Why the World Bank shouldn’t neuter its ‘Doing Business’ report

June 9, 2013

“Doing Business” is under the gun, and what happens to it will be an important test of the World Bank and its president, Jim Yong Kim.

Doing Business is an annual study that the World Bank has conducted since 2004. It is the most rigorous accounting of how hard or easy it is to do business in all the countries of the world, from most conducive to commerce (Singapore) to least (Central African Republic). Does a country have a seamless process for obtaining business permits, a fair and predictable tax system, a legal system that enforces contracts and resolves bankruptcies fairly? Countries where the answer is “yes” do better in the rankings. (The United States ranked No. 4 in the 2013 edition, behind Singapore, Hong Kong and New Zealand.)

The report is under fire from some of the countries who think they are unfairly maligned in its pages, most prominently China, which is ranked No. 91 in the 2013 report due to the particular difficulty it presents would-be entrepreneurs in the areas of “starting a business,” “dealing with construction permits,” “getting electricity” and “protecting investors.”

Kim, the World Bank president, commissioned an independent panel to study the report and decide what to do with it. An announcement Friday seemed to indicate that Doing Business will live to do business for another year. “Preparation of this year’s Doing Business is well advanced and the report will proceed as planned,” said Kim in a statement.

What will Jim Yong Kim and the World Bank do with Doing Business and its rankings of nations for their accessibility to commerce? (Yuri Gripas/Reuters)
What will Jim Yong Kim and the World Bank do with Doing Business and its rankings of nations for their accessibility to commerce? (Yuri Gripas/Reuters)

 

But it may not be quite as simple as that. Robin Harding at the Financial Times, citing two people familiar with the matter, reports the panel will recommend that Doing Business proceed, but drop the rankings of countries that both generate the most headlines and attract the most ire from the likes of China. Kim’s statement was rather ambiguous on this question of whether the rankings will persist. “I am committed to the Doing Business report, and rankings have been part of its success,” Kim said, which doesn't really answer the question one way or the other

What’s at stake here is somewhat bigger than bureaucratic squabbling over a specialty research product. Rather, this is about the ability, and will, of the World Bank to tell unpleasant truths to some of the governments it must work with as a partner in its broader mission of alleviating global poverty.

It is true that the rankings, while buzzworthy, shouldn’t be interpreted too literally. Presumably no one is actually choosing to start a business in Namibia over Uruguay because it is ranked No. 87 instead of No. 89 in Doing Business.

But that doesn’t mean the rankings contain no useful information. Small differences don’t mean much, but the overall thrust of the rankings really do convey something useful.  I recall noticing many years ago just how far Greece was below other European Union members in the Doing Business rankings (It is No. 78 in the 2013 edition, but was No. 89 the year before). That was a clue, long before the nation ran into fiscal difficulties, that the inner workings of its economy were more dysfunctional than those of other euro zone members.

And in effect the rankings are the thing that builds buzz that leads people to pay attention to a report they otherwise might miss. Think of it like the U.S. News college rankings. It would be insane to choose a school based on whether it was ranked No. 7 or No. 8. But there is some information to be gleaned from bigger differences, like the No. 7 school vs. No. 47.

Similarly, with Doing Business, the real usefulness for businesspeople and policymakers is in the details. Azerbaijan, for example, does pretty well at making it easy for entrepreneurs to start a business, register property and have contracts enforced, but is dragged down by obstructions to trade across borders, dealing with construction permits, and getting electricity. If your job is to try to help Azerbaijan develop, that's really useful information to have.

So there are two ways of looking at the idea of the World Bank scrapping the rankings. On the one hand, it might avoid some hurt feelings for the Chinas of the world while allowing the substantive work of Doing Business to go forward undisturbed, identifying and calling out the specific policies and practices that make many of the world’s governments inhospitable to commerce.

On the other, if losing the rankings mean people stop paying attention to the study at all, it could mean one crucial point of leverage for persuading nations to strengthen their court systems and streamline their regulatory processes could be lost.

One can hope that Kim isn’t willing to take that chance.

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Neil Irwin · June 9, 2013