Stephen Finlayson for F2109 'Globalisation, Ethics, Welfare, and Human Rights'
Thesis: despite an index of data being highly valuable for incentivising firms to inject foreign direct investment into a nation's economy, the World Bank's 'Doing Business' report is not adequette enough to reflect a country's economic conditions accurately and fairly. The DB report is problematic in both its methodology and credbility, and should therefore be permanently scrapped.
The World Bank (WB) was established in 1944 as part of several key Bretton Woods institutions such as the International Monetary Fund (IMF) and the World Trade Organisation (WTO) to stabilise the economy post-WWII. These institutions frequently collaborate with leading economists and analysts to produce trusted reports on the global economy, and the performance of individual countries and continents. The ‘Doing Business’ report- first published in 2003- is intended to rank countries based on their regulatory conditions, therefore creating the incentive for Governments to reduce costs and increase productivity. Despite this, the release of a critical probe by law firm WilmerHale has demonstrated that the findings of the DB report are not as transparent as originally claimed. Instead, the ‘Doing Business’ report fails to fulfil key criteria including avoiding data manipulation and political bias, executing a robust methodology of data collection, and assessing a country’s macroeconomic conditions fairly. One of the main issues with the DB report are accusations of both data manipulation and political bias, which calls into question both the accuracy and the fairness of the World Bank’s analysis. The WilmerHale report makes allegations of improprieties involving China, Saudi Arabia, and Azerbaijan in the 2018 and 2020 reports. Former WB CEO Kristalina Georgieva is accused of urging her colleagues to reassess and improve China’s ranking in the 2018 report- to appease the Chinese Government at a time in which the World Bank was seeking a capital increase from Beijing. Defenders of Georgieva’s leadership claim that the WilmerHale investigation was a specific attack against the CEO’s progressive style of leadership, and that other key individuals such as WB President David Malpass were suspiciously unscathed from criticism. However, accusations of bias in the DB report have been prevalent in the long-term since 2003. Anecdotal examples such as Chile’s claim that it’s ranking suspiciously deteriorated under its left-wing Government (despite no dramatic change in business regulations from other, more right-wing Governments) demonstrate a deterioration of trust in the World Bank’s findings. Although the DB report can be credited in making key findings- such as the convergence between developing and developed countries in reducing barriers to entry during 2020- just a few key examples of data manipulation which give preference to specific countries is enough to seriously undermine the credibility of the World Bank’s leadership and the DB report.
The methodology used to collect data and calculate a country’s ranking is highly problematic. Critics have rightly highlighted how key indicators such as GDP growth, employment levels, crime, political stability, inequality, and poverty are not included when determining a country’s rank. As well as this, a common criticism of the DB report is that corporation tax is only depicted as a cost to businesses, rather than a key source of revenue for Governments to improve living standards in their country. Thus, this is a major design flaw of the DB report, in which only anti-regulatory measures are considered, and any measure which emphasises social progress and tackling inequality- such as a high corporation tax rate- is not considered as an indication of a nation’s economic prosperity. Some Governments have expressed anger at how minor policy changes have created a large impact on their ranking, whilst other Governments implement Potemkin reforms- all façade and no substance- to deliberately improve their ranking. India for instance amended its economic policy to climb from 142nd in 2015 to just 63rd by 2020. This suggests that the DB report relies too heavily on de jure laws- rules and regulations- rather than de facto data- i.e., real-world data such as independent surveys and some randomised statistic collection.
Ergo, ‘Doing Business’ should be scrapped in favour of a new report or index with improved methodology (which includes actual, real-world data into its classifications, rather than just a country’s regulatory laws), and greater transparency to boost the World Bank’s credibility. Any analysis must also factor in the public sector, without assumptions that policies like tax only increase a firm’s cost rather than improve a country’s living standards. The current DB report has too much influence over individual Governments, with some policymakers focusing on the all-encompassing goal of boosting their country’s ranking rather than focusing on the wider societal impact of their policies.