strategy+business is published by PwC Strategy& Inc.
 
or, sign in with:
strategy and business
Published: February 23, 2010
 / Spring 2010 / Issue 58

 
 

Roots of Prosperity

During its two peaceful centuries, the empire maintained a comparatively high level of business-friendly elements. For example, starting a business was apparently easy. Anyone, including women, non-Romans, and slaves, could open one without restriction. (In practice, of course, it was far easier for free Roman men to open a business than for anyone else; the mainstream leaders favored one another, just as they often do today.)

Licensing was also relatively business-friendly. Romans could make, buy, or sell anything without a license. There was only one major exception: government monopolies. The empire operated its own mines for salt, metal, and marble; bought and distributed grain; and produced uniforms, weapons, and other supplies for its army.

Finding workers was relatively easy, owing to the ancient evil of slavery (which long predated the Roman business system). Instead of paying wages, many businesses bought slaves, who came in a steady stream from regions that the Roman army conquered. As Roman businesses grew, however, they depended less on slaves and more on hired employees. There were no restrictions against businesses hiring and firing ordinary wage workers, or against workers taking jobs and quitting them. We can even recognize a modern business manager in the Roman institore, who ran an enterprise for the absentee owner.

Registering property was also easy. Thanks to Rome’s advanced legal system, written laws allowed individuals to own and sell property of all kinds, and protected those rights. Leaving aside the immorality of slavery, this was good for business.

Rome’s legal system enabled credit, allowing loans with interest as a form of contract. The volume of loans stayed small, because the old Roman ruling class was made up of feudal lords and government officials whose wealth came from land, olive groves, cattle, slaves, and taxes. They looked down on business as a lowly occupation, and few of them invested their riches in banks. With no big banks to borrow from, the government paid for its expenses by raising taxes. As centuries of peace gave way to centuries of war, large armies led to higher taxes, crippling the business sector. This was one of the reasons Rome finally fell.

Although Rome had no corporate form that would protect investors by allowing them to pool money in common enterprises, one kind of business came close: a “society” that collected taxes for the government. This made for a predictable, stable investment. Romans bought and sold shares in the societies, and Roman law protected these sales as contracts.

Paying taxes was no special burden for business, except during wars. A business owner paid one annual tax of 1 to 3 percent on property and wealth. For comparison: In the Central African Republic in 2010, a company would have to make 54 payments each year, using 63 workdays for paperwork and waiting in line, to pay taxes that could be twice its profits.

From Britain to Syria, the Roman Empire had no borders, and thus no customs duties to pay. Importers and exporters paid duties of only about 5 percent, which is very low by any standard, ancient or modern. And paying the duty took a few hours at most. In many sub-Saharan African nations today, it takes 35 days or more to ship goods across a border, thanks to all the paperwork and fee paying.

Contracts were the pride of the Roman legal system. Whether written or oral, they were easy to create and enforce, with witnesses who could testify in court. Judicial corruption was an ongoing problem, but at least during the two most peaceful centuries, the courts aided rather than preyed on the ordinary flow of daily business. Unfortunately, the rules governing business closures were not as benign. They treated bankrupt businesses as unpaid debts under contract law. The court let creditors seize the property of debtors or force them into slavery if they failed to pay. These rules worked against business, because they did not allow entrepreneurs to recover from failure and try again.

 
 
 
Follow Us 
Facebook Twitter LinkedIn Google Plus YouTube RSS strategy+business Digital and Mobile products App Store

 

Resources

  1. R. Glenn Hubbard and William Duggan, The Aid Trap: Hard Truths about Ending Poverty (Columbia University Press, 2009): A concise look at global poverty and the optimal solution of a business-friendly climate, including perspectives on how the current government- and NGO-based foreign aid system could profitably reform.
  2. R. Glenn Hubbard and William Duggan, “The Forgotten Lessons of the Marshall Plan,” s+b, Summer 2008: The other half of the Hubbard/Duggan prescription for combating poverty, specifically in Africa: redirect foreign aid to foster local business.
  3. Art Kleiner, “The Philosopher of Progress and Prosperity,” s+b, Summer 2004: The World Bank’s Doing Business project is based in part on the “mystery of capital” uncovered by Peruvian economist Hernando de Soto; this article introduces his theory and related practices.
  4. Sylvia Solf et al., Doing Business 2010: Reforming through Difficult Times (World Bank, International Finance Corporation, and Palgrave Macmillan, 2010): The seventh edition of the influential and well-researched comparative analysis of business-friendly conditions.
  5. Muhammad Yunus, Creating a World without Poverty: Social Business and the Future of Capitalism (PublicAffairs, 2007): Recounts the founding of Grameen Danone Foods and the concept of social business.
  6. For more thought leadership on this topic, see the s+b website at: www.strategy-business.com/global_perspective