Recently, the World Bank released “Doing Business 2012,” which compares the state of regulations for domestic firms in 183 economies worldwide. The report provides quantitative indicators for companies to gauge the ease of doing business in a country or region, as well as for governments to benchmark their economic performance.
Panelists at an event hosted by the Wilson Center on Tuesday reflected on this report and what it has come to mean for governments and the business community.
Doing Business indicators are a vital resource for many companies when it comes to how they make business decisions, from expanding their overseas operations to shaping their policy agendas. For example, the report provides easily digestible data on how many steps it takes to start a business in South Korea vs. Russia, and break-downs of the laws that regulate trade across borders in Brazil vs. Argentina. This type of data paints a clear, but limited, picture of a country’s business climate in comparison to other countries.
What the report does not measure, however, may be as important as what it does.
According to Augusto Lopez-Claros, Director of Global Indicators and Analysis at the World Bank Group, the report “does not measure all aspects of the business environment such as macroeconomic stability, corruption, level of labor skills, proximity to markets, or of regulation specific to foreign investment or financial markets.” It also lacks data on issues like gender or socioeconomic discrimination that may impact the ease of doing business.
When countries use Doing Business indicators to benchmark their economic policies, they are in danger of excluding key factors that are necessary for serious institutional reform. For example, prominent issues that impact the business climate (corruption, inequity, women’s access to the workforce) are not directly accounted for in the report.
Many at the event worried that when the World Bank—an anti-poverty and pro-development institution—releases a report on the ease of doing business, they could be undermining efforts to draw attention to issues that do not have their own indicator, but still significantly affect businesses.
Moreover, panelists, including Lopez-Claros, recognized that there have been instances of countries trying to game the system to improve the rankings. Recently government officials from one country tried to assure the World Bank Group that they had reduced the number of steps to get a construction permit from 51 to 34. Upon examination, the Bank found that no companies had actually received a permit in this amount of time.
Peter Bakvis, director of the Washington Office of the International Trade Union, questioned Lopez-Claros on other terms. He argued that the Bank’s recommendations promoted a dogma of deregulation and incentivized countries to cut taxes even when it was not in their best interest.
This, according to Bakvis, is especially damaging in developing countries that need to invest in, not cut, institution building and social programs.
Making business more transparent is in the international business community’s best interest, and Doing Business provides important tools for businesses and companies to do so. But balanced tax laws, promoting equal-opportunity employment, and mitigating drastic income gaps are arguably just as important in improving the overall business climate.
According to Lopez-Claros, the Bank is taking steps towards incorporating such issues in the next report. Hopefully future incarnations of the Doing Business Report will depict a more dynamic snapshot of the world’s business environments.