(Photo by Melina Mara/The Washington Post)

“It should not take longer to start a business in America than it does in Canada or France. But that is the fact.”

— Hillary Clinton, during a small business discussion, Cedar Falls, Iowa, May 19, 2015 

Our antenna always goes up when a politician asserts a “fact.” Clinton made this remark in the midst of a discussion about the “perfect storm of crisis” that she said small businesses face in the United States.

She made a similar point in an article she posted on LinkedIn on May 21, but with an additional country added:  “It should not take longer to start a business in the U.S. than it does in Canada, Korea, or France.”

This statement poses a fact-checking conundrum because, as the Clinton campaign hastened to point out, it is accurately drawn from a database at the World Bank. But sometimes, depending on the context, things can be technically true but still misleading. Let’s take a look.

The Facts

The World Bank’s database lists 189 countries in terms of the time required to start a business. For 2014, in first place is New Zealand, with one day. In France and Canada, along with eight other countries, it takes five days. (South Korea, along with six other countries, is listed as four days.) The United States, with 12 other countries, is listed as six days.

First of all, one extra day does not seem like much of a hindrance — so much so that, as Clinton asserted in the LinkedIn article, the fact signified the “red tape that holds back small businesses and entrepreneurs.”

But if you did dig even deeper into the data, the differences narrow further. Assuming an 8-hour business day, for France it works out as 36 hours (4.5 days), Canada 40 hours (5 days) and the United States 45 hours (5.6 days).

The average time for starting a business in the world was 22.3 days, according to the World Bank. In high-income countries, it was 15.2 days, while in the Euro area, it was 10.6 days. So, within the world, the United States ranks very close to France and Canada — and exceeds many other industrialized countries.

We should note that the World Bank studied a very specific size of company — employing between 10 to 50 people within one month, having five owners, using start-up capital equivalent to 10 times income per capita and being engaged in industrial or commercial activities and owning no real estate.

But there’s another funny thing about the data. While Clinton uses these numbers as a proxy for entire countries, in most cases, researchers only looked at the time it took to start a business in a country’s largest city. That would be Paris in France and Toronto in Canada. But the United States was one of the few countries in which its figure was an amalgam of the two largest cities — New York and Los Angeles.

When you look at the individual city data, it turns out that it takes four days to start a business in New York and eight days to start one in Los Angeles. In the report, that was averaged as six days. But if you really used an apples to apples comparison – the largest city in each country –then actually the United States (i.e., New York, with four days) tops France (Paris, with 4.5 days) and Canada (Toronto, with five days.)

The World Bank Web site lets you compare the individual cities to countries, so New York ends up tied for 6th place — with Belgium, Iceland, South Korea, the Netherlands and Sao Tome. Los Angeles is down in 15th place, tied with Cyprus, Egypt, Madagascar and the Kyrgyz Republic, among others. Another World Bank report notes that the differences are so large because, in the United States, “company law is under state jurisdiction and there are measurable differences between the California and New York company law.”

So what does data about starting a business in the largest city have to do with small businesses in Iowa? Beats us.

The Clinton campaign noted that the United States (i.e., the combined ranking for New York and Los Angeles) ranked 46th on a broader “starting a business” category, which also includes time to start a business, the number of procedures, cost of capital and paid-in minimum capital. Each element is weighed equally to come up with an overall ranking.

Under this criteria, Canada ranked second, Korea was 17th and France was 28th. But again, the U.S. score is dragged down by greater difficulties found in starting a business in Los Angeles. And Clinton spoke simply of the time it took to start a business.

The Pinocchio Test

In the context in which Clinton used this factoid, it does not make much sense. This is specifically about starting businesses in a country’s largest city — and the score for the United States is affected by the fact that it is one of the few countries with a blended figure for two cities.

There is such a wide variation between New York and Los Angeles because corporate law generally is set at the state level — making us wonder what federal solution Clinton is proposing. (Her article said such specific policy suggestions would be forthcoming in the future.)

On a strictly technical level, this factoid at least is based on a legitimate data set. But it means much less than Clinton suggests in her statement and lacks important context. So she earns a Pinocchio.

One Pinocchio

 


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