The Doing Business Report (henceforth DBR) is a celebrated flagship publication of the World Bank. DBR grew out of a ‘project’ in 2002. As the Bank states:
The Doing Business project provides objective measures of business regulations and their enforcement across 190 economies and selected cities at the subnational and regional level.
The Doing Business project, launched in 2002, looks at domestic small and medium-size companies and measures the regulations applying to them through their life cycle.
By gathering and analyzing comprehensive quantitative data to compare business regulation environments across economies and over time, Doing Business encourages economies to compete towards more efficient regulation; offers measurable benchmarks for reform; and serves as a resource for academics, journalists, private sector researchers and others interested in the business climate of each economy.
Countries are scored (100=best) and ranked (1=best) for ‘ease of doing business’. One doubts whether the progenitors of DBR anticipated that the ranking exercise would have such an impact on the international community. The Economist marvels at the ‘remarkable influence of the World Bank’s business rankings’. The knighted British economist Sir Timothy Besley calls it ‘…one of the most prominent knowledge products produced by the World Bank.’ He proceeds to note that ‘…since 2003, over 2,000 research articles have been published in peer-reviewed academic journals using this data, with more than 5,000 working papers being posted online’.
At the policy-level, governments, especially in the developing world, eagerly consult the annual publication of DBR to find out how well or how poorly they are ranked. Some examples from Asian countries are worth citing.
Consider the case of Pakistan. Significant ‘improvements’ in the business environment took place last year. This led the World Bank President (David Malpass) to join in the national celebrations. He proclaimed: ‘Your country jumps to 108th place from 136th last year… I congratulate you all, prime minister, chief minister, your team for this achievement.’
Some Asian countries, such as India, set a policy goal in terms of reaching a particular rank (‘top 50’) by 2020. Indeed, India was aided and abetted by the World Bank in its aspirations. Simeon Djankov, one of the ‘founders’ of the Doing Business enterprise, offered the following eulogy to the Indian political leadership in October 2019: ‘This is the third year in a row that India has made it to the top 10 (improvers) in doing business, a success that very few countries have done over the 20 years of the project’.
The DBR also had a profound impact on Indonesia, which took an identical approach to India. It set a goal to be ranked 53rd in 2020 and 40th in about four years. The Head of Investment Coordinating Board even promised to step down if Indonesia failed to meet these self-proclaimed targets.
In retrospect, this scramble to win the rankings game by several Asian countries was a misguided endeavour that the World Bank made little or no attempt to rectify. Now, it seems, it has no choice. An official statement issued by the World Bank on August 27 acknowledges ‘data irregularities’ that were considered serious enough for the DBR to be ‘paused’. The following is an extensive extract from the August 27 statement.
A number of irregularities have been reported regarding changes to the data in the Doing Business 2018 and Doing Business 2020 reports, published in October 2017 and 2019…
The integrity and impartiality of our data and analysis is paramount and so we are immediately taking the following actions:
We are conducting a systematic review and assessment of data changes that occurred subsequent to the institutional data review process for the last five Doing Business reports.
We have asked the World Bank Group’s independent Internal Audit function to perform an audit of the processes for data collection and review for Doing Business and the controls to safeguard data integrity.
We will act based on the findings and will retrospectively correct the data of countries that were most affected by the irregularities.
The Board of Executive Directors of the World Bank has been briefed on the situation as have the authorities of the countries that were most affected by the data irregularities.
The publication of the Doing Business report will be paused as we conduct our assessment.
This embarrassing development was duly reported by leading representatives of the global media – see, for example, The Economist, Financial Times, Bloomberg Quint and Reuters, UK . All of them traced the background to the current debacle of the DBR to the role played by Nobel Laureate Paul Romer who had a brief, but tempestuous, tenure at the World Bank as its Chief Economist. He reportedly had a tense and adversarial relationship with Bank staff on multiple issues, but the proverbial straw that broke the camel’s back turned out to be Romer’s critique of the World Bank’s Doing Business reports. He made an abrupt exit in January 2018 after this critique became public. Even worse, media reports attributed to him the sensational claim that Bank staff fabricated the data to create an unfavourable impression of a particular country (Chile) because it was being ruled by a left-of-centre government and, therefore, presumed not to be business-friendly.
Romer subsequently recanted his position in his personal blog pointing out that he never intended to cast aspersions on the intellectual integrity of World Bank staff but stood by his methodological critique. It appears that Romer was prescient. He also wanted to review past DBRs because he felt that changes in methods of measurement were too frequent and led to arbitrary changes in national rankings. He highlighted the case of Chile whose rank fell by more than twenty places in a short span of time.
Two analysts, Justin Sandefur and Divyanshi Wadhwa, from the Center for Global Development illustrated spurious improvements in the ranking for India due to changes in methodology and even changes in sample size. An external audit of DBR commissioned by the World Bank in June 2018 exonerated Bank staff from data manipulation but noted the following: ‘… both the survey questionnaires and how the indicators are calculated have changed frequently… (F)requent methodology changes reduce the value of the indicators to researchers, policy makers and the media.’
It appears, however, that the worst fears of Romer have turned out to be true. It was not just a case of frequent changes in methodology, but ‘data irregularities’ that have caused the World Bank to temporarily cease the publication of DBR. Who committed these irregularities is unclear. The Bank faces the formidable challenge of salvaging the reputation of a flagship publication. Will it be able to persuade member states in Asia and elsewhere to take the Doing Business rankings seriously following this debacle? Only time will tell.
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.