The
World Bank Suspends her ´Doing Business´
Index
It was about time.
The World Bank has now suspended the
publication of its global business climate index after identifying
“irregularities” in its data that may have affected the ranking of emerging countries.
I have criticised the use (and misuse) of governance indicators since long, not
only for lack of data integrity and not just the ´Ease of Doing Business´ (EoDB)
index. Most recently, joint with Robert Kappel, in our FES study on
the ´G20 Compact with Africa´[1].
EoDB Indicators have been provided from
2003 onwards on a yearly basis by the International Finance Corporation,
the private-finance arm of the World Bank Group (IFC). The EoDB puts up a global beauty contest for investors: processes
for business incorporation, ease of getting a building permit, obtaining an
electricity connection, transferring property, getting access to credit,
protecting minority investors, paying taxes, engaging in international trade,
enforcing contracts and resolving insolvency. Labour market deregulation (e.g. the
ease to fire workers) had already been discontinued from EoDB rankings, in the
wake of early protests by the International Confederation of Free Trade Unions
(ICFTU).[2]
The EoDB index has been subject to heavy
criticism since a while, notably at the OECD Development Centre[3].
Early 2018, the World Bank’s chief economist at the time, Paul Romer, told the
Wall Street Journal he had lost faith in the integrity of the Doing Business
index, suggesting it was being politically manipulated—particularly to
embarrass Chile’s socialist president
Michelle Bachelet. He then announced his resignation.
Two
EoDB Heroes
Chile was not a single ´accident´. India’s rise in the Doing Business
rankings celebrated by India’s Prime Minister Narendra Modi (“the largest
democracy on earth is also the fastest growing major economy”) turned out to be
mostly an artefact of methodological changes (as did India´s faked numbers of
growth). CGD author Justin Sandefur has urged that the World Bank “Should
Ditch the "Doing Business" Rankings”[4].
And, on the heels of a massive arms deal with the US[5],
Saudi Arabia sharply improved her
rankings in the 2019 Doing Business report. (Mind you, the 2020 G20 Riyadh summit
is still scheduled for November. Honi
soit qui mal y pense.)
Governance indicators fail for a variety of
reasons that I have exposed here[6]
and there[7].
Especially harmful is global investors´ beauty contest contest indicator (EoDB),
as eloquently summarised by former UNECA head Carlos Lopez: “The global
investor focus on the index had encouraged countries to prioritise creating
low-tax, low-regulation environments, sometimes at the expense of macroeconomic
considerations. It makes countries compete into some sort of race to the bottom
against the expectation that they will be rewarded with more FDI when in fact
what matters most for investors is stability, predictability and regulatory
clarity”[8].
[1] Robert Kappel & Helmut Reisen (2019), "G20
Compact with Africa: The Audacity of Hope", Berlin: Friedrich Ebert
Stiftung.
[2] Cf. Peter Bakvis (2006), How the World Bank &
Imf Use the Doing Business Report to Promote Labour Market Deregulation in
Developing Countries, Berlin: Friedrich Ebert Stiftung.
[3] Christiane Arndt and Charles P. Oman (2006), Uses
and Abuses of Governance Indicators, Paris: OECD Development Centre
Policy Studies.
[4] Justin Sandefur & Divyanshi Wadhwa (2018), „Chart
of the Week #3: Why the World Bank Should Ditch the ´Doing Business´
Rankings—in One Embarrassing Chart”, Washington, DC: Center for Global
Development (CDG).
[5] Javier E. David (2017), “US-Saudi
Arabia seal weapons deal worth nearly $110 billion immediately, $350 billion
over 10 years”, CNBC.com, 22. May.
[6] Helmut Reisen & Dilan Ölcer (2009), “Extracting
more from EITI”, voxeu.org, 17. February.
[7] Helmut Reisen (2019), “The
Abuse of Governance Indicators”, ShiftingWealth Blog, 25. June.
[8] Tom Wilson (2020), “World
Bank suspends its business climate index over data ‘irregularities’”,
Financial Times, 28. August.
