Source:
Center of Concern
Aldo Caliari
Thu Nov 22 2007
This year's edition states that 113 reforms around the world are reportedly inspired or informed by the report since its beginning. A number of examples are given of countries that have targeted specific rankings and are implementing every necessary reform to get there. Arguably, of course, the report would not carry the same weight, especially among borrowing countries, if made by a non-lending institution.
On September of this year, the World Bank launched this year’s edition of the Doing Business Report. It states that 113 reforms around the world are reportedly inspired or informed by the report since its beginning. A number of examples are given of countries that have targeted specific rankings and are implementing every necessary reform to get there. Arguably, of course, the report would not carry the same weight, especially among borrowing countries, if made by a non-lending institution. According to a report on “Accelerating Development in Africa” from last April, the “investment climate” (as benchmarked by the Doing Business report) is a key priority in analytic and project support by the World Bank in the region and, moreover, IDA projects are pooled with donor funds to support these types of reforms (meaning that even bilateral funding may be contingent upon implementing the reforms preached by the report).
But it is also likely that we are witnessing one more example of undue intellectual authority gained by measurement tools because they are produced by the Bank, regardless of the soundness of the research behind them. In fact, earlier this year an external review of World Bank research found that the Bank’s research is "used to proselytize on behalf of Bank policy, often without taking a balanced view of the evidence, and without expressing appropriate skepticism".
Just as the Bank touted the influential nature of the report, the Washington Office of ITUC took the time to track down the genesis of the indicator that relates to "hiring and firing workers", a particularly controversial indicator that promotes deregulation of the labor market. The findings provide a hint of just how irresponsible and ungrounded some of these indicators may prove to be.
The Doing Business 2006 report cites only two studies to support its assertion that deregulation leads to higher employment. One of them, a World Bank study, was unavailable and "forthcoming". Both studies only arrived at conclusions for OECD countries. The OECD was, at the time, revising its old study on Jobs Strategy, which eventually came out the following year concluding there is "no single combination of policies and institutions to achieve and maintain good labour market performance". The Doing Business report the following year restated its assertion, but dropped its initial support sources only citing a different article (Botero and others) that, it said, had been adopted "with minor changes". As it turns out, the Botero article finds that "labour market regulations are not significantly correlated either with the size of the informal economy or with employment levels in the informal economy". The Doing Business Report this year repeats same claim as last year, but no longer cites any studies to support the link between deregulation and employment. It only cites studies linking growth in export business and deregulation, one by the World Bank and another by the IMF, neither of them posted on the websites of the institutions at the time of launching this year’s Doing Business. Anecdotal evidence also cited by the Bank is, ITUC found, contradicted by other research from the Bank itself, such as, for instance, the evidence of the results that Colombia labor market deregulation was going to have on reducing unemployment.
However, rather than reexamine the nature of the whole project and the soundness of its assumptions, last year’s Doing Business report announced an expansion of the number of indicators. Transparency of government procurement and quality of infrastructure would be added to the list. While this has not happened, it seems the expansion has not been aborted, only placed on hold. The addition of "transparency of government procurement" will only add to the controversy, as this is one of the issues that industrial countries are bent on bringing up in trade negotiations. After a coalition of more than 70 developing countries said no to rules on government procurement at the WTO Ministerial in Cancun, industrial countries continue to push for reforms in this area through North-South bilateral and regional agreements. The inclusion of rules on government procurement as part of "investment climate" blueprints would, thus, represent a strong pressure on developing countries to unilaterally adopt, and therefore soften resistance to, a political choice they have clearly expressed it is not in their best interest.
* The Overview chapter of the Doing Business Report 2008 is available to downloaded (pdf format).
Continued criticism meets new World Bank Doing Business Report
Following there are some critical commentaries on the World Bank’s Doing Business Report 2008.
* "The IFIs’ Use of Doing Business to Eliminate Workers’ Protection: Analysis of Doing Business 2008 and new country evidence", a paper by the Washington Office of the ITUC (read full paper, pdf format).
* Financial Times Editorial: It is easy to cut red tape, but not everyone bothers
Published: September 25 2007
The US may be the economic superpower, and China the new manufacturing powerhouse, but there is one industry in which Africa still leads the world: the manufacture of red tape.
