Rethinking Bretton Woods | Mon, Nov 11, 2013
Center of Concern co-authors a brief with responses to the Independent Panel Review of the World Bank's Doing Business, and recommendations for the way forward.
The Independent Panel appointed by the World Bank President Mr Jim Kim recently finalized its review of the Doing Business project.
In a new brief, "Doing Better: Civil Society recommendations for building on the findings of the Doing Business Review," civil society organizations assessed the review and offered recommendations on how to build on it and next steps for implementation.
Among other recommendations in the brief:
--CSOs called on the Bank to transparently review the relevance of the current indicators to the poverty eradication and inclusive growth objectives of the Bank, so as to cease the use of indicators for which there is no robust correlation with those objectives. As the panel notes, current indicators are not chosen according to any robust scientific analysis and there is scant evidence of their usefulness to socioeconomic performance.
--Noting the Panel’s finding that Doing Business is a “poor guide” for policy formulation and emphasis that te Doing Business report "should not be viewed as a one-size-fits-all template for development," CSOs called to end practices to use it in conditional lending practices (for example, by the US Millennium Challenge Account), the Bank’s own use in Country Policy and Institutional Assessments and in setting terms and conditions for its lending strategy and the use by several international aid agencies in their approach to official development assistance
--The Panel stated that "Doing Business users should fully understand the report's sphere of relevance and importantly its limitations. These caveats, which do appear in small print on page 17 of the 2013 Doing Business report, should be emphasised more prominently within the first few pages, and throughout the supporting communication strategy." CSOs agreed with the Panel’s recommendation that the report carry a prominent "health warning" at the beginning, and also changing the report's title so that it no longer "implies that it provides a comprehensive measure of the business environment."
--In particular, CSOs supported the Panel’s findings questioning the methodology of using overall aggregate rankings. Because of how the rankings are constructed, a country’s position in the rankings can change dramatically with only small reforms or even with no reforms at all. They Panel went on to note that there is no strong justification for averaging scores across the rankings to produce the "Ease of Doing Business" index and that the cardinal scores, rather than positions in the rankings, provide more useful information to reform-minded policy-makers. Therefore, there is no good justification for maintaining an overall ranking.
--CSOs also brought to attention the Panel’s findings regarding particular indicators of concern, such as the tax reform and the labor regulation indicators. On tax reforms, the Panel noted several methodological and conceptual flaws in how this score is calculated, for instance, the indicator assumes that a low rate of taxation is better for business, and three diverse sub-indicators are aggregated into a total ranking score. On the labor market regulations, the Panel said that the one-sided view of labour market regulations embodied in the indicator parameters could encourage governments, especially those that are World Bank clients, to engage in major deregulatory reforms. The panel criticised unsubstantiated assertions that countries that improve their indicator ranking through deregulatory measures obtain superior economic outcomes. The Bank’s own Independent Evaluation Group found no evidence of such a relation. Similarly claims that the World Bank needs to focus on labour market regulations because enterprises in the Bank’s client countries tend to consider these major obstacles to investment and job creation are not borne out by evidence. On the contrary, the WDR 2013 on Jobs found that labour regulations did have impacts on inequality and that a weakening of labour market institutions and social protection mechanisms, along with several other factors, account for the growth of inequality in most countries over the past two to three decades. CSOs called for the Employing Workers Indicator to be permanently removed from Doing Business and endorsed the Panel’s recommendation that the total tax rate indicator be scrapped.