Daily operation of the model company requires 75 administrative tasks that take up 140 hours of time, which is almost one work month per year. The cost of this red tape reaches 1 471.5 EUR per year, or 122.6 EUR per month. Starting a business (establishment of a new company) requires additional 28 tasks requiring additional 30.5 hours of time.
Organizing the means of production so as to provide added value for market is a challenging activity full of risks. Entrepreneur must daily contend with the changing needs of customers, competitors, suppliers, or with destructive effect of innovations on his business. Any additional obstacles from the state cause deceleration and sometimes even end of this endeavor. There are several existing competitiveness rankings around, that comprehensively assess the quality of law enforcement, infrastructure and tax law from a business perspective. In our Bureaucracy Index, we decided to keep down to earth. In collaboration with experts from different areas, we have identified all the administrative tasks that the state requires from a model company. These tasks were assigned time and financial demands (similar methodology is used by Slovak Ministry of Economy).
Bureaucracy Index is a simple and transparent quantification of the proverbial “red tape”, which is mentioned daily in media, but rarely in any quantitative terms.
Downward movement of the Index value indicates improved business climate (less hours required). Slovak government now has many opportunities for significant reduction by cleaning and computerization of reporting. Bureaucratic Index in practice cannot fall to zero, in this case State would have to cease to collect income tax or VAT. Even if the index dropped to zero that does not mean that the entrepreneur would save all the costs. For example, preventive technical checks of power tools may have added value to the entrepreneur, and many would pay it even without legal coercion. However only companies finding benefits of such action would decide to go for it. This is a fundamental problem with the regulations which are not looking at differences between companies and do not have specific information which the entrepreneurs have naturally at hand.
This overview we first put together for Slovakia in 2016. In the coming year we will be able to evaluate the changes in the index, and then proclaimed to assess the government’s efforts to improve the business environment. Currently, we are negotiating with several think tanks from other European countries and we hope that we will manage to develop bureaucratic index in the international rankings.