How to be your own boss - in 215 highly regulated days

Fernando Rezende always wanted to be his own boss. So last spring, after answering a newspaper ad for an auto-repair shop for sale in Rio de Janeiro, he quit his job as a mechanic, sold his car, and withdrew his life savings from the bank.

Seven months later, he is the proud owner of MasterCar Mechanic.

Sort of.

The title of Mr. Rezende's garage is still in the name of the previous proprietor. And the courts have yet to determine, among other things, if former employees are owed money, if there are any outstanding lawsuits, and if all the old bills have been paid.

"This was a lot more difficult than I thought," he says. "The bureaucracy is such that seven months on I am still not legally the owner."

Yet Rezende's bureaucratic slog could look downright breezy to budding entrepreneurs in other parts of the world. In Congo, for example, a mere 215 days and nine years' salary is all it takes to open a small business. And in Haiti, it's 203 days and twice the average annual wage.

This is if nothing else goes wrong - such as the four-month strike by Brazilian social-security and bank workers that delayed Rezende's entire process.

Starting a small business is a leap of faith, even under the best conditions. One-third of small businesses in the United States close within the first two years. But in the world's poorest countries, governments aren't doing their minicapitalists any favors. Filling out the right forms and applying for all the necessary licenses can take months. Fees can cost more than most people earn in a decade. And the pressure to grease palms to avoid a mountain of red tape lurks around every corner.

The result is a recipe for poverty and graft: fewer jobs, a smaller tax base, less money for governments to spend on social programs, and a larger underground, or informal, economy.

These are the findings of an ambitious study by the World Bank, called "Doing Business in 2004," a first-of-its-kind look at what it takes to open and operate small businesses around the world. And the results are sure to ruffle feathers. That's because the 200-page report puts the blame for poverty squarely on the shoulders of the poor countries themselves. At a time when developing nations pin their plight on the inequities of globalization, prohibitive tariffs that freeze them out of US and European markets, and price-distorting handouts to the world's wealthiest farmers, the World Bank says the silver bullet to eradicating poverty lies right within the poor countries' own borders.

The solution: Do less. Much less.

"One of the main messages of our report is that many governments have put a lot of effort and a lot of resources into regulating businesses," says Simeon Djankov, who headed the team that produced the report. "What they should be doing is simplifying."

Simplifying is an idea that Mikhail Saguirian can get behind. After putting together a business plan and securing funds to start a fitness club in suburban Moscow, it took almost a year of navigating the maze of government offices and a phalanx of inspectors before he could swing open the doors.

Even now, six months after the ribbon cutting, Mr. Saguirian still doesn't have all the documents and permissions he needs to operate legally.

"Just a week ago we obtained the medical certificate, enabling us to run our spa center," which offers massages and herbal health treatments, he says.

And yet Saguirian has it better than most, at least according to the World Bank report. In 2002, it took 19 steps - from checking for name uniqueness to notarizing documents - and 51 days to form a limited-liability company in Russia. In 2003, it was down to 12 steps and 29 days. Russia, Turkey, El Salvador, and Pakistan, are among a handful of countries simplifying procedures.

Many others have done little to simplify regulation, and are even reversing past improvements. "In Peru, we reduced the time required to create a private company from 200 days to two days, in 1990," says Peruvian economist Hernando de Soto, whose 1986 book, "The Other Path," first drew the connection between red tape and poverty. "From everything we can see, we are now up again to 120 days."

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