This year’s edition of "Doing Business", an annual report published by the World Bank, is a depressing but important reminder of what we already knew: poor countries tend to stifle their economies with impossibly burdensome regulations, while most rich countries let entrepreneurs start businesses, buy and sell property, and ship goods through customs. In Brazil, it takes 152 days to satisfy the authorities that you are fit to establish and register a legal business.
That process takes just two days in Australia; and yet somehow, despite this indecent haste, the fabric of Australian society has not yet fallen apart.
There is every reason to believe that effective regulations are not merely a luxury that only the rich can afford, but an important foundation for a thriving private sector and economic growth. Fortunately, red tape need not last for ever. The report documents a flurry of reforms in unlikely sounding places, including Egypt, Kenya and Ghana. China and India, too, are streamlining their business regulations. But the broad pattern of the past five years has been that the main reform efforts are taking place in eastern Europe and in rich countries.
It is a shame that more governments in poor countries cannot find the time to snip a few strands of red tape. Workable regulations will not alone produce wealth, but they certainly help. And unlike building new roads or extending an electricity grid, simplifying regulations is cheap.
"Doing Business" publishes a ranking of the easiest and most difficult places in the world to do business. That serves the purpose, perhaps, of generating a little friendly competition: good rankings are often mentioned in investment promotion advertisements. But the rankings do not mean very much.
Far more important, and useful, are the underlying case studies that show would-be reformers exactly where the most tangled knots in the red tape are located, and how other countries in similar situations have managed to untie them.
This report serves as a reminder that one of the most compelling roles for the World Bank is to generate this sort of data, which is an expensive yet invaluable public good. It is also yet another prod to the bureaucrats of the world: if you can’t do anything useful, at least get out of the way.
Letter: World Bank report may be adding to red tape production
Published: September 29 2007 03:00
From Prof J. Faundez
Sir, Your editorial "Untying the knots" (September 26) points out that African countries are the leading manufacturers of red tape in the world. Your assessment is based on the recent instalment of the World Bank's "Doing Business" report, which every year reminds the world that states in developing countries are slow, inefficient and often corrupt.
I wonder, however, whether the world needs such frequent reminders. If, as the World Bank acknowledges, institutional reform is a long-term process, it is doubtful whether these annual rankings are useful to the hundreds of development experts and policymakers in developing countries who are honestly and seriously devoted to improving governance.
It could well be that these rankings are prepared for the benefit of governments in industrialised countries and their main objective is to demonstrate the World Bank's continuing relevance.
If so, is the time and effort spent on these reports value for money? If not, isn't the World Bank also contributing to the production of red tape?
J. Faundez,
Professor of Law,
Leamington Spa CV32 5RY, UK
Letter : Myths feed the ‘ideal’ model of red tape regulation
Published: October 3 2007 03:00
From Mr Aldo Caliari
Sir, I can agree with Prof. J. Faundez (Letters, September 29) that the World Bank "Doing Business" report "may be adding to red tape production". However, though not useful to practitioners, "Doing Business" reports seem to be highly influential in the developing world, to go by the number of reforms reportedly inspired by them in Africa and elsewhere. They also back the utilisation of a growing number of benchmarks in World Bank programmes that relate to the investment climate reform.
This is quite unfortunate in the light of the number of myths, unsupported by economic research, that have become commonplace in such reports. One such myth is that cutting regulation is cheap and that there are universal formulas that can be applied to see how far any country is from an "ideal" model of regulation – one that leaves a minimal role for government.
Only if markets were perfectly efficient in all countries, and could be relied on to achieve societal goals such as public health and safety and environmental protection, would this always be a good thing.
However, this is hardly the case anywhere, most particularly in developing countries. Moreover, the required role of government may be quite different depending on the human capabilities, profile of companies, level of technology access, level of development and so on.
The simplistic assumptions underpinning the "Doing Business" indicators are quite useless to address these, the real challenges posed to the scarce public management resources of governments trying to craft and enforce appropriate regulations, and may divert their attention from them.
Yet it may prove hard for these governments to resist the easy path to a certified good ranking that the "Doing Business" report promises can be achieved by cutting regulations, reducing corporate taxes or decreasing labour protection.
Aldo Caliari,
Director,
Rethinking Bretton Woods Project,
Center of Concern,
Washington, DC 20017, US
Related Information:
* The United Nations and reform: Developments in the multilateral system
World Bank Doing Business report: The employing workers indicator, by International Labour Office
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