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accounts receivable, laws restrict her bank from using these as collateral. The bank

knows it cannot recover the debt if Timnit defaults, because courts are inefficient

and laws give creditors few powers. Credit is denied. The business stays small.

"Having registered, hired workers, enforced contracts, and obtained credit, Avik,

a businessman in India, cannot make a profit and goes out of business. Faced with

a 10-year-long process of going through bankruptcy, Avik absconds, leaving his

workers, the bank, and the tax agency with nothing."

If you want to know why two decades of macroeconomic reform wholesale at the top have

not slowed the spread of poverty and produced enough new jobs in key countries of

Latin America, Africa, the Arab world, and the former Soviet Empire, it is because

there has been too little reform retail. According to the IFC report, if you want

to create pro-

ductive jobs (the kind that lead to rising standards of living), and if you want to

stimulate the growth of new businesses (the kind that innovate, compete, and create

wealth), you need a regulatory environment that makes it easy to start a business,

easy to adjust a business to changing market circumstances and opportunities, and

easy to close a business that goes bankrupt, so that the capital can be freed up for

more productive uses.

"It takes two days to start a business in Australia, but 203 days in Haiti and 215

days in the Democratic Republic of Congo," the IFC study found. "There are no monetary

costs to start a new business in Denmark, but it costs more than five times income

per capita in Cambodia and over thirteen times in Sierra Leone. Hong Kong, Singapore,

Thailand and more than three dozen other economies require no minimum capital from

start-ups. In contrast, in Syria the capital requirement is equivalent to fifty-six

times income per capita . . . Businesses in the Czech Republic and Denmark can hire

workers on part-time or fixed-term contracts for any job, without specifying maximum

duration ofthe contract. In contrast, employment laws in ElSalvador allow fixed-term

contracts only for specific jobs, and set their duration to be at most one year ...

A simple commercial contract is enforced in seven days in Tunisia and thirty-nine

days in the Netherlands, but takes almost 1,500 days in Guatemala. The cost of

enforcement is less than 1 percent of the disputed amount in Austria, Canada and the

United Kingdom, but more than 100 percent in Burkina Faso, the Dominican Republic,

Indonesia . .. and the Philippines. Credit bureaus contain credit histories on almost

every adult in New Zealand, Norway and the United States. But the credit registries

in Cameroon, Ghana, Pakistan, Nigeria and Serbia and Montenegro have credit histories

for less than 1 percent of adults. In the United Kingdom, laws on collateral and

bankruptcy give creditors strong powers to recover their money if a debtor defaults.

In Colombia, the Republic of Congo, Mexico, Oman and Tunisia, a creditor has no such

rights. It takes less than six months to go through bankruptcy proceedings in Ireland

and Japan, but more than ten years in Brazil and India. It costs less than 1 percent

of the value of the estate to resolve insolvency in Finland, the Netherlands, Norway

and Singapore-and nearly half

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the estate value in Chad, Panama, Macedonia, Venezuela, Serbia and Montenegro, and

Sierra Leone."

As the IFC report notes, excessive regulation also tends to hurt most the very people

it is supposed to protect. The rich and the well connected just buy or hustle their

way around onerous regulations. In countries that have very regulated labor markets

where it is difficult to hire and fire people, women, especially, have a hard time

finding employment.

"Good regulation does not mean zero regulation," concludes the IFC study. "The optimal

level of regulation is not none, but may be less than what is currently found in most

countries, and especially poor ones." It offers what I call a five-step checklist

for reform retail. One, simplify and deregulate wherever possible in competitive

markets, because competition for consumers and workers can be the best source of

pressure for best practices, and overregulation just opens the door for corrupt

bureaucrats to demand bribes. "There is no reason for Angola to have one of the most

rigid employment laws if Portugal, whose laws Angola adapted, has already revised

them twice to make the labor market more flexible," says the IFC study. Two, focus

on enhancing property rights. Under de Soto's initiative, the Peruvian government

in the last decade has issued property titles to 1.2 million urban squatter households.

"Secure property rights have enabled parents to leave their homes and find jobs

instead of staying in to protect the property," says the IFC study. "The main

beneficiaries are their children, who can now go to school." Three, expand the use

of the Internet for regulation fulfillment. It makes it faster, more transparent,

and far less open to bribery. Four, reduce court involvement in business matters.

And last but certainly not least, advises the IFC study, "Make reform a continuous

process . . . Countries that consistently perform well across the Doing Business

indicators do so because of continuous reform."

In addition to the IFC's criteria, reform retail obviously has to include expanding

the opportunities for your population to get an education at all levels and investing

in the logistical infrastructure-roads, ports, telecommunications, and

airports-without which no reform retail can take off and collaboration with others

is impossible. Many countries today still have telecommunications systems dominated

by state

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monopolies that make it either too expensive or too slow to get highspeed Internet

access and wireless access, and to make cheap longdistance and overseas phone calls.

Without reform retail in your telecom sector, reform retail in the other five areas,

while necessary, will not be sufficient. What is striking about the IFC's criteria

is that a lot of people think they are relevant only for Peru and Argentina, but in

fact some of the countries that score worst are places like Germany and Italy. (Indeed,

the German government protested some of the findings.)

"When you and I were born," said Luis de la Calle, "our competition [was] our next-door

neighbors. Today our competition is a Japanese or a Frenchman or a Chinese. You know

where you rank very quickly in a flat world . . . You are now competing with everyone

else." The best talent in a flat world will earn more, he added, "and if you don't

measure up, someone will replace you-and it will not be the guy across the street."

