Will World Bank's "Doing Business" Report Drag World Bank With It?

Rethinking Bretton Woods | Tue, May 27, 2014

By Aldo Caliari

In this article Rethinking Bretton Woods Project Director Aldo Caliari reports on a panel discussion held at the  Civil Society Forum in the occasion of the World Bank / IMF Spring Meetings.

In 2012, after repeated complaints from different stakeholders, including civil society and shareholders of the World Bank, the Bank’s President Mr. Jim Kim appointed an Independent Panel (“the Panel”), chaired by Mr. Trevor Manuel, to review the Doing Business report. The appointment was scheduled to coincide with the 10th anniversary of the flagship publication, which despite the influence it came to have on benchmarking investment policies had, at that point, never been subject to peer-review by non-Bank experts.

Unexpectedly, and perhaps without deliberately planning to do so, the Panel’s recommendations achieved the difficult feat of catalyzing a broad-based consensus on the necessary reforms. This was in evidence in the support that its recommendations received across governments, civil society and trade unions.

Now, the lack of implementation of the Panel’s recommendations threatens not only the credibility of the Doing Business program, but that of the whole institution. For, indeed, given the high degree of support generated by the Panel, the extent to which its recommendations will be implemented is increasingly being seen as a litmus test for the Bank President’s vow to strengthen rigor and evidence-based standards across the institution.

Panelists at a session held in the occasion of the World Bank and IMF Spring meetings (at the World Bank Headquarters in Washington DC) provided an assessment of follow up to the Panel's recommendations and impediments to reform. The event was cosponsored by the International Trade Union Confederation, the International Working Group on Trade-Finance Linkages, Eurodad and the Heinrich Boell Foundation.

The moderator, Mr. Aldo Caliari, Center of Concern, opened the session noting the general concern among civil society that, more than 8 months after the release of the report, no visible action to implement the report’s substantive recommendations had been taken. Only exception to this was the, rather cosmetic, shifting of the location of the Doing Business team to work under the Research Department.

In her intervention, Ms. Natalia Speer, from the office of the Executive Director for Brazil, Colombia and other countries,  recalled that an evaluation by the Independent Evaluation arm of the World Bank Group addressed Doing Business back in 2008. It put into question methodology and quality of the report and noted, among other things, its strong deregulatory bias, which tended to consider negative any form of public sector intervention. Only a few superficial changes were made in follow up to that evaluation.

In recent years, the report generated increasing concern from both developing and developed countries. In that context, Mr Kim’s promise to go back to rigorous and evidence-based reforms, rigor and quality, and his intention to set up the Independent Panel, were welcome. “At the Board, we have been defending the full implementation of the Panel’s recommendations,” she said, adding “we believe this would be critical for the reputation of the World Bank.”

Nonetheless, she expressed dissatisfaction at the implementation so far, as the Report’s biased methodological approach, poor quality control over data collected, and misleading public perception remain unaddressed. She stressed that, in line with the report’s recommendations, her constituency did not support the continuation of the rankings.

Ms. Sharan Burrow, General Secretary, International Trade Union Confederation, also called for full implementation of the recommendations of the Independent Panel. “Those who understand the power of this report to drive governments and give them the cover to put the interest of private companies ahead of working people and their families may win again if we are not vocal,” she said.

She considered it was “criminal” to “do business” where workers are oppressed, where tax evasion means even key elements of social protection – such as health, education, child protection and pension benefits-- are denied to families and their communities, and where regulation to ensure food or energy security or value added industries is impeded in the interests of trade or foreign investment. “Surely now that even the G20 is combatting tax evasion the Bank has no justification for continuing to support the corruption of companies that do not pay taxes,” she said, in reference to the Doing Business indicator on tax rates.

Indeed, the Panel had criticized the Doing Business report’s assumption that low tax rates were better for business, and stressed a deep methodological problem in the report’s addition of three diverse sub-indicators to come up with a tax ranking. Civil society, further, in a reaction to the Independent Panel’s report exposed the contradiction between this assumption and the IMF’s finding that low tax rates do little to attract business and are not cost effective.

Ms. Burrow also referred to the “Employing Workers Indicator” (initially called the “Hiring and Firing” indicator) whose rankings ceased to be part of the report after strong criticisms, including the evaluation of 2008, for their lack of compatibility with well-established ILO Conventions.  “We thought we fatally wounded the 'employing workers’ indicator,” she stated, “but the data is still compiled, included in an annex and used by the IMF for conditionality in crisis countries, for 'advice' in article 4 reports and for 'best practice pressure' in institutional forums.”

She voiced the trade unions’ support for ending the overall “Ease of Doing Business Indicator” and country rankings, which encouraged a race to the bottom of eliminating a wide range of government regulations without an adequate evaluation of their benefits and costs.

In his remarks Mr. Carlos Benavente represented the Latin American member organizations of the International Working Group on Trade-Finance Linkages. He commented that while the role of the private sector in generating wealth and employment should not be dismissed, it was important to identify the adequate form of promoting investments. He underscored the need to leave behind the simplistic notion that tax and labor concessions were the form to attract investment, or that it does not matter what type of investments are attracted, even if they do not contribute to national development due to their speculative or extractive nature.

“Repeated studies have demonstrated that the particularities of the economic and social context of each country are key to the success of economic reforms,” he said, adding that they “cannot be taken adequately into account by indicators that try to encapsulate such diversity in one-size-fits-all standards.”

Expressing that the Panel’s recommendations could only be accepted as a first step, he gave support to the recommendation to publish the rankings only in a disaggregated way. He reminded everybody that this is “just consistent with something Doing Business already recognizes in little footnotes, that is, that the variables chosen for measurement are selected aspects of an investment climate, and cannot be considered the only or even the most important ones for a desirable investment climate.”

Mr. Jeroen Kwakkenbos, from Eurodad, quoted the Panel in saying that "Any report that opts to demonstrate causally linked outcomes must be able to stand or fall on its evidentiary rigor, and on its policy orientation. The Doing Business Report was, as we have come to discover, lacking in both these areas."

He emphasized civil society support for the Panel's recommendation to have a "health warning" prominently displayed on the report. He also noted that a methodology so heavily reliant on the needs of a hypothetical "model firm" would inevitably end up neglecting poor and marginalized communities who fall outside this tunnel vision.  He finished by restating civil society concerns that products like this, which have not been subject to peer review, are being used as development guidelines and indicators by the World Bank, other lenders or donors and even academics simply because they include a numerical score, no matter how arbitrary, and pose a serious credibility risk.