Will World Bank heed Manuel?

2013-06-30 14:00

Manuel’s independent review panel calls Doing Business report misleading, but the bank is likely to ignore recommendations

The World Bank has been forced into a corner over its controversial flagship annual research report, Doing Business, after finally unveiling the damning findings of an independent review panel chaired by Minister in the Presidency Trevor Manuel.

The World Bank’s president, Jim Yong Kim, has already indicated the global institution might very well ignore the key recommendation by Manuel’s panel to scrap the ranking of countries by “ease of doing business”.

The panel’s report reads: “The act of ranking countries may appear devoid of value judgement; but it is, in reality, an arbitrary method of summarising vast amounts of complex information as a single number.”

The panel found that the popular annual rankings were misleading and, in effect, were divorced from the actual economic performance of countries.

According to the panel’s report, “empirical evidence on the results of business-regulation reform captured by the (Doing Business) report is mixed and suggestive at best”.

The panel recommends that countries should instead get scored on a set of separate indicators, thereby allowing analysts the freedom to create their own rankings without the World Bank’s endorsement.

The panel gave Kim its preliminary report a month ago, after which he issued a statement that now seems totally at odds with what the panel found.

“I am committed to the Doing Business report, and rankings have been part of its success,” read the conclusion of Kim’s statement on June 7.

He also promised that this year’s edition of Doing Business is proceeding as planned.

The 10-member panel was appointed in October last year to look into the publication’s future.

It received submissions from 76 governments, and several dozen NGOs and private sector organisations.

This followed a decade of controversy around the Doing Business report which, according to many, aims to drive the world’s governments into a deregulation race.

An earlier, internal, review in 2008 already led to Doing Business leaving out its controversial “ease of hiring and firing” indicator when it compiles its rankings.

This indicator, in particular, drew the ire of the world’s labour unions.

The International Organisation of Employers (IOE), a Swiss-based global association of business entities, which includes Business Unity SA, has actually pleaded that the ranking of labour laws be put back into the rankings.

According to the IOE’s submission to Manuel’s panel, Doing Business has created a “reform movement” among the world’s governments and “one of the most compelling roles of the World Bank is generating this sort of data”.

The equally controversial indicator regarding tax payment is also left out of the overall rankings as it tends to reward low taxation.

The panel criticises the “messaging” that comes with the report, especially the “catchy and easy to remember” descriptions of indicators that “often make the indicators sound more comprehensive than they are”.

The panel’s report is based on surveys of lawyers who are asked to score the regulatory burden faced by a hypothetical medium-sized company in the country in which they are based.

It also suggests that the name be changed to reflect the actual limitations of the findings rather than burying the health warnings inside the text.

Doing Business is the most important of a number of country-ranking publications.

The next-best known is the World Economic Forum’s World Competitiveness Report, which incorporates a fair amount of input from Doing Business.

In an editorial, US financial daily, The Wall Street Journal, reacted by calling the report “the only useful thing the World Bank does”.

The Financial Times stirred the hornet’s nest last month by asserting that China is “pushing” to have the controversial but wildly successful publication stop ranking the world’s economies, quoting “people close to the matter”.

China’s deputy executive director at the World Bank, Bin Han, late last year blasted the report by claiming its “name-and-shame” approach through rankings is “beyond the bank’s mandate”.

The Chinese view, according to Han, is that the report “has used wrong methodologies, failed to reflect facts, misled readers and added little value”.

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