Is Development for the World Bank Mainly Doing Business?
SYDNEY and KUALA LUMPUR, Nov 10 2020 (IPS) - The World Bank has finally given up defending its controversial, but influential Doing Business Report (DBR). In August, the Bank “paused” publication of the DBR due to a “number of irregularities” after its much criticized ranking system was exposed as fraudulent.
Apparently, data from four countries – China, Azerbaijan, the UAE and Saudi Arabia – was “inappropriately altered”, according to the Wall Street Journal. Exposure of these irregularities was the final straw: now, it is uncertain whether the DBR will return after its suspension.
Exposing the lie
After Chief Economist Paul Romer told the Wall Street Journal two years ago that he had lost faith in the “integrity” of the DBR, and apologized to Chile for possibly politically motivated data manipulation, he was forced to resign. The Economist commented then, “His resignation may not end the controversy”.
Romer later received the so-called Economics Nobel Prize following his resignation. Almost two decades ago, Joseph Stiglitz also received the Prize after being forced to resign following differences with US Treasury Secretary Larry Summers following the 1997-1998 Asian financial crisis.
When Justin Sandefur and Divyanshi Wadhwa of the Center for Global Development (CGD) exposed how ostensibly methodological tweaking changed Chile’s and India’s DBR rankings to bolster “market-friendly” Piñera and Modi vis-à-vis their more centrist opponents. Simeon Djankov, founder of the Bank’s Doing Business index, dismissed the CGD and the two authors as “reformed Marxist”.
Doing Business vs SDGs
Djankov insisted that the DBR is about the costs of doing business, not “the benefits of running a society”. He contemptuously told those who criticised the DBR for failing to consider social or environmental impacts, to create their own “index that says the benefits of …regulation”.
For the DBR, it did not matter if reducing regulations harmed the environment or employment conditions, or if lowering taxes constrained governmental capacity to fund public investment and provide decent public health or social protection as long as such “reforms” lowered the costs of doing business.
Singlehandedly, Djankov exposed the shallowness of the Bank’s commitment to the Sustainable Development Goals (SDGs). By undermining social and environmental dimensions, Djankov exposed the Bank’s actual attitude to sustainable development.
Hence, the Bank had little choice but to ditch the DBR, which has already done enormous damage to development by encouraging harmful tax competition and ‘races to the bottom’ with regard to the protection of the environment and labour rights.
Racing to the bottom for nothing
Governments seek improvements in their country’s DBR ranking believing that it will increase growth via increased investment, especially foreign direct investment (FDI). However, the evidence has been disappointing.
For example, a World Bank Policy Research Working Paper found that, “on average, countries that undertake large-scale reforms relative to other countries do not necessarily attract greater [foreign direct investment] inflows”. For developing countries, it found an insignificant statistical relationship. Another study concluded, “the various studies do not provide guidance on which of the wide range of possible [investment climate (IC)] reforms are most strongly correlated with increased growth”.
Such ranking competition has encouraged debilitating investor-friendly government behaviour. The index has become a tool for governments to formulate, evaluate and legitimize their economic policies. Some now game the system to notch up their countries’ ranking with essentially cosmetic reforms.
Indonesia’s recent “Omnibus Bill” ostensibly for job creation includes many market-friendly reforms that would most certainly boost Indonesia’s DBR ranking. The bill, from a government increasingly influenced by the Bank, is now widely criticised for heavily favouring powerful business interests at the expense of workers, human rights and the environment.