If you don't agree, just ask some of the major players. Craig Barrett, the chairman

of Intel, said to me, "With very few exceptions, when you would think about where

to site a manufacturing plant, you would think about the cost of labor, transportation,

and availability of utilities-that sort of stuff. The discussion has been expanded

today, and so it is no longer where you put your plant but now where do you put your

engineering resources, your research and development-where are the most efficient

intellectual and other resources relative to cost? You now have the freedom to make

that choice ... Today we can be anywhere. Anywhere could be part of my supply chain

now-Brazil, Vietnam, the Czech Republic, Ukraine. Many of us are limiting our scope

today to a couple of countries for a very simple reason: Some can combine the

availability of talent and a market-that is, India, Russia, and China." But for every

country Intel considers going into, added Barrett, he asks himself the same question:

"What inherent strength does [the] country bring to the party? India, Russia-crummy

infrastructure, good educational level, you have a bunch of smart folks. China has

a little bit of everything. China has good infrastructure, better than Russia or India.

So if you go to Egypt, what unique capability [does that country have to offer]?

Exceedingly low labor rates, but what is [the] infrastructure and education base?

The Philippines or Malaysia have good literacy rates-you get

to employ college grads in your manufacturing line. They did not have infrastructure,

but they had a pool of educated people. You have got to have something to build on.

When we go to India and are asked about opening plants, we say, 'You don't have

infrastructure. Your electricity goes off four times a day.'"

Added John Chambers, the CEO of Cisco Systems, which uses a global supply chain to

build the routers that run the Internet and is constantly being wooed to invest in

one country or another, "The jobs are going to go where the best-educated workforce

is with the most competitive infrastructure and environment for creativity and

supportive government. It is inevitable. And by definition those people will have

the best standard ofliving. This may or may not be the countries who led the Industrial

Revolution."

But while the stakes in reform retail today are higher than ever, and countries know

it, one need only look around the world to notice that not every country can pull

it off. Unlike reform wholesale, which could be done by a handful of people using

administrative orders or just authoritarian dictates, reform retail requires a much

wider base of public and parliamentary buy-in if it is going to overcome vested

economic and political interests.

In Mexico, "we did the first stages of structural reform from the top down," said

Guillermo Ortiz. "The next stage is much more difficult. You have to work from the

bottom up. You have to create the wider consensus to push the reforms in a democratic

context." And once that happens, noted Moises Nairn, a former Economy Minister of

Venezuela and now editor of Foreign Policy magazine, you have a much larger number

of actors participating, making the internal logic and technical consistency of the

reform policies much more vulnerable to the impact of political compromises,

contradictions, and institutional failures. "Bypassing or ignoring the entrenched

and defensive public bureaucracy-a luxury frequently enjoyed by the government teams

that launch initial reform measures-is more difficult in this stage," Nairn said.

So why does one country get over this reform retail hump, with leaders able to mobilize

the bureaucracy and the public behind these more painful, more exacting micro-reforms,

and another country get tripped up?

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Culture Matters: Glocalization

One answer is culture. To reduce a country's economic performance to culture alone

is ridiculous, but to analyze a country's economic performance without reference to

culture is equally ridiculous, although that is what many economists and political

scientists want to do. This subject is highly controversial and is viewed as

politically incorrect to introduce. So it is often the elephant in the room that no

one wants to speak about. But I am going to speak about it here, for a very simple

reason: As the world goes flat, and more and more of the tools of collaboration get

distributed and com-moditized, the gap between cultures that have the will, the way,

and the focus to quickly adopt these new tools and apply them and those that do not

will matter more. The differences between the two will become amplified.

One of the most important books on this subject is The Wealth and Poverty of Nations

by the economist David Landes. He argues that although climate, natural resources,

and geography all play roles in explaining why some countries are able to make the

leap to industrialization and others are not, the key factor is actually a country's

cultural endowments, particularly the degree to which it has internalized the values

of hard work, thrift, honesty, patience, and tenacity, as well as the degree to which

it is open to change, new technology, and equality for women. One can agree or disagree

with the balance Landes strikes between these cultural mores and other factors shaping

economic performance. But I find refreshing his insistence on elevating the culture

question, and his refusal to buy into arguments that the continued stagnation of some

countries is simply about Western colonialism, geography, or historical legacy.

In my own travels, two aspects of culture have struck me as particularly relevant

in the flat world. One is how outward your culture is: To what degree is it open to

foreign influences and ideas? How well does it "glocalize"? The other, more intangible,

is how inward your culture is. By that I mean, to what degree is there a sense of

national solidarity and a focus on development, to what degree is there trust within

the society

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for strangers to collaborate together, and to what degree are the elites in the country

concerned with the masses and ready to invest at home, or are they indifferent to

their own poor and more interested in investing abroad?

The more you have a culture that naturally glocalizes-that is, the more your culture

easily absorbs foreign ideas and best practices and melds those with its own

traditions-the greater advantage you will have in a flat world. The natural ability

to glocalize has been one of the strengths of Indian culture, American culture,

Japanese culture, and, lately, Chinese culture. The Indians, for instance, take the

view that the Moguls come, the Moguls go, the British come, the British go, we take

the best and leave the rest-but we still eat curry, our women still wear saris, and

we still live in tightly bound extended family units. That's glo-calizing at its best.

"Cultures that are open and willing to change have a huge advantage in this world,"

said Jerry Rao, the MphasiS CEO who heads the Indian high-tech trade association.

"My great-grandmother was illiterate. My grandmother went to grade two. My mother