Doing Business at the World Bank

A showdown is looming at the World Bank over whether to discontinue or water down the Bank’s annual "Doing Business" Report.  As reported here, and blogged about here, and here, China is leading the charge against the report, which is one of the Bank’s most controversial and influential projects.  The U.S. government has been lobbying in favor of Doing Business, but so far has failed to generate the degree of high-level support from other G-20 countries or thought leaders that will likely be needed to save the report.  A committee established by the Bank and headed by South African Planning Minister (and former finance minister) Trevor Manuel to assess the future of Doing Business will report as early as next week.  Based on comments from advisors to the Manuel Committee, it looks as if its conclusion will be negative.  After the report is received, President Kim will make his recommendation, which could involve eliminating the report or gutting it through presenting its results qualitatively or in buckets that reduce the transparency that is at the core of the exercise.

China’s opposition is disappointing. It’s assumed to be linked to its low rating (and a general view that the Bank shouldn’t rank its members)--but they could have spun a positive story around their efforts towards a more market oriented economy and their improvement in the rankings--one would have thought that would be a good argument for them.  Another argument made against the report is its bias towards deregulation.  That’s fair, but the report positively weights certain regulation required for the proper functioning of markets and the rule of law.

My view is pretty simple:  the report has flaws, and certainly can be improved, but overall has been a significant force for better policies.  As a starting point for the discussion (a benchmark, not a final assessment), its data is informative and highlight important institutional features that matter for economic growth and poverty reduction.   As an incentive to liberalize, it works. It’s a public good that should be kept, and a healthy example of a multilateral institution candidly assessing country policies.  That’s why I was heartened to receive the email below from supporters of the Report.  They deserve our support.

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From:

Daron Acemoglu (Professor at the Massachusetts Institute of Technology),

Paul Collier (Professor at Oxford University, former Research Director at the World Bank),

Simon Johnson (Professor at the Massachusetts Institute of Technology and former IMF Chief Economist)

Michael Klein (former World Bank Group Vice-president and co-founder of Doing Business), and

Graeme Wheeler (former Managing Director of the World Bank and now Governor of the Reserve Bank of New Zealand)

We are writing to you about the World Bank’s Doing Business report.  Published since 2003 the report benchmarks 185 countries annually on key dimensions of the legal and regulatory environment for small businesses.  It has supported numerous reforms all over the world helping small businesses and employment.

There is currently a serious risk that the report may be abolished or severely curtailed as part of an ongoing review that will be finished in the next few weeks.  The report has always been subject to controversy as it highlights shortcomings that countries may not appreciate.  The World Bank’s President and its Board of Executive Directors will consider the future of the report in the next few months.

We would like to ask you to support an open letter to the World Bank’s President and its Executive Directors supporting the Doing Business project and recommending general directions for the future.  The letter (see below) is informed by our review of the arguments about Doing Business (attached).

This is our private initiative and without any institutional affiliation.

Please, reply by return email, if you agree to support the open letter. If you wish, indicate in which capacity you want to be mentioned.  If you want to forward this email to ask others also to support the letter, please, ask them to reply to this email address ([email protected]) so that we can keep an accurate record of support.

If you wish to refer to further information about the Doing Business report this link gets you to chapter of the report that describes it in detail:

http://www.doingbusiness.org/~/media/GIAWB/Doing%20Business/Documents/Annual-Reports/English/DB13-Chapters/About-Doing-Business.pdf

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Open letter to the President of the World Bank and its Executive Directors

The World Bank’s Doing Business Report benchmarks 185 countries on important aspects of the business environment for small and medium sized firms.  The spirit of Doing Business is to enable people everywhere to be successful on the basis of sensible rules, not on the basis of special connections or corruption. The data shed light on important institutional features that matter for economic growth and poverty reduction.

The data and the rankings provided by Doing Business make for helpful bench-marking tools.  They lead countries to consider and tackle important institutional challenges.  Precisely due to the power of the data criticism persists.

The report has, again, come under scrutiny at the time of its 10^th anniversary.  The World Bank President has appointed a special commission to review the report and make recommendations.  All options are on the table including, at the extreme, abolition of the report.  We are concerned about this.  We feel the arguments about the Doing Business Report are by now well known.  The report itself provides a model of transparency about data sources, methodology, uses of data and limitations of the data. The way forward is not to question the basics of the report, but to move ahead with further improvements and additions.

As an input for the deliberations by the World Bank’s Board of Directors and its President, we offer the following view on basic directions to take. The view is informed by the attached review of the Doing Business indicators.  The review was agreed by Daron Acemoglu (Professor at the Massachusetts Institute of Technology), Paul Collier (Professor at Oxford University, former Research Director at the World Bank), Simon Johnson (Professor at the Massachusetts Institute of Technology and former IMF Chief Economist), Michael Klein (former World Bank Group Vice-president and co-founder of Doing Business) and Graeme Wheeler (former Managing Director of the World Bank and now Governor of the Reserve Bank of New Zealand).

In particular, we believe that

-   the indicators provide informative measures about institutional arrangements that are useful for the development of all countries,

- the indicators are a step forward in the development of measures of institutions

-  the summary measures, whether the sub-indicators or the overall “ease of doing business” measure, are useful benchmarking tools

- policy-makers have typically used the indicators well

Going forward, the World Bank should

-     continue to maintain, update and publish all the existing Doing Business indicators including aggregate ranking

-     continue to improve the indicators and their collection

-     continue to explain both the uses and the limitations of the indicators

-  ensure that policy analysis places the indicators in the relevant country context drawing on complementary data sets

-  make proposals for further indicators that shed light on important institutional arrangements underpinning economic development