Semco, in Brazil is one of Latin America’s fastest growing companies, acknowledged to be amongst the best in the world to work for. It has a waiting list, in thousands, of applicants wishing to join it. Ricardo Semler, who owns Semco has become a legend.

Workers make decisions which, in other companies, are made by their bosses. Managers set their own salaries and bonuses. Everyone knows about the companies profitability and sales; account books are accessible to all. Approvals required are minimal and paperwork has been largely eliminated. As against other companies which may share eight to 12 per cent of their profits with their employees, at Semco the workers desired 23 per cent and that’s what they get.

Why does Semler run his company the way he does — with maximum profit-sharing

and minimal supervision? He answers by asking a counter question, “What would you rather have, the tail of an elephant or an entire ant?”

His way has worked brilliantly. Semco went from $35 million in annual revenues in 1994 to $160 million in 2001. When he took over from his father the company had 90 employees, today it has over 3000 and growing.

Admittedly, there are many ways to successfully run a company. However, when it comes to running countries, there are not so many styles which have worked. Research done over the last few decades has conclusively established what is deceptively simple: Economic freedom leads to prosperity.

This is what president Edwin J Feulner of the US based Heritage Foundation (which brings

out an annual ranking of countries in its ‘Index of Economic Freedom’) has to say — “while taking steps to advance economic freedom may be uncomfortable and politically difficult in the short term, the growth rates found in the ‘free’ countries demonstrate beyond question that the benefits enable a country not only to stand on its own, but to flourish.”

This index in 2006 ranked 157 countries based on 10 broad factors of economic freedom. Nepal is considered a ‘mostly unfree’ country and ranked a dismal 125.

To be considered economically free, a country must maintain an open trade policy with minimal barriers to imports and exports. The most free countries are those where the tariffs are below four per cent and where there are no significant non-tariff barriers. Nepal ranks amongst the worst countries for its restrictive trade policies and a high average tariff rate of 15.6 per cent. Economic freedom means that a country must maintain liberal policies which welcome capital flows and investment. Restrictions must be few in number and not economically significant. There must be transparency and impartial treatment of foreigners. Nepal, unsurprisingly, brings up the rear.

Countries, economically free, maintain an open environment for business. Burdensome regulations deter trade and investment. Countries must have minimal licensing procedures, apply regulations uniformly and treat foreign-owned businesses in a non discriminatory fashion.

Investors may choose not to enter a country where cost of doing business is excessive. With its unfriendly labour legislation, uncertain judicial rulings, and a corrupt and oppressive bureaucracy, Nepal again finds its place at the bottom of the heap.

An important aspects of economic freedom is for a country to have secure property rights. Investors come only when they know that the courts will protect private property and not be subject to influence. A country with an established rule of law protects property and provides a conducive business environment with a high degree of certainty. Nepal’s score is amongst the worst. This is what the ‘index’ has to say — “laws and regulations are unclear, and interpretations vary from case to case … cases can take years to settle.”

To progress, Nepal must shed its overpowering bureaucracy, give the freedom which investors and businessmen seek, but, at the same, provide for a secure law and order environment where property rights are respected and rule of law is supreme.

Would Nepal’s government want to preside lightly over an elephant size economy where people earn $48,000 annually like those in Luxembourg or continue to tightly control an ant size economy with its citizens earning less than a dollar-a-day?