KNOWLEDGE BASE Governance In The US
Governance in the United States
Effective governance in any country can have a big impact on your success. In this section, we provide several measures that can be useful for you to look at governance in the United States. In summary, the US government is considered to practice good governance, and these annual reviews will help you understand why.
What is Governance?
According to the World Bank Group, “Governance consists of the traditions and institutions by which authority in a country is exercised. This includes the process by which governments are selected, monitored and replaced; the capacity of the government to effectively formulate and implement sound policies; and the respect of citizens and the state for the institutions that govern economic and social interactions among them.”
Ease of doing business in the United States
In its Doing Business report, the World Bank Group ranks 190 countries for ease of doing business as a small or medium-sized company. Specifically, regulations applying to companies through their life cycle are considered. A high ranking indicates that the regulatory environment is relatively more conducive to starting and operating a company locally. The World Bank Group ranking takes into consideration the following parameters:
Starting a Business
Dealing with Construction Permits
Protecting Minority Investors
Trading across Borders
Based on data from New York and Los Angeles, the US ranks 8th out of 190 countries. You can do a deeper review of all of the elements that went into the US rank on the individual scores to understand how they could affect your business plans. State-level regulations vary, so if you are planning to locate in states other than California or New York, use this as a starting point and then be in touch with local experts.
The effectiveness of the US’s governance
The World Bank Group also evaluates and reports over 200 countries and their effectiveness in their Worldwide Governance Indicators reports. The six parameters for which perceptions are captured are:
Voice and Accountability:
The extent to which a country's citizens are able to participate in selecting their government, as well as freedom of expression, freedom of association, and a free media.
Political Stability and Absence of Violence/Terrorism:
The likelihood of political instability and/or politically-motivated violence, including terrorism.
The quality of public services, the quality of the civil service and the degree of its independence from political pressures, the quality of policy formulation and implementation, and the credibility of the government's commitment to such policies.
The ability of the government to formulate and implement sound policies and regulations that permit and promote private sector development
Rule of Law:
The extent to which agents have confidence in and abide by the rules of society, and in particular the quality of contract enforcement, property rights, the police, and the courts, as well as the likelihood of crime and violence.
Control of Corruption:
The extent to which public power is exercised for private gain, including both petty and grand forms of corruption, as well as "capture" of the state by elites and private interests.
The Significance of Rule of Law: When asked about which factor is most important when evaluating which countries to do business in, many companies will say that Rule of Law is their biggest concern.
As stated above in the World Governance Indicators results, The Rule of Law concept considers the extent to which business operators within a select country have confidence in and abide by the rules or laws of that society. Some of the characteristics that should be evaluated to make a sound decision encompasses the clarity, certainty and predictability of laws and their application.
Some considerations are:
Contract enforcement consistency
Adherence to property rights (personal, business, intellectual)
Ability and effectiveness of the courts to make and enforce laws
The likelihood and ability of the police to enforce laws
The extent of crime and violence
Some of the specific practices to watch out for are the freedom from expropriation, physical security of persons, respect for contracts, access to effective and efficient courts, and government adherence to agreements and clear dispute resolution procedures. Well-functioning law and justice institutions and a government bound by the rule of law are important to economic, political and social development.
The Worldwide Governance Indicators reports provide an extensive list of resources to help you understand their ratings.
The United States’ scores came in as follows, where a zero score is bad and a 100 score is good.
Voice and Accountability - 81.3
Political Stability and Absence of Violence/Terrorism - 69.5
Government Effectiveness - 89.9
Regulatory Quality - 88.5
Rule of Law - 90.4
Control of Corruption - 89.9
The US received its lowest score in the category of Political Stability and Absence of Violence/Terrorism - the likelihood of political instability and/or politically-motivated violence, including terrorism. The World Bank Group explains how a country that appears quite stable can see a lower score in this area. ‘This indicator does not measure how long a particular government has been in power. Instead, it captures perceptions of the likelihood of politically-motivated violence, including terrorism. Thus the United States for example has a sharp decline in this dimension between 2000 and 2002. This happened not because the political process in the United States is now perceived as more unstable than in the 1990s. Rather, it reflects perceptions of the risk of terrorist attacks on the United States that increased sharply following the events of September 11, 2001. Similarly, countries that are functioning democracies, but are marred by domestic politically-motivated violence, may also not score well on this indicator.’ So, while the score for the US has improved since its low of 38.5 in 2004, it has not regained its 2000 score of 79.8 as the perceived threat of terrorism continues.
In summary, the US government is effective and is considered to practice good governance. Study these reports if you would like to learn more.
Perceived Public Sector Corruption Levels
Every year, Transparency International publishes a report on perceived public sector corruption around the world. Their latest report, Transparency International’s Corruption Perceptions Index 2016, reports on 176 countries. Transparency International looks at a number of areas where corruption can take place, such as education and defense & security.
The United States ranked 18th in Transparency International’s Corruption Perceptions Index 2016 report, with a total score of 74 out of 100 (a perfect score is 100, and the highest score earned was 90 by Denmark). So what does this mean for you? A score of 74 is toward the top of the scale of 100. There is a low likelihood of corruption stemming from the regulations placed by the government on businesses, the courts are fair, and you will not be expected to conduct business through bribes or kickbacks.
Take advantage of local experts
Even in a country with effective governance and low corruption, there are many regulatory and tax rules to follow. Through the Globig Marketplace, you can find local legal and regulatory experts to help you be sure you are following the subtleties of the laws within the US. If you are in doubt on any legal requirements, we recommend you contact an appropriate law firm. Find experts who can help you with tax laws, and those who can walk you through the process of setting up a business in the United States. The Globig Marketplace provides a list of firms for your consideration, both local and global.
KNOWLEDGE BASE Governance In The US