Making War On Red Tape

India, China, and Russia rank among the world’s worst countries for red tape. The World Bank’s Doing Business Index, under the category of dealing with construction permits, is a rough measure of bureaucratic hassle in an economy. On it, India ranks 175, China 180, and Russia 182 (only Eritrea is worse at 183). Under the broader category of starting a business, Russia ranks 106, China 151, and India 169.

Russia’s economy is a basket case. But India and China are world beaters. So how to reconcile their awful red tape with their stellar economic growth? Bribery. That’s why China ranks a lowly 79 on the Corruption Perception Index, India 84, and Russia a subterranean 146. It’s also why so many FCPA cases and investigations now come from China and Russia, and more will be coming from India.

As economist Vito Tanzi famously put it, when rules can be used to extract bribes, more rules will be created. And when more rules appear, more bribes will be needed to bargain down the red tape, and so on.

It’s simple, then. Countries with lots of red tape can’t fight corruption without fighting the red tape that causes it. If there are too many rules, laws against corruption won’t work. When bureaucrats have the opportunity to extract bribes, some will do it no matter what punishment they’re threatened with. China’s bureaucrats, after all, face the death sentence or life in prison for graft, but that doesn’t stop them.

The U.S. government says it wants a level playing field for American business overseas. To achieve that, the government should be making war on red tape, especially in places like India, China, and Russia. A start would be tying aid, trade, military support, and other forms of cooperation to programs that reduce unnecessary regulations. And the World Bank, IMF, and OECD should be doing the same thing.

That’s more likely to happen when academics, think tankers, NGOs, and commentators all beat the drum. And it wouldn’t hurt if American business people made some noise too.