Several existing competitiveness rankings assess factors like law enforcement, infrastructure, and tax law from a business perspective. However, these often lack an accessible, practical translation of how these factors impact the daily operations of small businesses.
The Bureaucracy Index was launched in 2016 by the Institute of Economic and Social Studies (INESS) to address this gap. Its goal is to provide a detailed list and quantification of bureaucratic burdens faced by small and medium-sized enterprises (SMEs). Piloted in Slovakia in 2016, the project aims to promote international comparisons of bureaucratic costs, especially for SMEs. To raise awareness, International Bureaucracy Day was established on September 29, commemorating wasted resources and talent caused by excessive bureaucracy worldwide.
For its 2024 edition, the Bureaucracy Index was supported by the Friedrich Naumann Foundation for Freedom and prepared in collaboration with six partners from the 4Liberty network. Additionally, a Latin American counterpart, the Index of Bureaucracy, is independently produced annually.
Methodology and Key Findings
The Bureaucracy Index uses a straightforward approach. In collaboration with industry experts, it identifies all state-required administrative tasks for two model businesses: a small industrial company and a small hotel. These tasks are grouped into “starting a business” and “running a business” categories, with time demands assigned to each. The results are measured in hours of administrative work required per business.
The war significantly impacts the situation in Ukraine, including the pace of reforms. This affects the assessment of the index components in Ukraine.
Starting Business
In 2024, Ukraine had the highest bureaucratic burden for starting an industrial SME, requiring 64 hours. In contrast, Poland excelled with the lowest time requirement of just 19 hours. Most other countries fell within a narrow range.
Starting a Business – industry
Starting a small hotel was consistently more bureaucratic across all countries due to stringent hygiene regulations.
Starting a business – hotel
Running Business
The “running a business” category measures the annual hours of administrative work for already established SMEs. Slovakia topped the rankings with 272 hours for running an industrial SME (34 working days) followed by Hungary. Conversely, Ukraine and Poland had the lowest bureaucratic burdens among the six participating countries.
Running a business – industry
Interestingly, running a hotel was not universally more bureaucratic than running an industrial SME. The rankings largely mirrored those for starting a business, with Georgia and Czechia swapping positions.
Running a business – hotel
In most countries, the bulk of bureaucratic costs for running a business came from employment administration. However, in Czechia and Poland, operational tasks were the primary drivers of bureaucracy. Ukraine stood out with higher-than-average costs for both the “other” category (mostly statistical reporting) and legal changes.
Average share of burden – running a business
Legal Changes
A notable subcategory within the “running a business” index is the administrative cost of legal changes. This includes analyzing and implementing updates to the three main business-related laws, namely the national corporate income tax code, labor code, and business code. Ukraine recorded the highest number of legal changes in 2024, significantly increasing its bureaucratic burden of running a business.
Legal changes
Overall Rankings
The overall results are calculated as the average time required for starting and running both a small hotel and an industrial SME. Slovakia ranked highest for bureaucratic burden, followed by Hungary and Georgia. Poland emerged as the most business-friendly country with the lowest overall bureaucracy in the 2024 Index. Despite the ongoing war, Ukraine has demonstrated the second-best result.
Bureaucracy Index 2024
Conclusion
The Bureaucracy Index serves as a valuable tool for sparking discussions about excessive red tape and its impact on competitiveness. By identifying areas for improvement, it encourages practical solutions to reduce administrative burdens on businesses.
Bureaucracy represents an economic deadweight, reducing profitability and hindering investment in the economy. As a side effect, it also distorts entrepreneurs’ motivation, compelling them to adopt suboptimal strategies for managing and developing their businesses. Even the EU has acknowledged excessive bureaucracy as a significant issue in the recent Letta-Draghi report. The report describes bureaucracy as a “time robber” and a “cost driver” that obstructs investment, stifles innovation, and hampers growth. This concern is particularly pressing in light of competitive pressures from countries like the USA and China.
According to Letta, excessive bureaucratic demands weaken the competitive position of European companies in international markets. He argues that this bureaucratic burden inadvertently benefits non-European companies that are not subject to similar regulatory constraints.
Therefore, for every government, reducing red tape should be an ongoing process. These efforts can be supported by formal tools such as regulatory impact assessments or specific policies like the sunset law or the “one in, one out” rule. Some of the countries participating in our ranking have already incorporated these measures into their legislative processes, offering hope for future improvements in the Bureaucracy Index score.
Participating Members
- INESS (Slovakia)
- Institut liberálních studií (Czechia)
- New Economic School (Georgia)
- Free Market Foundation (Hungary)
- FOR (Poland)
- IER (Ukraine)
The 2024 Bureaucracy Index was made possible through the generous support of the Friedrich Naumann Foundation for Freedom for Central Europe.
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