IYANATUL ISLAM |
There was a time when the creators of the World Bank’s Ease of Doing Business Index (EoDB) encapsulated in its Doing Business report (DBR) exuded a great deal of enthusiasm. They proposed that an inter-country ranking system along multiple dimensions of the domestic business environment held a lot of promise:
The main advantage of showing a single rank: it is easily understood by politicians, journalists, and development experts and therefore created pressure to reform. As in sports, once you start keeping score everyone wants to win (as cited in Doshi et al)
DBR soon became ‘probably (the World Bank’s) most-cited publication’. An external review of the DBR noted:
It routinely garners high-profile coverage on the front pages of the Financial Times and Wall Street Journal, features in national electoral campaigns and has been cited internally by the World Bank as the basis for $15.5 billion in lending.
Scholarly investigations marvelled at how influential the DBR was. Thus, Doshi et al conclude:
The World Bank, which … marshalled the Ease of Doing Business index to amass surprising influence over global regulatory policies …The … ranking system affects policy through bureaucratic, transnational, and domestic-political channels. We use observational and experimental data to show that states respond to being publicly ranked and make reforms strategically to improve their ranking. A survey experiment of professional investors demonstrates that the … ranking shapes investor perceptions of investment opportunities.
Indeed, large emerging economies, such as India and Indonesia, represent, in retrospect, disconcerting examples of how the highest political leadership became so enamoured of the EoDB that they made it a cornerstone of their policy. In February 2020, one report on Indonesia points out that
President Joko “Jokowi” Widodo has ordered his Cabinet to improve the country’s Ease of Doing Business (EoDB) ranking and to make it into Top 40.
In India, even as recently as May, 2021, India’s Prime Minister Modi’s office proudly proclaimed
India has successively scaled greater heights in the World Bank’s Ease of Doing Business ranking jumping from 142 in the year 2014 to 63 in the year 2019. As per the latest report, we are one of the top 10 improvers in the world. Under the leadership of PM Modi, the journey of India is moving closer to global best practices.
Jokowi, Modi and their minders were apparently unaware that the World Bank itself was preparing to abandon its flagship publication. By mid-September, 2021, the fatal blow to the much-cherished DBR was delivered. In the pithy words of the World Bank:
After data irregularities on Doing Business 2018 and 2020 were reported internally in June 2020, World Bank management paused the next Doing Business report and initiated a series of reviews and audits of the report and its methodology. In addition, because the internal reports raised ethical matters, including the conduct of former Board officials as well as current and/or former Bank staff, management reported the allegations to the Bank’s appropriate internal accountability mechanisms.
After reviewing all the information available to date on Doing Business, including the findings of past reviews, audits, and the report the Bank released today on behalf of the Board of Executive Directors, World Bank Group management has taken the decision to discontinue the Doing Business report. The World Bank Group remains firmly committed to advancing the role of the private sector in development and providing support to governments to design the regulatory environment that supports this. Going forward, we will be working on a new approach to assessing the business and investment climate. We are deeply grateful to the efforts of the many staff members who have worked diligently to advance the business climate agenda, and we look forward to harnessing their energies and abilities in new ways.”
This scandal-ridden report almost claimed the position of IMF Chief (Kristalina Georgieva) because of allegations that, during her tenure as World Bank Chief, internal staff were put under pressure to improve the rankings of China. She narrowly escaped being fired by the IMF Board. Saudi Arabia was implicated in another case of inappropriate pressure being applied to the EODB exercise.
What went wrong? What are the lessons that one can learn from this debacle? Professor Sonalde Desai offers a thoughtful critique. She notes:
The EoDB experience has highlighted both the power of data and the political influence such rankings can yield. Should we try to reform the index or give up on it? The decision rests on the answer to two questions. First, are there universally acceptable standards of sound economic practices that are applicable and measurable across diverse economies? Second, if the indices are so powerful, should their construction be left to institutions like the World Bank that bring not just knowledge but also wield the heft of global economic power? For the moment, the answer to both seems to be a no.
Countries, such as India and Indonesia, that took the now-defunct ranking system generated by DBR rather seriously also have a lesson to learn. As Professor Kaushik Basu, former Chief Economist of the World Bank, points out:
Many countries and political leaders make the mistake of equating the DB ranking with overall welfare. But the DB merely measures what it says it measures: the ease of doing business. That is certainly important for an economy, but it isn’t everything. … It would be a pity to see … countries focusing only on “doing business” to the exclusion of other indicators of well-being.
Iyanatul Islam is an Adjunct Professor at the Griffith Asia Institute and former Branch Chief, International Labour Office, Geneva. The views expressed in this blog are the author’s own and should not be attributed to the ILO.