable industrial and commercial holdings, as well as majority ownership in the two largest local commercial banks, government spending is only 25.3% of GDP. Tax rates in Malaysia are moderate. The progressive individual income tax rates range from 1% to 27%. Corporations are taxed at 26% and those rates are scheduled to fall in 2009. In 2005, Malaysia moved toward a more flexible exchange rate system by removing a peg that held the value of the ringgit to RM3.8/U.S. $1.0. There is no minimum wage in Malaysia. Labor costs are low and there are few restrictions on hours worked. The cost of firing a worker, on the other hand, is high. Regulations in Malaysia can be an obstacle for small-business owners. The World Bank Group ranks Malaysia as 74th (of 178) among its ease of doing business indicators. The most cumbersome is dealing with licenses, averaging 285 days. Private property is protected in Malaysia but the courts are often influenced by politics. According to the International Intellectual Property Association, piracy- related losses in 2004 were estimated at $188 million. The Heritage Foundation reported that “the manufacture and sale of counterfeit products and medicines have led to serious losses for producers of consumer products and pharmaceuticals.” The lack of transparency in business is a deterrent for foreign investors. The World Bank’s “governance indicators” rank Malaysia in the 70th percentile (out of 100) for rule of law and 68th percentile for control of corruption. Malaysia also scored 5.1 (of 10) on Transparency International’s corruption perceptions index. A score below 5 means that corruption is seen as a serious deterrent Specific situation A: Malaysian authorities shut down 11th burner lab (Excerpts from an article that appeared on BusinessOfCinema.com, March 31, 2008)
MUMBAI: On 27 March, 2008, 10 officers from the Ministry of Domestic Trade and Consumer Affairs (MDTCA)… raided a DVD-R burner lab in Kajang, seizing 323 DVD- R Burners.
MDTCA officers also seized an estimated 30,000 pirated discs, which infringed MPA [Motion Picture Association] member company titles including Jumper, Hitman, Cloverfield and The Spiderwick Chronicles.
"As we have anticipated, more pirates in Malaysia and in the region are using DVD-R burners to produce pirated discs. The seizure from yesterday's raid brings the total for the year to 1,453 burners. This is a 945 per cent increase year-on-year as compared to the 139 seizures in the corresponding period in 2007 (January – March)," said MPA Asia-Pacific president and managing director Mike Ellis.
"Kudos once again to the MDTCA for taking the pirates head on. With the launch of their K9 unit earlier this month, we are certain that they will continue to make it harder for these burner labs to operate in Malaysia," said Ellis.
Specific situation B: Rice price rise may prompt Government review (Excerpts from an article by Hanim Adnam that appeared on The Star Online, April 7, 2008.)
THE current surge in the international price of rice amid tightness in global supply is likely to prompt the Government to consider a more realistic stand on the nation's food security issues.
...Deputy Prime Minister Datuk Seri Najib Razak had given assurance that there would be no hike in the price of rice in Malaysia…
Rice is one of the sectors that fall under Malaysia's subsidies and financial assistance. According to the Information Department, rice subsidy has increased from RM800mil in 2006 to RM900mil last year, representing about 2.2% of the total subsidy of RM43.4bil in 2007.
An analyst said: … subsidies provided an incentive for smuggling while the management of a subsidy entailed a bureaucracy with administration costs. “Unintended negative consequences that arise from the subsidy have led to complicated regulatory laws,” he added.
According to him, there is a pressing need for an immediate implementation of the proposed National Rice Supply Chain Council to undertake a serious review of the entire rice industry chain. RUSSIA
General Description: In the 1990s Russia experienced an extensive transition from a planned economy to a free market system. Following the unrestrained capitalism of the ‘90s, wealth was left concentrated with a few oligarchs. In 2003, Yukos, a state-owned oil company was broken up, marking a turning point toward an authoritarian, corporatist state. Today the economy continues to rely heavily on the sale of natural resources and the government continues the process of privatizing state-owned enterprises. In 2007, Russia experienced its 9th consecutive year of economic growth, averaging 7% per year. The Russian government consumes 33.6% of the nation’s GDP. Privatization efforts in Russia have been hasty and chaotic. The government receives 6.1% of its revenues from state-owned businesses and property. In 2007, private sector services grew by 10%, and public sector services only grew by 2% - even though public administration increased by 7.5%. In 2001, Russia introduced a new 13% flat tax for individuals. Corporate tax rates are moderate but businesses are still pressuring the government for reductions in the VAT (value added tax). While enforcement of disputes continues to be uneven and unpredictable, overall collection has been improved. Overall tax revenue as a percentage of GDP was 36.1 percent. Although Russia aspires to join the World Trade Organization, weak intellectual property rights and protectionism in the natural resources sector make accession difficult. Laws are implemented unevenly and local courts are often subject to political pressure. The judicial system is unpredictable and corrupt, and contracts are difficult to enforce. The State Department notes that Russia’s conflicting, overlapping, and continually changing laws and regulations has resulted in an unpredictable approach to doing business and an environment that is not conducive to small business. According to the Heritage Foundation, starting a business takes an average of 28 days, compared to the world average of 48 days. Both obtaining a business license and closing a business are difficult. Regulations are inconsistent, causing unreliability of interpretation, and Bureaucratic obstacles are a particular problem for small businesses. The overall freedom to start, operate, and close a business is somewhat inhibited by the national regulatory environment. The World Bank’s governance indicators rank Russia in the 20th percentile (out of 100) for rule of law and 23rd percentile for control of corruption. On Transparency International’s Corruption Perceptions Index, Russia scored 2.3 (out of 10). Scores below 5 indicate that corruption is seen as a serious deterrent. Specific Situation: “Another Inspector Calls” (Note: the following paragraphs have been excerpted from an article that appeared in The Economist, March 27, 2008.)
