Cutting red tape is eradicating poverty far more quickly and effectively than foreign aid

Written by:
17 January 2018
Cutting red tape is eradicating poverty far more quickly and effectively than foreign aid - Featured image

Due to the influential work of the IPA, it is becoming increasingly acknowledged that red tape in Australia is a $176 billion problem that holds back Australian prosperity. What’s less well understood, is that red tape is a massive problem in the developing world that keeps poor people poor.

The Atlas Foundation has launched a new initiative with its network of 480 independent local think tanks in 96 countries called Doing Development Differently. Its aim is to alleviate poverty by fighting for and expanding the economic rights of the poor.

Whilst this consists of improving a range of institutions such as property rights and a transparent judiciary, in large part, it involves removing the masses of archaic red tape faced by small businesses in the developing world. This is because even marginal improvements in red tape can lift huge numbers of people out of poverty.

For example, last year the Centre for Civil Society in India successfully campaigned for the elimination of minimum capital requirements for new business registration. These regulations disproportionately impacted the poor due to the obvious difficulty those living in extreme poverty have in accumulating capital. The removal of this one piece of red tape translates to 321,000 people lifting themselves out of poverty.

In December 2016, the Samriddhi Foundation in Nepal successfully campaigned to reduce the time it takes to register a domestic business down from several days to a maximum of 30 hours. Businesses funded by foreign investments had the registration period reduced from weeks down to seven days.

The Ukrainian Economic Freedoms Foundation successfully fought for the abolition of 22 business permission procedures including the license for catching fish in internal waters, the quality certificate for fishing ships and obligatory registration for certain types of fertilizers. The removal of the fertilizer registration effectively dismantled a de-facto Russian monopoly on local fertilizer that was costing businesses USD 300 million per year in direct costs. As a result of the change, EU fertilizers can be imported into Ukraine without prior registration—a process which previously averaged 500 days.

These simple reductions in red tape can eradicate poverty far more quickly and effectively than foreign aid and charity. Red tape isn’t a dry preoccupation of the business community. For some, it’s the difference between a life of dignity and meaning or grinding poverty.

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