Noel Maurer wants to know why I'm here. And also why no pictures! The second question first, because it's easy: I don't have a camera. Why I'm here. I ask myself that every day... No, wait, why I'm in Jordan. Well, that gets a little technical. I don't often write about work here. But what the heck. Let's try an experiment. If y'all find it boring, just don't comment.
It's about Jordan's company law. Let's say you want to start a new company in Jordan. Jordan has several corporate forms available -- simple partnerships, sole proprieterships, publicly traded companies -- but most likely you'll want to start a Limited Liability Company, or LLC. That gives you the protection and flexibility of the corporate form without the elaborate requirements of a publicly traded corporation. Sounds good... but right away you're going to hit a speed bump: to start a new LLC in Jordan, you must invest a minimum of 30,000 Jordanian Dinars. That's about $40,000 US dollars. In a country where the per capita income is around $4,000 per year, that's a lot of money. In technical terms, this is a "Minimum Capital Requirement", or MCR. MCRs are pretty common around the world. Almost every country has MCRs for some companies; for instance, there's often an MCR if you want to be traded on the local stock exchange, or if you want to start an insurance company or a bank. Very broadly speaking, about a third of the countries in the world have only these MCRs, for certain specialized sorts of business. About another third have modest MCRs, US$1,000 or less. (Note that $1,000 is still a lot of money in some places.) And then about half have serious MCRs, enough to make it impossible for most people to start a company. Why? Well, historically there were several justifications. 1) MCRs showed that the investors were serious. By restricting access to the corporate form, they encouraged all but the most skilled and dedicated from entering into business. 2) MCRs gave protection to creditors. 3) MCRs discouraged the formation of shell companies and certain sorts of fraud. 4) By limiting the number of companies, MCRs made them easier to monitor. It also made it easier for the government to intervene in a particular sector. 5) MCRs deterred the Wrong Sort of People from starting companies. Now, if you look over this list, you can probably guess what sorts of countries went for MCRs in a big way. That's right -- former European colonies run by governments that were dirigiste, explicitly socialist, or both. Go back 30 or 40 years, and MCRs were conventional wisdom from Malaysia to Mali. Another factor was that economics -- talking practical, developmental economics here -- went through a long period of being fascinated with large firms and neglecting small ones (except insofar as small firms could become large ones). This wasn't so much an argument for MCRs as an argument against them that nobody was paying attention to. So they discouraged the formation of small businesses; so what? It's big businesses that matter anyway. But economic orthodoxy has shifted, and the tide has been running against MCRs for a while now. In the last 10 years countries all over the world have been cutting or eliminating them. And now -- maybe -- it's Jordan's turn. In theory, Jordan could just cut their MCR with a simple change in the law. In practice, there are complications. For example, the fee schedule for new companies is based on the initial capital investment. Eliminate MCRs, and we'll eliminate several million dollars a year of government income. So, someone must develop a new fee schedule that's revenue neutral. Another issue: there are a lot of Jordanians out there who'd like to start LLCs. How many? Well, we're not sure... but someone needs to find out. Because once the MCR is changed, there will probably be a surge of people wanting to start new companies. If the surge is too big, it will overwhelm the local company registration office. Yet another: Jordan has a large population of guest workers, mostly from Egypt. (Since many Jordanians work in the Gulf States, this makes Jordan one of the few countries that is both a destination and a source for guest workers.) Remember reason #5, above? There's a concern that if the MCR is dropped too low, guest workers will start founding companies. Now, this is unlikely to happen, for various reasons; and if it did happen, it probably would not be a big deal. But -- as in most countries with large guest worker populations -- there's a lurking fear that the guest workers will somehow bootsrap themselves into some status they're not entitled to. I don't speak a dozen words of Arabic, but I've already learned the word for "Egyptian" -- "al Masri". (Because I'll be sitting in a meeting, and suddenly the conversation will shift to Arabic and get very animated, and it'll be blah blah blah al-Masri blah.) Even if the fear is irrational, it's still real, and has to be dealt with. The people who are worried about al-Masri either have to be talked around, or the new law has to contain some provisions that will make it impossible (or at least very hard) for the tricky al-Masri to start a company. There's more, but that's probably as much as it's appropriate to discuss here. Anyway, that's what I'm doing in Jordan: I'm working with the Jordanians to help them figure out (1) how low they should drop their MCR, and (2) how to do that. So. Questions, thoughts?