An external review panel is calling on the World Bank to institute sweeping reforms to its widely cited annual “Doing Business” report, including doing away with a controversial ranking of countries on a variety of business-friendliness metrics.

Doing Business is put out jointly by the World Bank and its private sector arm, the International Finance Corporation (IFC), both based in Washington, and has become one of the bank’s most high-profile publications.

“Over the decade that it has been published, Doing Business has achieved a great deal of influence,” Trevor Manuel, South Africa’s planning minister and chair of the review panel, said Monday at the audit’s London unveiling.

“It is the leading tool to judge the business environments of developing countries, generating huge global media coverage every year. Several countries – such as Rwanda – have used it as a guide to design reform programmes.”

Indeed, reportedly used by some 85 percent of global policymakers, the report has built up particularly outsized influence in the developing world, as government officials have competed to raise their index ranking.

Yet for this reason, critics have for years warned that the report was pushing countries to lower taxes and wages and weaken overall industry regulation, thus potentially endangering the poor.

On Monday, the 11-member panel, appointed in October by World Bank President Jim Yong Kim, offered strong backing for several of these criticisms, even while it stated that the report should continue to be published. Most prominent among these is the recommendation to do away with the aggregated Ease of Doing Business Index, introduced in 2006.

“The decision to retain or drop the aggregate rankings table is the most important decision the Bank faces with regard to the Doing Business report,” the review states.

“Removing it would defuse many of the criticisms levelled against the report, but would diminish the report’s influence on policy and public discussion in the short term. In the long term, however, doing so may improve focus on underlying substantive issues and enhance the report’s value.”

The report also calls for greater transparency within the reporting and evaluation processes, and urges the bank to move the report’s “home” from the IFC to the research department within the bank proper. This latter recommendation could be particularly important given past criticisms that the Doing Business team has been reticent to implementing any major changes.

In an unusual public statement ahead of the review’s publication, President Kim suggested that plans were afoot to make just such a change. Yet he also sketched out a clear stance on the overall importance of both the report and its rankings.

“It is indisputable that Doing Business has been an important catalyst in driving reforms around the world,” Kim said on Jun. 7. (The bank declined IPS’s request for further comment Monday.) “I am committed to the Doing Business report, and rankings have been part of its success.”

Pure knowledge

The Ease of Doing Business Index rankings are based on metrics drawn from 10 regulations and other factors impacting on a country’s business environment. These include permitting and registering, ease of getting credit and electricity, the legal framework for enforcing contracts and protecting investors, how much tax a company must pay and how a government regulates cross-border trade.

These data points are then distilled down to a single score, allowing World Bank researchers to rank all 185 countries the report covers. The 2013 rankings awarded top scores to Singapore and Hong Kong and bottom scores to Chad and the Central African Republic.

Yet the review panel is now warning that such aggregation tends to cloud crucial country-level variations.

“It is important to remember that the report is intended to be a pure knowledge project,” the review states. “As such, its role is to inform policy, not to prescribe it or outline a normative position, which the rankings to some extent do.”

The past year has seen significant pushback against such criticism of the rankings, from prominent voices within the business community as well as certain development scholars.

“I think these rankings really do have fundamental value, as without the rankings the Doing Business report is just one more research exercise among many the World Bank does,” Scott Morris, a visiting policy fellow at the Center for Global Development, a Washington think tank, told IPS.

“It is because of the ranking that this report has unique value to those countries that have a long way to go on economic reform. Think of a small sub-Saharan African country with a reformist government in place – how does it get international leverage for reform or gain global attention for what it has accomplished? The rankings exercise, with its very high profile, is tremendously valuable in this regard.”

Regulatory opportunity

While the Doing Business report has received regular low-level criticism since its introduction, much of this was technical.

Over the past year, however, the issue has become far more politicised, with certain countries – led by China – complaining that the report was biased in favour of capitalist systems. Beijing has wanted the World Bank to halt publication of the report outright.

Meanwhile, humanitarian, labour and other progressive groups have also stepped up calls to reform the report. On Monday, many of these groups found the panel review to be surprisingly in line with their own worries about Doing Business leading to a weakening of regulation.

