Rethinking Bretton Woods | Thu, Nov 22, 2007
This article discusses the World Bank's Doing Business Report, 2008.
(This article is also available in Spanish from Choike, by clicking here.)
On September of this year, the World Bank launched this year’s edition of the Doing Business Report. It states that 113 reforms around the world are reportedly inspired or informed by the report since its beginning. A number of examples are given of countries that have targeted specific rankings and are implementing every necessary reform to get there. Arguably, of course, the report would not carry the same weight, especially among borrowing countries, if made by a non-lending institution. According to a report on “Accelerating Development in Africa” from last April, the “investment climate” (as benchmarked by the Doing Business report) is a key priority in analytic and project support by the World Bank in the region and, moreover, IDA projects are pooled with donor funds to support these types of reforms (meaning that even bilateral funding may be contingent upon implementing the reforms preached by the report).
But it is also likely that we are witnessing one more example of undue intellectual authority gained by measurement tools because they are produced by the Bank, regardless of the soundness of the research behind them. In fact, earlier this year an external review of World Bank research found that the Bank’s research is "used to proselytize on behalf of Bank policy, often without taking a balanced view of the evidence, and without expressing appropriate skepticism".
Just as the Bank touted the influential nature of the report, the Washington Office of ITUC took the time to track down the genesis of the indicator that relates to "hiring and firing workers", a particularly controversial indicator that promotes deregulation of the labor market. The findings provide a hint of just how irresponsible and ungrounded some of these indicators may prove to be.
The Doing Business 2006 report cites only two studies to support its assertion that deregulation leads to higher employment. One of them, a World Bank study, was unavailable and "forthcoming". Both studies only arrived at conclusions for OECD countries. The OECD was, at the time, revising its old study on Jobs Strategy, which eventually came out the following year concluding there is "no single combination of policies and institutions to achieve and maintain good labour market performance". The Doing Business report the following year restated its assertion, but dropped its initial support sources only citing a different article (Botero and others) that, it said, had been adopted "with minor changes". As it turns out, the Botero article finds that "labour market regulations are not significantly correlated either with the size of the informal economy or with employment levels in the informal economy". The Doing Business Report this year repeats same claim as last year, but no longer cites any studies to support the link between deregulation and employment. It only cites studies linking growth in export business and deregulation, one by the World Bank and another by the IMF, neither of them posted on the websites of the institutions at the time of launching this year’s Doing Business. Anecdotal evidence also cited by the Bank is, ITUC found, contradicted by other research from the Bank itself, such as, for instance, the evidence of the results that Colombia labor market deregulation was going to have on reducing unemployment.
However, rather than reexamine the nature of the whole project and the soundness of its assumptions, last year’s Doing Business report announced an expansion of the number of indicators. Transparency of government procurement and quality of infrastructure would be added to the list. While this has not happened, it seems the expansion has not been aborted, only placed on hold. The addition of "transparency of government procurement" will only add to the controversy, as this is one of the issues that industrial countries are bent on bringing up in trade negotiations. After a coalition of more than 70 developing countries said no to rules on government procurement at the WTO Ministerial in Cancun, industrial countries continue to push for reforms in this area through North-South bilateral and regional agreements. The inclusion of rules on government procurement as part of "investment climate" blueprints would, thus, represent a strong pressure on developing countries to unilaterally adopt, and therefore soften resistance to, a political choice they have clearly expressed it is not in their best interest.
* The Overview chapter of the Doing Business Report 2008 is available to downloaded (pdf format).