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A dose of economic freedom will help heal Haiti Add to ...

Right up to the quake, Haiti's dysfunctional government equivocated.

In the past four years, on the one hand, it had marginally relaxed its heavy-handed regulation of the country's perpetually contracting economy - by expanding the legal definition of eligible collateral for loans, by running its port 24 hours a day, by offering a three-year tax holiday to foreign companies prepared to invest in the impoverished country. As it happened, the country experienced real economic growth for the first time in years, reaching a respectable 2.5 per cent in 2008. From this perspective, Haiti had perhaps turned a corner.

On the other hand, President René Préval had turned to Venezuela and Cuba for economic inspiration, signing a number of accords with the Western Hemisphere's most explicitly socialist governments and proclaiming his affection for the proto-dictatorships that ran them. Haitians endorsed this strategy of last resort. In 2007, they enthusiastically greeted Venezuelan President Hugo Chavez, implicitly celebrating Haiti's entry into Venezuela's improbable bloc of "anti-imperialist" countries in Latin America. In exchange, Mr. Préval got a promise of neighbourly assistance worth perhaps $20-million (U.S.), perhaps $120-million - but either way an insignificant fraction of the billions of dollars that the "imperialist" United States had given the impoverished country in the past 20 years.

Why was Haiti the poorest country in the Western Hemisphere, its people surviving on foreign aid, mostly from the United States, and remittances from exiled Haitians, also mostly from the U.S.? (This money accounted for more than 40 per cent of Haiti's GDP.) The most obvious reason is not sufficiently identified amid all the pervasive lamentations for Haiti's forlorn fate. For all practical purposes, throughout its history, Haiti had prohibited commerce. And it's hard to survive without it.

Haiti lacked the one prerequisite necessary for economic advance - freedom of trade. Yes, many Haitians toiled for subsistence in the informal economy. But their governments had always imposed prohibitive costs on acts of commerce. Haitian governments had always run the country's major businesses (including the banks) themselves. It was precisely Haiti's lack of freedom to do business that led the Index of Economic Freedom (published jointly by the Heritage Foundation and The Wall Street Journal) last year to rank Haiti as the 147th least-free country in the world (out of 179 countries).

On a descending scale that accorded Hong Kong a 90-point rating as the most-free country, the Index of Economic Freedom accorded Haiti a 50-point rating - borderline, by the index's definition, to "repression." Yet Haiti still finished ahead of its "anti-imperialist" allies: Venezuela scored 39, the 174th least-free country; Cuba scored 27.98, the 177th.

Famously corrupt, Haiti proved the thesis that corruption is mostly another government-imposed cost of doing business. The Doing Business: 2010 report, an annual global survey published by the World Bank and PricewaterhouseCoopers, expands on this thesis - consistently grading Haiti as (relatively) one of the most difficult places on Earth to do business.

The report graded countries on 10 attributes that make it harder or easier to engage in lawful commerce. In its current survey of 183 countries, Haiti was in 151st place for "ease of doing business." For "ease of starting a business," though, it put Haiti in 180th place. (For Caribbean comparison, Jamaica placed 19th; the Dominican Republic - Haiti's cohabitant on the island of Hispaniola - 107th.) As hard as it was to run a business in Haiti, it was harder still to start one.

How hard? On average, it took 195 business days to incorporate a business. The required legal work imposed costs equal to more than twice the average per capita income ($660 U.S.). Haiti ranked 129th in the difficulty of registering a property, 135th in the difficulty of getting credit, 165th in the difficulty of protecting an investment, 144th in the difficulty of moving export goods out of the country.

On average, it took 1,179 days to get a construction permit from the government, an exceedingly bureaucratic process (requiring 11 separate application stages) that imposed a cost equal to five times the average per capita income. (By contrast, it took 25 days to get a construction permit in Singapore; it cost 0.6 per cent of average per capita income in Qatar.) In Haiti, it took 1,400 days to build a warehouse.

Doing Business: 2010 calculated the taxes that private businesses paid in Haiti: a combined rate of 40.1 per cent - without counting VAT taxes. But then Haiti had always levied rich-country taxes on subsistence-country people.

People don't need licentious freedoms to engage productively in economic life. Nor do they need Harvard educations. The instinct to trade is part of human nature, part of every people's genetic heritage. In due course, Haiti will rebuild. Perhaps this time it will give its people more freedom to do what comes naturally. Haiti will need a brisk shot of laissez-faire - and the redemptive reduction in corruption that would accompany it.

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