“After years of working with small and micro enterprises in developing countries, (we) know that helping people to set up and run a business is only half the job,” Christina Chang, lead economist for CAFOD, the Catholic aid agency for Britain and Wales, said in an e-mail to IPS. “Without a conducive regulatory environment, the odds are stacked against their success and many may never even get off the ground.”

CAFOD has actively pointed to problems with scoring on the report.

“Some indicators are linked with a drive to lower labour standards and corporate taxation rates,” the agency states. “These are not ideas that other publications of the Bank endorse, and they should not be in their most influential publication.”

Yet the panel’s recommendations, some groups contend, now offer a potent opportunity.

“The panel’s report is a defining moment for World Bank policy to reflect the needs of working people, and a balanced approach to labour market regulation,” Sharan Burrow, general-secretary of the International Trade Union Confederation, said Monday in a statement. “If adopted, the World Bank has the opportunity to reshape the relationship between working people, business and governments.”

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Civil society proposes next steps after Doing Business Review is concluded

The Independent Panel appointed by the World Bank President Mr Jim Kim recently finalized its review of the Doing Business project.

In a new brief, civil society organizations assessed the review and offered recommendations on how to build on it and next steps for implementation.

Among other recommendations in the brief:

• CSOs called on the Bank to transparently review the relevance of the current indicators to the poverty eradication and inclusive growth objectives of the Bank, so as to cease the use of indicators for which there is no robust correlation with those objectives. As the panel notes, current indicators are not chosen according to any robust scientific analysis and there is scant evidence of their usefulness to socioeconomic performance.

• Noting the Panel’s finding that Doing Business is a “poor guide” for policy formulation and emphasis that the Doing Business report “should not be viewed as a one-size-fits-all template for development,” CSOs called to end practices to use it in conditional lending practices (for example, by the US Millennium Challenge Account), the Bank’s own use in Country Policy and Institutional Assessments and in setting terms and conditions for its lending strategy and the use by several international aid agencies in their approach to official development assistance

• The Panel stated that “Doing Business users should fully understand the report’s sphere of relevance and importantly its limitations. These caveats, which do appear in small print on page 17 of the 2013 Doing Business report, should be emphasised more prominently within the first few pages, and throughout the supporting communication strategy.” CSOs agreed with the Panel’s recommendation that the report carry a prominent “health warning” at the beginning, and also changing the report’s title so that it no longer “implies that it provides a comprehensive measure of the business environment.”

• In particular, CSOs supported the Panel’s findings questioning the methodology of using overall aggregate rankings. Because of how the rankings are constructed, a country’s position in the rankings can change dramatically with only small reforms or even with no reforms at all. They Panel went on to note that there is no strong justification for averaging scores across the rankings to produce the “Ease of Doing Business” index and that the cardinal scores, rather than positions in the rankings, provide more useful information to reform-minded policy-makers. Therefore, there is no good justification for maintaining an overall ranking.

• CSOs also brought to attention the Panel’s findings regarding particular indicators of concern, such as the tax reform and the labor regulation indicators. On tax reforms, the Panel noted several methodological and conceptual flaws in how this score is calculated, for instance, the indicator assumes that a low rate of taxation is better for business, and three diverse sub-indicators are aggregated into a total ranking score. On the labor market regulations, the Panel said that the one-sided view of labour market regulations embodied in the indicator parameters could encourage governments, especially those that are World Bank clients, to engage in major deregulatory reforms. The panel criticised unsubstantiated assertions that countries that improve their indicator ranking through deregulatory measures obtain superior economic outcomes. The Bank’s own Independent Evaluation Group found no evidence of such a relation. Similarly claims that the World Bank needs to focus on labour market regulations because enterprises in the Bank’s client countries tend to consider these major obstacles to investment and job creation are not borne out by evidence. On the contrary, the WDR 2013 on Jobs found that labour regulations did have impacts on inequality and that a weakening of labour market institutions and social protection mechanisms, along with several other factors, account for the growth of inequality in most countries over the past two to three decades. CSOs called for the Employing Workers Indicator to be permanently removed from Doing Business and endorsed the Panel’s recommendation that the total tax rate indicator be scrapped.