Thursday, October 20, 2005

More on Niger’s suffocation of Smithian commerce

More on Niger’s suffocation of commercial activity on re: the Nicholas Kristoff column, with contributions from Tim Harford:

"Niamey, Niger -- In countries like this, children end up being killed not only by malaria and measles, but also by an insistence on the six-week paid vacation.

This land of mud huts and malnourished babies is the very least developed country on the planet, but local regulations stipulate that companies must give all employees six weeks and two days of paid vacation a year. Not surprisingly, there are almost no employers in Niger...
...The minimum wage is set at $35 a month in Niger, higher than the local market level. Employees are allowed to work no more than nine hours a day, weekend work is basically prohibited, and women are not allowed to work evenings at all. Layoffs are usually not allowed.

Perhaps those rules (typically inherited from European countries during colonial days) sound as if they protect workers. But the upshot is that companies don't come to Niger and don't hire anyone they don't want on the payroll forever. So almost all people toil in the informal labor sector where there are no protections whatsoever.

The whole piece is worth reading. Kristof is doing what few journalists are able to do - see past well-meaning regulations to understand their true effects. The sad truth is that a poor country cannot just rule itself rich: regulations stipulating longer holidays and better pay will simply be
ignored if they're out of touch with the harsh reality of a life in poverty

AUGUST 13, 2005
Does Niger have a market mentality? Tim Harford The Washington Post article, The Rise of a Market Mentality Means Many Go Hungry in Niger, has generated a lot of heat in the blogosphere. Here's an extract:

In a country adopting free market policies, the suffering caused by a poor harvest has been dramatically compounded by a surge in food prices and, many people here suspect, profiteering by a burgeoning community of traders, who in recent years have been freed from government price controls and other mechanisms that once balanced market forces.

I'm not going to fight any ideological battles here. (Everyone else has done that. Check out Cafe Hayek for a counterargument; Owen Barder claims the middle ground.)

Instead, I just wanted to check out the facts about these free market policies.

- It costs nearly four years' income to pay the fees required to set up a limited liability company in Niger; entrepreneurs also have to deposit minimum capital of over seven years' income.
- Niger has the most rigid employment laws in the world.
- If you want to get a loan, it costs nine months' income to set up some
kind of collateral. Coverage by credit registries is almost nonexistent.
- Trying to collect an unpaid invoice by going through the courts will take
nearly a year and cost over 40% of the invoice's value.
I wouldn't blame this red tape for the crisis, but such policies and
institutions have been shown to slow down growth, increase unemployment,
increase the size of the informal sector (where people have no legal
protections) and keep women and young people out of the labor market.


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