There's a good argument that every business in the country should be registered -- so that we know who is doing what, who is obeying tax laws, and so on.
There's also a good argument for keeping really small businesses completely out of the bureaucratic system -- for really small businesses simply do not have the time, or often even the knowledge, to be able to deal with the bureaucracy.
As is obvious, these two arguments are in conflict with each other.
The correct error -- or at least I would insist, which is not quite the same thing as insisting I am correct to do so -- is to be on the side of allowing small businesses to escape the bureaucracy.
This is the background to the requirement that every business must now have a BIN -- a Business Identification Number.
The claim is that this requirement hits cottage, micro, small, and medium enterprises (CMSMEs) hard. It isn't that applying for the number is difficult. It's that it can be difficult to get the supporting documentation required to be able to make that application.
For example, a legal rental agreement -- or property deed - is required for the business address. Yet plenty of micro businesses run from the left hand side of the family dining table.
If we're talking about manufacturing, then it requires a machinery list, an equipment layout plan, and input-output coefficient information. There are people out there running perfectly fine businesses who don't know what that last part means, and I'm not sure I do either.
It's obvious what is happening here. The bureaucracy thinks it would be a fine thing if everyone in business were doing business correctly and in a formal and registered manner.
Thus they can use the need for a BIN to make sure that everyone is indeed doing things correctly -- working at a property licensed to run a business from, for example. For larger businesses, this could even be true too.
For smaller businesses -- micro, cottage, and so on -- these requirements can be the difference between it being worth being a legal business at all or remaining in the shadows of the grey economy.
Grey here meaning not illegal as a business -- that's the black economy. Just one that's not registered and paying taxes and such.
And here's the thing. We all want to have economic growth. That's how to climb that ladder from a less developed economy all the way up to a developed and rich one.
Economic growth comes from new business formation. Very little of total economic growth comes from large companies growing yet more.
Nearly all of it comes from someone using that corner of the kitchen table to come up with a new idea and trying it out.
Barriers to those tryouts limit, slow, or even stop, economic growth.
The correct answer, therefore, is to reverse that process of applying for the legality of the business.
Get people signed up for the BIN first. Say, if you have some form of personal ID, then you can apply online for that BIN.
Great, you're now a business and you can use that number to gain access to a bank account and all the rest.
We can worry about obeying all of the other laws -- when you need to provide a machinery layout plan, for example -- to when you're a large enough business that it's worth worrying about.
Yes, some people will abuse this reversal of the current process. But that's just the same argument as we started with.
It would be good if everyone was running every business according to all the rules. But the rules also prevent some people from starting up in business at all.
The error should be, again to my mind, on getting the business happening first -- for that's the part that makes us richer -- and worrying about compliance with all the bureaucratic laws later.
Adam Smith pointed out that the only things required to move from barbarism to the highest degree of opulence is peace, easy taxes, and the tolerable administration of justice.
That “tolerable” there means yes, of course everyone absolutely must obey the really important laws but a certain benign neglect of the details is also necessary.
Or even, as we can and should put it, less bureaucracy means more business. Let's err on the side of more business as that's the one that makes us richer.
Tim Worstall is a senior fellow at Adam Smith.
