Milestone 3: Is Nicaragua Business Focused or Government Focused
In theory, Nicaragua is business-focused; in practice, it is government-focused.
Nicaragua is theoretically business-focused. While the World Bank (2021) ranks the country in 142nd place on its Doing Business (DB) index, Nicaragua still shows strong business potential. The US State Department’s 2021 report on the investment climate in Nicaragua acknowledged several of the country’s assets: “ample natural resources; a well-developed agricultural sector; a highly organized and sophisticated private sector committed to a free economy; ready access to major shipping lanes; and a young, low-cost labor force that supports a vibrant manufacturing sector.” Most notable among these is the “highly organized and sophisticated private sector committed to a free economy.” A solid private sector like that one indicates that the Nicaraguan people are business-focused; this begs the question, if Nicaraguans are business-focused, why does business not perform better? The answer to this question lies in the government’s focus.
In practice, legislators in Nicaragua are government-focused; they made business subservient to the government as they implemented policies that hinder business activity. Some countries, Finland for example, are government-focused in that the government collects high tax revenues to fund state-run services and redistribute wealth. While a significant portion—28%—of Nicaragua’s GDP goes to tax revenues, Nicaragua is by no means a socialized state. Instead, Nicaragua is government-focused in a different way: it implements policies that are bad for business but serve government interests. For example, the US State Department reports that “The government’s 2019 tax reforms continue to hurt business profit margins and raise consumer prices” (2021). The DP gives more evidence of areas where the government has crippled business: instituting an inefficient building permit process, making it difficult to register property, failing to protect minority investors, and neglecting to resolve insolvency issues (2021).
Government blunders make this theoretically business-focused country a government-focused country in practice. Perhaps it is even a mistake to call these business-harming policies and structures “government blunders” since it seems like they were put in place intentionally to serve legislators’ interests. The same policies that harm the economic efforts of the Nicaraguan people benefit the government by extending government bureaucracy and creating more government jobs. For example, part of the reason the building permit acquisition process in Nicaragua is inefficient is that too many people are involved. However, from a bureaucrat’s perspective, every additional hoop an aspiring builder has to jump through means guaranteed job security for the bureaucrats who hold the hoops. This kind of business-hurting, government-interest-serving activity helps explain Nicaragua’s current condition.
References
US Department of State. (2021, July 19). 2021 Investment Climate Statements: Nicaragua. Retrieved
September 28, 2021, from https://www.state.gov/reports/2021-investment-climate
statements/nicaragua/
World Bank. (2021). Doing Business: Nicaragua. Retrieved September 28, 2021, from
https://www.doingbusiness.org/en/data/exploreeconomies/nicaragua#DB_sb
Emily,
Interesting terminology, business-focused in theory, but governmentally-focused in practice. Banerjee and Duflo speak about a "poverty mentality" in their book, Poor Economics, and explain the complexities of the impoverished class. People are not born with even a basic understanding of economics, and often will grow up in societies where the government has traditionally provided for individuals. That is why you may see many people make enough money to survive, but not enough to thrive. The idea of growing wealth through entrepreneurship may be foreign, and because of that, education may be the key to providing individuals in Nicaragua with the ability to create and sustain wealth for themselves and for those around them.
References:
Banerjee, A. V., & Duflo, E. (2011). Poor Economics: A Radical Rethinking of the Way to Fight Global Poverty. Public Affiars.
Hey Emily,
I really enjoyed reading your post! What I have gathered from doing my own research and reading others posts, is that many small, poor nations are technically “business friendly” with the way ease of being able to setup a business, but as you have said, the government focus only hurts small businesses. According to Milano (2019), the chance of workforce expansion and economic growth should prompt local municipalities, counties, government to offer various forms of assistance, such as grants, research opportunities, beneficial legislation, and worker training programs. It seems as if Nicaragua wants to be a business-friendly nation, but policies are set in place that hinder what could be a thriving economy. Do have any recommendations on which policies should be abolished that could better help businesses? Thanks for the post and keep up the great work!
References
Milano, Steve. (2019). “Role of Government in Promoting Small Businesses”. Chron. https://smallbusiness.chron.com/role-government-promoting-small-business-60657.html.