WHEN Dmitry Medvedev, Russia's president-elect, gave a speech extolling the benefits of the rule of law earlier this month, some optimistic souls declared that things were looking up for business in Russia… but a series of setbacks for TNK-BP, Russia's fourth- biggest oil producer, has given the pessimists lots of ammunition.
Under Mr Putin, tax inspectors, environmental officials and other bureaucrats have taken a close interest in privately owned energy firms. Last year the authorities began investigating TNK-BP, a joint venture between Britain's BP and private Russian investors, for failing to meet its production quotas from Kovykta, a huge gas field. Before that, Royal Dutch Shell and its partners fell foul of environmental inspectors. In both cases, the firms agreed to sell controlling stakes in the relevant projects to Gazprom, Russia's state-owned gas giant, and their problems magically disappeared.
Now TNK-BP is feeling the heat again. Tax inspectors have begun a probe at one of its subsidiaries. The security services have charged an employee with “industrial espionage”. And problems with visas have prompted BP to recall 148 employees it seconded to TNK- BP. BP gamely professes to see no connection between these events. Some suspect the Kremlin wants more assets for its state-owned champions, Gazprom and Rosneft.
Specific Situation B: “Russian Entrepreneurs Face Choice of Bribes or Prison” (Note: The following paragraphs have been excerpted from a Voice of America news story available on VOAnews.com, June 27, 2008)
Sofex, a medium-sized company in Moscow, has been producing silicone for the Russian market since 1991. Sofex distributes various other chemicals and earns about $30 million a year with nearly 25 percent in profit. Company director Alexey Protsky says business would be even better, if not for the government's bureaucratic reporting requirements. "F or a manager, excessive paperwork means a loss of time and reduction of labor productivi ty," Protsky said.
Two years ago, the company's financial director, Yana Yakovleva, spent seven months i n jail for rejecting a bureaucratic attempt to blackmail the company. Yakovleva says the Russian system encourages shakedowns… "There is a system of check-marks and points. A bureaucrat scores a point for each court case he initiates or for every company he clos es, and this improves his job performance evaluation."
Yakovleva says inspectors constantly harass entrepreneurs with threats to close a compan y or with demands for bribes to keep it open.
Yakovleva says prosecutors have no incentive to question a false charge. "It's not the prosecutor's function to investigate,” she said. "His function is to demonstrate effectiveness. And effectiveness happens to be the number cases brought to trial and how many guilty verdicts are obtained." Sources for 2008 Country Scenarios: Canada, India, Ireland, Malaysia, Russia
Adnan, Hanim. "Rice price rise may prompt Government review." The Star Online. 7 Apr. 2008.
"Another Inspector Calls." 27 Mar. 2008. The Economist. July 2008
Blackwell, Tom. "Ont. doctor uses lotteries to pare down patient list." National Post. 5 Aug. 2008.
Bureau of East Asian and Pacific Affairs. "Background Note: Malaysia." June 2008. U.S. Department of State. 8 Aug. 2008
Bureau of European and Eurasian Affairs. "Background Note: Ireland." July 2008. U.S. Department of State. 14 Aug. 2008
Bureau of European and Eurasian Affairs. "Background Note: Russia." July 2008. U.S. Department of State. 8 Aug. 2008
Bureau of South and Central Asian Affairs. "Background Note: India." June 2008. U.S. Department of State. 11 July 2008
Bureau of Western Hemisphere Affairs. "Background Note: Canada." May 2008. U.S. Department of State. 14 July 2008
"Corruption Perceptions Index 2007." Transparency International: The Global Coalition Against Corruption. Transparency International. July-Aug. 2008
Economist Intelligence Unit. "Country Briefings." Economist.com. The Economist. July- Aug. 2008
Fedynsky, Peter. "Russian Entrepreneurs Face Choice of Bribes or Prison." VOANews.com. 27 June 2008. Voice of America. July 2008
Flanigan, James. "Entrepreneurship Takes Off in Ireland." NY Times.com. 17 Jan. 2008. The New York Times.
Holmes, Kim, Edwin Feulner, and Mary O'Grady. "2008 Index of Economic Freedom." The Heritage Foundation. July-Aug. 2008
"The Long Journey." The Economist 1 June 2006.
"Malaysian authorities shut down 11th burner lab." Business of Cinema. 31 Mar. 2008.
"Ottawa to extend property rights on reserves: Strahl." CBCNews.ca. 4 Mar. 2008. CBC News.
Powell, Benjamin. Making Poor Nations Rich. Stanford, CA: Stanford UP, 2008.
"The World Factbook." 7 Aug. 2008. Central Intelligence Agency. 14 Aug. 2008