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Doing Business as usual? Not if the World Bank listens to Trevor Manuel

Brendan Martin, 24 June 2013

An independent review panel set up by the World Bank to review a “broad range of issues”  around its annual Doing Business report has made a scathing critique of its whole approach but recommended that the controversial publication should continue.

However, if the World Bank accepts and implements all of the review panel’s other recommendations -- which were reached unanimously by the panel’s 11 members -- Doing Business will change almost beyond recognition, even down to a new title.

Chaired by South African planning minister Trevor Manuel, the panel recommends scrapping the Ease of Doing Business league table, which is based on the aggregate score of each country against the 10 Doing Business indicators.

“The act of ranking countries may appear devoid of value judgement," states the panel’s report, "but it is, in reality, an arbitrary method of summarising vast amounts of complex information as a single number."

It adds that “the composite measures used in the Doing Business report are also misleading because they are only partial measures that ignore the social benefits of regulation", and that “there appears to be no scientific evidence to support the report’s current selection of indicators”.

Moreover: “By ranking indicators that purport to measure aspects of business performance, the Doing Business report is inadvertently creating an incentive for those being ranked to manipulate the indicators by altering the proxies that are the focus of the rankings, instead of changing the underlying factors that the proxies are attempting to assess.”

In view of so fundamental a challenge to its approach and use, it is odd that the first of the panel’s 11 recommendations is that Doing Business should be “retained as an annual flagship report”.

It could be that the panel anticipated the response of World Bank President Jim Yong Kim, who took the panel’s report to his board two weeks ago and then announced: “I am committed to the Doing Business report, and rankings have been part of its success.”

But in pointing out that “Doing Business has been an important catalyst in driving reforms around the world”, Dr Kim also highlighted the concerns of its critics that it has been used to drive a race to the bottom around labour standards, regulatory protections and taxation.

The panel’s report warns that Doing Business “should not be viewed as providing a one-size-fits-all template for development” because “empirical evidence on the results of business-regulation reforms captured by the report is mixed and suggestive at best”.

It recommends removing two indicators -- Employing Workers (already suspended since 2009) and Paying Taxes -- changing the project’s methodology, improving its transparency and governance, and adding a prominent ‘health warning’ about the use of its data.

In relation to the employment indicator, the panel echoes Public World’s critique that the Doing Business approach is refuted by the Bank’s own 2013 World Development Report on Jobs, and adds:

“The Panel recommends that the Bank continue the work it started in 2009 on developing a comprehensive approach to labour-market policy, based on a quantification of the costs and benefits of a comprehensive range of labour laws and regulations.”

Such an approach should consider including “additional indicators such as prescribed hours of work, rest and leave provisions, minimum wages, protections against dismissal, occupational health and safety requirements, social protection and respect for basic labour standards”.

The toxic nature of the tax indicator was illustrated at the London launch of the review report by Jeffrey Owens, the international authority on tax policy who has been advising the panel. He said that some countries had tried to push their way up the Doing Business league table by eliminating scrutiny of transnational capital -- or, to put it another way, by becoming tax havens.

The next edition of Doing Business is already being prepared for publication in September, and the panel’s report is unlikely to affect it. But what about future editions?

The World Bank’s mission is to “end extreme poverty within a generation and boost shared prosperity”. Without at least the changes recommended by the review panel it is hard to see how Doing Business will contribute to that.

 

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