Red tape

Great article in today's Wall Street Journal about excessive regulation in Brazil:

When Vinicius van der Put tried to start a telecommunications company here last October, it took him six months and trips to eight government agencies just to obtain a temporary business license.

"Some clients gave up on us because they started questioning our credibility," says Mr. van der Put, a former development manager for Royal Dutch/Shell Group, who estimates the delay cost him $20,000 in expenses and lost sales. The reason for one snag: A state tax official thought the margins on Mr. van der Put's invoices were a few millimeters off.

That wasn't unusual. Entrepreneurs seeking a foothold in South America's largest economy must hack their way through an Amazonian thicket of red tape. Mr. van der Put's tribulations offer an important clue to a big mystery: Why has Brazil, an emerging-market star during the 1990s, lost ground to China, India and Eastern Europe in the race for growth, markets and investment?

:

...A study by Brazil's small-business association found that 70% of entrepreneurs who try to open a business legally never conclude a process that requires about 100 different documents. Most simply operate off the books in an underground economy that's nearly half the size of the country's official output. Endemic tax evasion, in turn, increases the burden on the narrow base of law-abiding taxpayers, who get hit with 61 different taxes and an aggregate tax burden of more than 35% -- about twice that of Mexico, China or India. A new tax regulation is issued, on average, every 40 minutes.

:

...Permit requirements from a crazy quilt of federal and local agencies prolong the construction time of an apartment building to 42 months from eight and quintuple the cost, according to a study by the construction industry's association. "You often spend more time filling out forms than building buildings," says Paulo Safady Simão, president of construction company Wady Simão-Construções e Incorporações.

This part is actually kind of funny:

The country's snail-paced justice system represents one of these hurdles. German airline Lufthansa has been in court for 24 years fighting a wrongful-termination lawsuit filed by a former sales manager named Günter Kattelmann. In the early 1990s, because of a court clerk's mathematical error, Mr. Kattelmann was awarded a $56 trillion judgment. It took Lufthansa seven years to get the award overturned; courts are still trying to determine how much the airline owes its former employee.

If you're interested in reading more about the role of government regulation and property rights in promoting economic growth I would recommend the works of Peruvian economist Hernando de Soto.